retire “retirement” 87% of canadians said the word retirement does not mean today what it meant...

Retire “retirement”

87% of Canadians said the word retirement does not mean today what it meant years ago.

What should we call it?

• Next stage of my life

• Rest of/second half of my life

• Time to pursue my dreams

• My years

Today’s Retirement

The Changing Retirement picture:

• Semi-retirement – To be mentally active

– To keep in touch with people and

– To earn money

• Sandwich generation

• Life expectancy – living longer (middle age is 54)

Result: 65 is an arbitrary age – retirement is no longer a “point in time”

“Risky” Business

Longevity Risk

Contingency Risk

Income Risk

Longevity Risk (2) - Extending Planning Horizons

86

96

91

Contingency Risk

Eldercare – By 2010, 60% of Baby Boomers (age 50+) will have surviving Senior parents or grandparents some

of whom will require specialized care and support (Source: Canadian Academy of Seniors Advisors, Inc. c. 2003-05)

• Personal Health Issues

Healthy Life Expectancy Canada (2002)*

Current Age

Years Remaining

Ave. Life Expectancy **

Potential Care

Period

Male 60 16.1 21 4.9

Female 60 19.3 24 4.7

* Source: World Health Organization

Definition: Healthy Life Expectancy (HALE) is based on life expectancy, but includes an adjustment for time spent in poor health. This indicator measures the equivalent number of years in full health that a person at age 60 years can expect to live based on the current mortality rates and prevalence distribution of health states in the population.

** Source: Manulife (Canada)

Income Risk

Source: Fidelity Investments

Estimated Portfolio Lifespan by Percentage of Assets Withdrawn Annually

3327

2118

1513

11

0 5 10 15 20 25 30 35

4%

6%

8%

10%

With

draw

Rat

e

Years

Retirement Your Way

How will you spend the rest of your life?

RegenerationRe-designing the next phase

If you were to imagine your life in retirement, what would it be like?

What does the word “retirement” mean to you?

How will you spend your time?

Where will you live?

What interesting things do you want to do?

RegenerationRe-designing the next phase

• Will you continue to work and transition into full time retirement?

• What will you miss most about work and how will you replace it?

• Have you considered your partner’s plans/goals?

• Does longevity run in your family?

• How do you want to be remembered?

Why is Financial

Planning Important?

Where will you be at 65?

Take 100 40-year-olds today. Where will they be at 65?

Men Women

Wealthy 1 1Financially Secure 8 2Must continue to work 14 11No longer alive 24 4Require financial assistance 53 82

Where do you want to be?

What is Financial Planning?

1. Know where you are now – the starting point of any financial plan

Your Cash Flow• Income• Expenditures

• Savings Activity

Your Net Worth

+ $ Assets

- $ Liabilities

$ Net Worth


2. Know where you want to go

• If you don’t know where you’re going you’ll never get there


Develop and implement the plan

This is where you may need assistance

The plan should help you to achieve your financial goals

It should be realistic based on your current financial position

The 6 Steps of Financial Planning

Clarify your current position Identify financial and personal goals Identify financial problems Find solutions Implement the strategy Ongoing reviews

The Changing Retirement Picture

Active retirement –To be mentally active

–To keep in touch with people and

–To earn money

• Sandwich generation

The Changing Retirement Picture

Life expectancy

• Living longer (middle age is 54)

Result: 65 is an arbitrary age – retirement is no longer a “point in time”

Traditional Retirement Plan

65

Working Career Fully Retired

Key Concerns:

• Am I saving enough?

• Am I investing wisely?

Key Concerns:

• How much income will I have?

• Where will it come from?

•Will I outlive my savings?

Capital Accumulation Capital Draw-Down

Total Retirement Savings

Age

Today’s Retirement Plan

6555 75 85

Working Career Transition Active Dependent

Capital Accumulation

Capital Draw-Down

70

Fully Retired

Key Concerns:

• Am I saving enough?

• Am I investing wisely?

Key Concerns:

• Have I accumulated enough to do what I want to do?

• Will I need to continue working?

• How can I afford to help my parents and/or other family members?

