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How Does Your Personal Financial Blueprint Rank?

Each year, Baby Boomers are retiring in greater numbers.  This demographic has had a dramatic impact on society in every phase of its existence, whether on music, politics, education et cetera.  As a group of people who have always wanted to influence change and have control, they are now coming up to a time in their lives that is rife with change.  And there are many things in retirement that can't be controlled, only dealt with.   Your retirement income will be built from the assets and entitlements that you have spent a lifetime accumulating.   Creating your blueprint is essential in order for this to be done in the most efficient manner and in order to allow you to address and adapt to the many changes you will go through in your retirement years. 

At the end of each chapter in "Your Retirement Income Blueprint" is a section entitled 'Making Your Blueprint Work For You.'  Some ideas for making your own plan more efficient are identified there.   In summary, though, here are ten of the most common inefficiencies we discover in reviewing the retirement income plans of the Boomers we meet in our practice. 

1. You may be working with a 'financial advisor' but do you have a 'financial plan'?

• Your financial professional might call themselves a 'financial planner' or 'investment advisor,' but at this stage you need a retirement income architect who does both, because the income plan and the investment portfolio work in tandem. If your current advisor cannot produce a detailed written income plan, with an ongoing process for addressing the many contingencies of retirement, then you may want to find someone else with whom to work in order to more effectively address the specific needs you have at this particular time in your life. 
   

2. Is your advisor a generalist or a specialist?

• As with almost every profession,  financial practitioners may specialize and be very proficient in certain areas of financial planning, but may have only very basic general knowledge of other aspects.  In the financial services profession, for example, advisors may be investment brokers, insurance specialists, group benefit consultants or fee-for-service financial planners, to name a few specialities.    And they may further focus on certain market segments -- such as small business owners, doctors, young families, or those going through separation and divorce.  Other professional advisors, such as accountants and lawyers, may also extend their advice into the realm of income planning.   Many advisors may say that they do 'retirement planning' but a qualified retirement income architect will have a primary focus on this specialized area of financial planning. 

3. Are your income-producing assets scattered around with different advisors and institutions?

• Some people may consider this a form of diversification or portfolio allocation, but, in fact, it makes it very difficult to control cash flow and taxes and complicates your affairs at a time when most people want to simplify things.  Consolidating your assets with one qualified advisor can a) avoid the confusion of conflicting advice; b) reduce administration and record-keeping; c) contribute to tax savings, better portfolios and lower fees; and d) create more orderly transititons as you go through the stages of retirement.

4. Are you using the right mix of taxable and tax-advantaged income?

•  An intelligent plan to use the marginal tax brackets wisely and preserve your government entitlements with the optimal mix of registered (fully-taxable) and tax-effective non-registered savings to create the spendable income you need is the modern way to make the most of your assets. 
  
  If you haven't already started to accumulate significant non-registered savings and/or TFSA's as part of your retirement income plan, don't delay!   Having the option to decide where you take the next dollar of income from in retirement is essential to delivering maximum net income from minimum gross savings.   

5. Are you using personal assets instead of government pensions? 

• Many people will defer taking their CPP benefit early because they believe that by not triggering that benefit before 65, they will get a 'bigger pension.'  But they fail to consider the fact that someone who takes their CPP at age 60 and is eligible for the maximum benefit will actually receive payments worth more than $40,000 before the deferring individual receives their first CPP cheque.  It then takes until approximately age 77 before the streams of payments equal the same total dollars -- and the time value of money makes that gap even larger.
  
  Especially when someone is retiring at age 60, it probably makes sense to trigger their CPP benefit, even when it is discounted for early receipt.  The basic income that CPP provides can substantially reduce the amount of personal savings you would have to use to create the same cash flow.  In addition, taking your CPP early can help you maximize the additional income that would accrue to the survivor of a CPP recipient after the loss of a spouse.  (see page 99)
   

6. Are you defering income from RRSP accounts until age 71?

• There are some old ideas about retirement income planning which can lead to unnecessary taxation and unnecessary stress on your income-producing assets.  If you want a dollar to spend in retirement -- or a dollar to leave to your heirs -- an efficient plan will minimize the number of pre-tax dollars you need to accomplish that. 
  
  For example, deferring the use of registered savings -- e.g. RRSPs and RRIFs -- is old school thinking that can create all kinds of complications at the far end.  Too much taxation, unnecessary clawbacks of tax credits and income-tested benefits, are end results that waste the assets you have saved over a lifetime. 

7. Are you using corporate class funds for non-registered accounts?

• • This is an mutual fund investment structure which defers taxation and can make even interest income more tax effective.  In a portfolio of capital class funds offered by one particular mutual fund sponsor, you can move assets between funds and asset classes without triggering taxable capital gains.  Withdrawals from your account will be a combination of tax-free capital withdrawals and tax-effective capital gains income, resulting in minimal taxation.  Combining corporate class (aka 'capital class') funds with  your fully-taxable sources of income can result in more spending money generated from fewer gross dollars of your savings. 

8. Are you paying investment fees that are too high in exchange for what is provided?

• • Most investors are aware of management fees like MERs on mutual funds and investment advisory fees on managed investment accounts being assessed against their portfolios. These fees are paid as compensation to your advisor to provide planning, service and advice.  But are you getting good value for the price you pay?  Many investors are not.  In addition to investment advice, your advisor should be quarterbacking your financial plan, whether they construct the financial plan themselves or they work in conjunction with a planning professional in their organization.  

9. In your asset-use decisions, are you giving thought to the Income Continuum? 

• • Aside from creating tax-effective income at the outset of retirement, you need to consider how the decisions you make today will affect your future income, the income of a surviving spouse and/or the eventual disposition of any remaining estate.  A primary example of this is discussed in point 6.   Deferring the use of RRSP savings can complicate your future income structuring and lead to unnecessary taxation.  

10. Are you considering the use of some form of health insurance to address healthcare risks?  

• • When it comes to funding potential health costs or care costs, you really have one of two options.   You can use your own assets or use insurance.   If you choose to use your own assets for health costs and want to leave behind an inheritance, you may be more reluctant to spend those assets.  If health-cost issues and wealth-transfer issues are covered off by insurance, you will have more discretion in terms of how you choose to use your income-producing assets to fund your own retirement lifestyle objectives.

Consider these points in the context of your own situation, discuss them with your advisor and see what improvements could be made and what that would mean to you.  You may be surprised to find out how many of these inefficiencies you have in your own situation.