From ‘Saving for Retirement” to
‘Spending in Retirement” - Income solutions that work
Ian Kerr, Investment Products Specialist
Presentation for use with advisors only
1
Trying to dodge retirement planning?
I’m too
young
It’s too late
I don’t have
enough
money to
put away
There are
other
expenses
2
Retirement can’t be avoided
• Canadians 45 years and older hold $2.3 trillion (or 79%) of
1
Canada’s wealth
• By 2017, 7.7% of Canadians will have moved from saving
1
money to retirement income
• Those without pensions are vulnerable
– Percentage of Canadian labor force with defined benefit plans
dropped from 51.9% in 1980 to 31.8% in 2011
1Source:
Investor Economics: Household balance sheet 2011
3
Accumulation planning has
needs and solutions
Accumulate
25
Transition
45
Income
65
Age
Needs
Solutions
 Pay expenses
 Variability of income
 Savings risk
 Savings rate
 Mortality risk
 Life insurance
 Market risk
 Asset allocation
4
100
Income planning is different than
accumulation planning
Accumulate
25
Transition
45
Income
65
100
Age
Needs
Solutions
 Pay expenses
 Sustainability of income
 Longevity risk
 Guaranteed income products
 Estate values
 Life insurance
 Market risk
 Asset allocation and principal
protected products
5
99-0533C
What happens when inflation picks up?
Purchasing power of $1 in 25 years
1% inflation
2% inflation
4% inflation
$0.78
$0.61
$0.38
6
Facing significant challenges
• People spending more years in retirement
• Pensions playing smaller role
• Savings rates at all-time low
• Canada pension plan and stock market uncertainty
• Increasing life expectancy
• Gaps between desired lifestyle and income sustainability
7
Striking the right balance is important
8
Take a look at clients who ask:
• Will I have enough retirement income to last my lifetime?
• I already have a pension plan
– Will I need more guaranteed income?
• How much retirement income is enough?
• How do I grow my investments without risk and losing my
capital?
Retirement income market will continue to seek out
solutions from the advice-driven channel
9
Case study – meet James
• Client profile:
–
–
–
–
57 years old
Advanced investor
On track to retire at 65
Non-registered savings
total: $1,109,000
10
Investing for growth in retirement
• Low-risk, low-return funds limit income variability and
possibly sustainability
• Inflation erodes purchasing power
11
Recommendations for James
• Investment funds
– Invest for growth
– Canada Life segregated funds
• Draw income efficiently using a reservoir fund strategy
• Protect estate values – immediate and up to 100% death
benefit guarantee
12
Invest for growth
1. Professionally developed single-fund solutions
–
–
Asset allocation funds
Partner managed solutions
2. Stand-alone funds for customized portfolios
–
–
74 funds including specialty and 100 per cent equity funds
12 investment managers
13
Reservoir fund strategy
Draw income when needed
14
Protect estate values
15
Key opportunities with investment funds
• Keep more of the growth
– Aggregate assets
– Preferred series segregated funds
– Lower overall management fees
• Introducing new income fund options
16
Keep more of the growth - preferred series
• Equity fund fees as low as 1.35%
• Fixed income fund fees as low as 1.10%
• Specialty class fund fees as low as 1.70%
17
Why place high-net-worth clients in segregated funds?
Scenario: $2.5 million portfolio
2.50%
2.00%
Trust administration
1.50%
Trust set-up
Management fee
Advisory and management
service fee
1.00%
0.50%
0%
18
Defer taxes with a prescribed annuity
For illustration purposes only. Comparison between a prescribed single-life annuity and a non-prescribed single-life annuity that is indexed at 2.5 per cent annually.
Both scenarios are based on a 60 year old male, non-smoker with $250,000 to invest, receiving income payments annually using a marginal tax rate of 40 per cent.
The prescribed annuity bar reflects the fixed annual after-tax amount and annual taxes payable for the duration of the prescribed annuity.
Annuity quotes as of June 9, 2010.