Key Concerns:

• Will I have to change my lifestyle?

• Will I outlive my savings?

• How can I create more income based on my total net worth?

• What happens if I or my spouse need specialized care support and/or nursing home care?

Three Tiered System

Government

EmploymentRelated Personal

Savings

$

Government Benefits

Old Age Security

Payments start at 65

Pension based on years of Canadian residence

Maximum benefit for 2007 is approximately $6,027

Additional payments made to those with low income

1. Government Benefits

Canada/Quebec Pension Plan

Benefits normally start at 65

They can be requested at 60 or deferred until 70

Pension is based on contributions

Maximum pension for 2007 is $10,365

1. Government Benefits

OAS and C/QPP total about $16,392 per year

Is this going to be enough to fund your retirement?

Guaranteed Income Supplement

2. Employment Pensions

Two main types:

Defined Contribution Plans Similar to an RRSP Pension is based on contributions and

investment performance All of the investment risk rests with the

employee

2. Employment Pensions

Defined Benefit Plans Pension is based on a formula Looks at earnings and service Investment yield doesn’t

affect payments May be integrated with

government plans May have indexing feature

3. Personal Savings

Non-registered savings

RRSP/RRIF

Locked-in plans

Other options

3. Personal Savings

Non Registered Savings

Bank accounts

Brokerage accounts

No restrictions on contributions and withdrawals

Income is taxed when earned

3. Personal Savings

RRSPs/RRIFs

Tax deduction for contributions

Unused contributions may be carried forward

Contributions may be restricted due to participation in a pension plan

Tax deferral on growth

RRSP versus Non-RRSP Savings

$789,544RRSP

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

1 3 5 7 9 11 13 15 17 19 21 23 25

Sara - Non-RRSP - $244,974

Bob - RRSP - $789,544

RRSP versus Non-RRSP Savings

Sara Bob

Amount Invested Annually

$5,400 after tax $10,000

Rate of return 4.32% after tax 8%

Plan balance at age 65 $244,976 $789,544

Annual after-tax withdrawals from age 65

to 90$16,216 $49,555

RRSP/RRIF

Income splitting possibility with spouse

Cash withdrawals can be made at any time

RRSP matures at age 71 RRIF Annuity Lump sum cash withdrawal

RRSP Withdrawals

Home Buyers’ Plan

Lifelong Learning Plan

3. Personal Savings

Locked-In Plans

Can only be funded when assets are transferred from a pension plan

Restrictions on timing and amount of withdrawals

Otherwise similar to “regular” RRSPs

3. Personal Savings

Other Options

Saving more

Taking less

Earning more

Waiting

Lottery Winnings

Downsize House

Future Challenges

Inflation

Rate of return

Tax rates

Questions?

ESTATE PLANNING

Fundamentals

WillExercise your right to choose who gets what and when.

Power of AttorneyAppoint someone you trust to handle things in your absence, and make personal decisions if you are unable.

Estate Costs/Fees/Taxes

Probate

Income tax

Executor/Trustee fees

Legal costs

Probate

What is it?

The formal confirmation by a Court that the Will is the last Will of the deceased and gives the executors named in the Will the authority to act.

Fees/Costs vary by province

In Ontario - $250 on the first $50,000 of an estate and 1 ½% on value above $50,000

42

Reduce Probate Fees – Property passing outside Estate

•Joint with right of survivorship

•Beneficiary Designations• RRSP, RRIF and Insurance

•Alter Ego or Joint Partner Trusts

Joint Accounts with person other than spouse: Problems

•Deemed sale and Tax on creation to contributor

•Tax on income to all joint owners

•If not intended to be effective till death• All have access

• Claims of 3rd parties

• Will your intentions be carried out?

