Tom Ivaskiv is sitting pretty. Having retired at 60 three years ago, the Montreal-based former software executive splits his time between a condo in Mont-Tremblant, Quebec, and a home in Longboat Key, Florida.
“We’re comfortable,” says Ivaskiv, who saved for his retirement in registered and non-registered accounts, and exercised employee stock options. “Retirement is great,” he says.
Getting to this point, though, involved a lot of hard work and careful financial planning. Ivaskiv says he took a multifaceted approach to saving, and is still overseeing a stock portfolio that includes technology and bank stocks, among other investments.
“I try very hard to diversify,” he says.
In the past, creating an income stream in retirement could be done using stocks and bonds — especially fixed-income products that, years ago, generated near double-digit returns on their own. Many people also had employer-sponsored defined-benefit pension plans, which guaranteed an income for life.
Today, though, creating a sustainable income that can last for decades — according to Statistics Canada people are living longer than ever before — takes careful planning. Ivaskiv takes an active role in managing his retirement finances. Relying on his advisor’s expertise through regular check-points, he also monitors his stocks closely, regularly rebalances his portfolio, invests in real estate, and carefully withdraws funds from his registered retirement savings plans (RRSPs).
Failing to plan before retirement could cause the money well to run dry, says Mark Arruda, Assistant Vice-President of Strategic Business Development and a marketing actuary at Toronto-based Sun Life Financial.
Income until you die
Two of the biggest obstacles to a sustainable retirement are that people are living longer and markets are volatile. Advisors used to create plans that ended at 80. Now finances may have to last until past 90.
As well, interest rates are at all-time lows and have made it harder for people to earn enough on their investments to meet their retirement income goals. This is causing retirees to have to take on more risk to get more return.
There are some products, though, that can help address these obstacles. Annuities, for instance, can offer retirees a guaranteed income for life. In return for a lump sum, an insurance company will provide regular, predictable payments no matter how long a person lives, Arruda says.
Guaranteed investment funds (GIFs) are another option, he says. These involve putting money into a mutual fund-type of investment. But unlike mutual funds, GIFs are insurance contracts that offer guarantees. These guarantees can protect the value of your investments at maturity or death, and can also provide guaranteed income for life, says Arruda. They can also offer potential creditor protection, and on death can bypass your estate, including probate, making for an easy, fast and efficient transition to beneficiaries.
“These products can provide peace of mind that you can have guaranteed income for life and that your beneficiaries receive their money in a quick, tax efficient manner,” Arruda says.
Start planning now
When it comes to planning for retirement, Arruda says that discussions should begin as early as possible — not when people are a few years away from their last day of work.
To figure out how much income you’re going to need in retirement, he says, start by adding up basic expenses, such as food, housing and taxes. Then calculate your guaranteed sources of income, such as the Canada Pension Plan, Old Age Security, defined-benefit pensions and other benefits.
- Estimate what your CPP/QPP income will be, and see what factors affect it.
“If there is a shortfall between these guaranteed income sources and your basic expenses, you can look to guaranteed income products to fill that gap,” he says.
“One of the most critical components to ensuring a sustainable income as a retiree is carefully planning the transition from saving for retirement to withdrawing money to live on,” says Daryl Diamond, president of Winnipeg-based Diamond Retirement Planning Ltd.
“This is a dramatically different set of considerations, strategies and processes from the accumulation years,” he says.
For example, a couple may have six or seven income streams such as Canada Pension Plan, Old Age Security, registered retirement income funds, annuities and company pensions — and need guidance on what stream to draw from.
“It’s constructing people’s retirement income, given the different sources of income they have available, in the most tax-efficient manner,” he says.
Frequent meetings with a financial advisor to review the plan — for example, to address any health issues that could change plans — is critical in ensuring the income phase goes smoothly.
“It’s a year-by-year process,” he says.
For Tom Ivaskiv, careful planning and annual meetings with his advisor in the years before his retirement means he can now relax and enjoy himself.