19
Cashable annuity
• Clients may avoid annuities
because of lack of liquidity
• Cashable payout annuity provides
guaranteed income AND access
to cash
20
Canada Life cashable annuity
Registration type
Non-registered only
Features/options
Tax treatment options
Accrual only
Variability of income
None (if cashable feature is not used)
Income sustainability
For a term or life (if cashable feature is not
used)
Liquidity
Yes (income will be reduced within the
guarantee period)
Indexation
Available
21
How it works
22
Lifetime income benefit – add when ready
23
Building an income plan - meet Diane and Mark
•
•
•
•
•
Diane (62), Mark (65)
Married couple transitioning to retirement
Self employed with no pension
Non-registered savings $731,000
Annual desired
family income: $70,000
• Current guaranteed
family income: $40,000
• Balanced investors
24
Goals
• Needs
– Sustainable retirement income
– No change to guaranteed income if one dies unexpectedly
• Wants
– Variability of income
– Retirement to include more travel
• Willing to trade for needs and wants :
– Some estate protection
– Some liquidity
25
Build and show them their income solution
26
Recommended product allocation
Income
Assets
Lifetime income benefit
(based on joint-life rates)
$12,950
$350,000
Life annuity
(based on joint-life rates)
$5,400
$100,000
Systematic withdrawal plan
$12,280
$281,162
The guaranteed income from the lifetime income benefit assumes no income resets or excess withdrawals.
27
Protect both spouses’ incomes
28
“Investors haven’t really changed their desire, which is to
increase wealth, but they are more conscious of
protecting wealth.”
Earl Bederman
President, Investor Economics
29
New funds. Strong managers. Enhanced
portfolios.
Boosting the breadth and depth of Canada Life investment shelf
Ambitious year for Canada Life investments
• Strategic investing with new fixed income mandates
– New mandate from Putnam Investments
– New short- and long-term mandates from Portico Investment
Management
• Investing in dividends beyond the Canadian border
– New U.S. Dividend Fund (GWLIM) from GLC
• Enhanced asset allocation funds from Portfolio Solutions
Group
Full complement of fixed-income mandates
32
Consistent performance
High yield bonds have provided positive returns 17 of the last 20 years
Source: Barclays Global High Yield TR CAD
U.S. dividend mandate expands our options
Enhanced Dividend
(Laketon)
Dividend
(London Capital)
U.S. Dividend
(GWLIM)
Invest in the largest economy in the world
Top 10 dividend yielding stocks in the US as of April 30, 2013
Stock
Current price
Estimated dividend 2013
Dividend yield (%)
AT&T
38.73
1.8200
4.70
Intel
22.88
0.9450
4.13
Verizon
52.19
2.1050
4.03
General Electric
21.35
0.8200
3.84
Merck
47.92
1.7400
3.63
Cisco Systems
20.59
0.7100
3.45
Dupont
50.41
1.7200
3.41
Chevron
116.57
3.8800
3.33
Microsoft
30.83
1.0000
3.24
McDonalds
99.32
3.2200
3.24
5-year GIC
2.20
Source: Dow Jones
Asset allocation funds: professionally managed
single fund solutions
• When you invest in the asset allocation funds you get the
value of Portfolio Solutions Group
– Full-time professional overlay management
• Provides portfolio allocation and fund manager oversight services
36
Fund performance remains strong
Internal equity funds
• 80% of internal funds in the top two quartiles over three years
• Global Equity (Setenta) in top two quartiles over one, three
and five years
Source: Wealth Management Financial Management. Quartile rankings are weighted by number of Funds and includes target date funds. As of March 31, 2013.
Fund performance remains strong
Mackenzie and external equity funds
• Global Future (Mackenzie) ranked 1st quartile over one,
three, five, 10 years
• Canadian Equity (Bissett) and Small Cap Equity (Bissett)
ranked 1st quartile over one, three, five years and second
quartile over 10 years
Source: Wealth Management Financial Management. Quartile rankings are weighted by number of Funds and includes target date funds. As of March 31, 2013.
Great opportunities right now
• Competitive advantage in savings and income markets
• Unique fund solutions to meet more clients’ needs
• Well positioned to make most of current economic
environment