Non Tax Uses of Testamentary Trusts

•Spendthrift trusts

•Disabled beneficiary

•To protect capital for others• If spouse remarries

• For children of 1st marriage

• For grandchildren

Tax Uses of Testamentary Trusts

•To get spousal rollover but preserve capital for another

•To income split with a beneficiary

•To sprinkle income to low tax rate family members

Income Taxes

Deemed disposition of all assets at their fair market value plus a de-registration of all RRSP/RRIF accountsTax deferral available if assets are inherited by spouse Special tax deferral for RRSP/RRIF assets inherited by a minor child or dependent disabled child

Common Solution To Estate Taxes & Fees

Joint last life insurance contract•Funds the tax & fees at half the cost

•Provides liquidity in the estate

•Peace of mind that it’s done

Just another way to ensure the family gets the full value of the RRSP accounts, the cottage or business.

Gifting public company shares ...

Backgrounder

• Gift of public securities to public charity

–May 2, 2006 federal budget

–Reduced capital gains inclusion rate to nil

–Includes stocks, bonds, mutual funds, seg funds

–Includes stock options

–Significant tax incentive for funding major gifts

Disclaimers

•All insurance products are offered through BMO Nesbitt Burns Financial Services Inc. by licensed life insurance agents, and, in Quebec, by financial security advisors.•This presentation has been prepared with the understanding that BMO Nesbitt Burns Financial Services Inc. is not engaged in providing legal or accounting services.

Stocks, Bonds or Cash?


Stocks have provided the best returns (Pre-Tax Total Returns)

1960 1965 1970 1975 1980 1985 1990 1995 2000 20053,000

10,000

30,000

100,000

300,000

1,000,000

3,000,000

January 1961 - December 2005

January 1, 1961 = $10,000

Cdn. Stocks$877,396

Bonds$358,196

T-Bills$181,444


Asset returns after taxes

1960 1965 1970 1975 1980 1985 1990 1995 2000 20055,000

10,000

20,000

50,000

100,000

200,000


January 1, 1961 = $10,000

Cdn. Stocks$154,466

Bonds$35,455

T-Bills$33,797


Keeping pace with Inflation (After-Tax Total Returns)

1960 1965 1970 1975 1980 1985 1990 1995 2000 20055,000

10,000

20,000

50,000

100,000

200,000


January 1, 1961 = $10,000

Cdn. Stocks$154,466

Bonds$35,455

T-Bills$33,797

Inflation$68,748


Treasury bills provide steady returns...

1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005-20

-10

0

10

20

30

(1961 - 2005)

Annual Total Returns (%)


Bonds provide superior returns …

1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005-20

-10

0

10

20

30

40

(1961 - 2005)



While stocks are more volatile

1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005-40

-20

0

20

40

60

(1961 - 2005)



Two types of risks

Int'l Stocks U.S. Stocks Cdn. Stocks Bonds T-Bills-40

-20

0

20

40

60

8067.8

40.7 44.835.4

19.113.7 12.3 11.6 8.5 6.8

-23.1 -26.9 -25.9

-4.3

2.2

Pre-Tax Returns

Pre-Tax C$ Annual Total Return (%) (1961-2005)

Best Average Worst

Income Portfolio

1960 1965 1970 1975 1980 1985 1990 1995 2000 20053,000

10,000

30,000

100,000

300,000

1,000,000

3,000,000


December 31, 1960 = $10,000 based on total returns

Cdn. Stocks$1,028,834

U.S. Stocks$1,265,853

Income Portfolio$554,165

Bonds $372,738

T-Bills $188,991

Int'l Stocks $1,991,055

Income Portfolio

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006-20

-10

0

10

20

30

40

1961-2006


Balanced Portfolio

1960 1965 1970 1975 1980 1985 1990 1995 2000 20053,000

10,000

30,000

100,000

300,000

1,000,000

3,000,000




U.S. Stocks$1,265,853

Balanced Portfolio$802,050

Bonds $372,738

T-Bills $188,991


Balanced Portfolio

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006-20

-10

0

10

20

30

40

1961-2006


Growth Portfolio

1960 1965 1970 1975 1980 1985 1990 1995 2000 20053,000

10,000

30,000

100,000

300,000

1,000,000

3,000,000




U.S. Stocks$1,265,853

Growth Portfolio$1,031,393

Bonds $372,738

T-Bills $188,991


Growth Portfolio

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006-30

-20

-10

0

10

20

30

40

1961-2006



Recommended Asset Mixes

CASH BONDS STOCKS

Cdn. Foreign

Income 10% 55% 15% 20%

As of September 2007



CASH BONDS STOCKS

Cdn. Foreign

Income 10% 55% 15% 20%

Balanced 5% 30% 25% 40%




CASH BONDS STOCKS

Cdn. Foreign

Income 10% 55% 20% 15%

Balanced 5% 30% 25% 40%

Growth 5% 10% 35% 50%



Benefit of International Diversification for Canadian Investors(Using the MSCI World & S&P/TSX Composite Indices in C$)

14.2 14.5 14.7 15.0 15.2 15.5 15.7 15.9 16.2 16.4 16.711.8

12.0

12.2

12.4

12.6

12.8

13.0

13.2

13.4

Standard Deviation of Returns (Risk) (%)

Average annual total return (%) 1980-2005

80% World/20% Canada

TSX

World


Security specific risk (above market risk) for Canadian equities

0

20

40

60

80

100

0 10 20 30 40 50Number of randomly selected securities

Risk (variance of returns) above market in (%)


Volatility decreases with time

1 3 5 102

4

6

8

10

12

14

16

18

Holding Period for S&P/TSX Composite in years

Standard Deviation of Returns in %

S&P/TSX Sector Weights

As of May 31, 2007

Consumer Discretionary

5.2%

Industrials5.6%

Utilities1.5%

Information Technology

3.4%

Telecommunication Services5.6%

Financials31.1%

Consumer Staples2.5%

Health Care0.7%

Materials16.5%

Energy27.9%

S&P 500 Sector Weights

As of May 31, 2007

Financials21.3%

Health Care11.9%

Consumer Staples9.3%

Consumer Discretionary

10.2%

Industrials11.2%

Information Technology

15.2%

Telecommunication Services3.8%

Utilities3.6%

Materials3.1%

Energy10.4%

MSCI World Index Sector Weights

As of March 30, 2007

MSCI World Index Regional Weights

As of March 30, 2007


General Disclosure

The information and opinions in this report were prepared by BMO Nesbitt Burns Inc., and BMO Nesbitt Burns Ltee/Ltd’s Investment Strategy Group (“BMO Nesbitt Burns”). Harris Nesbitt Corp. (“HNC”) is an affiliate of BMO Nesbitt Burns. BMO Nesbitt Burns and HNC are subsidiaries of Bank of Montreal.

The opinions, estimates and projections contained in this report are those of BMO Nesbitt Burns as of the date of this report and are subject to change without notice. BMO Nesbitt Burns endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Nesbitt Burns makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Nesbitt Burns or its affiliates that is not reflected in this report. This report is not to be construed as an offer to sell or solicitation of an offer to buy or sell any security.

BMO Nesbitt Burns, HNC or their affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Nesbitt Burns, HNC, their affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO Nesbitt Burns, HNC or their affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. Bank of Montreal or its affiliates (“BMO Financial Group”) has lending arrangements with, or provides other remunerated services to, many issuers covered by BMO Nesbitt Burns’ Portfolio Services Group. A significant lending relationship may exist between BMO Financial Group and certain of the issuers mentioned herein.

Dissemination of Reports

BMO Nesbitt Burns Investment Strategy Group’s reports are made widely available at the same time to all BMO Nesbitt Burns Investment Advisors. Please contact your Investment Advisor for more information.

Additional Matters

TO U.S. RESIDENTS: HNC and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO Nesbitt Burns, furnish this report to U.S. residents and accept responsibility for the contents herein subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through HNC and/or BMO Nesbitt Burns Securities Ltd.

TO U.K. RESIDENTS: The contents hereof are intended solely for the use of, and may only be issued or passed onto, persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001.

BMO Nesbitt Burns is a Member of CIPF. HNC is a Member of SIPC.

® BMO and the roundel symbol are registered trade-marks of Bank of Montreal, used under licence.

retire “retirement” 87% of canadians said the word retirement does not mean today what it meant...

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time slide

time retirement

life time

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financial goals

financial problems

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steps of financial planning