THE OPPORTUNITY IN RETIREMENT INCOME

PLANNING

Cartier Partners Professional Development

Jan 10, 2002

Daryl Diamond CFP CLU ChFCDiamond Retirement Planning Ltd.

www.personalfinanceseries.com

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Today’s Presentation

1. Positioning to meet opportunity

2. The structure of retirement income

3. Developing a process to attract clients

4. Investment concepts for retirees

5. The value of what we do

Things you can use with clients

CLIMBING OUT OF DEATH VALLEY

AEGON Mission Statement

MakeMoney

RespectOthers

HaveFun

Today’s Business Realities

GIC harvest is over Banks /C.U.’s have

plannersFund industry salesDifficult marketsDSC out of favorMore demanding

clients?

RetirementsTermination/severance Inheritance Life insurance proceeds

Attracting existing portfolios

Booming OpportunityNumber Of Retirements / Year

Currently 225,000

By 2005 265,000

2005 - 2020 320,000

2020 - 2029 425,000

Source: Toronto Star, Aug. 1999

Three Significant Timing Points

1 Point of independence

2 Point of realization

3 Point of consolidation

The Point of Independence

When an individual’s assets and benefits can create an ongoing income stream that would allow them to discontinue employment.

It is at this point that an individual can make an election to “Trade money for time”

The Point of Realization

That juncture when an individual (couple) realizes the following;

We should get some help with this and really see how it is going to look when we retire.

We need to find someone who can pull all of this together for us.

Point of Consolidation

Where action is taken after the point of realization has been reached

Becoming “The Consolidator”

• You must be the one they trust

• Help them define what it is they want

• Be aware of the issues that are significant to and unique to this market

• Provide advice on other income sources

Becoming “The Consolidator”

• Be technically competent

• Be able to integrate all sources of income

• Illustrate and communicate your plan

• Understand that income structure is only one facet of income planning

Processes That Focus On

• Client education and awareness

• Comprehensive planning

• Investment portfolios

• Risk management

• Service

Issues that are important and unique to them

Five Stages of Retirement Planning

1 Accumulation

2 Positioning

3 Income Structure

4 Disposition

5 Distribution

Five Stages of Retirement Planning

1 Accumulation

2 Positioning

3 Income Structure

4 Disposition

5 Distribution

What Is Different About This Market?

Planning drivenMoney drivenPeople are seeking our servicesClient loyalty / retention is exceptional

AND …

According To The Globe and Mail

$700,000,000,000

of investable assets are in the hands of Canadians over the age of 55

Complete Wealth Management

1 Structural Planning

2 Investment Planning

3 Risk Management

4 Wealth Transfer

The Two Factors… From Two Perspectives

Accumulation

Retirement

Income

Risk Return

Risk Return

Becoming A Risk Manager

Capital Loss

Investment Loss

Purchasing Power Loss

Health Related Loss

Tax Loss

Our Consulting Role

• It is the same for investment portfolios as it is for structural planning …

• We are simply trying to help the client reduce the number of “unknowns”

• Involve them so they will understand

The Prime Approach ToYour Retirement Years

That period of time between

when you commence “retirement”

and

the moment that one of you needs care or passes away

StructuralPlan

InvestmentPortfolio

Health RiskManagement

Wealth Transfer

HighVolatility

LowReturn

LowVolatility

HighReturn

Exploring the Efficient Frontier

You are not here !

Income Allocation

Pension45%

CPP / OAS20%

RRIF20%

Non-Reg15%

The Advisor’s Role

Optimization helps you make the asset mix decision

You select appropriate managers

The managers maximize the remaining factors

Investment policy is the sum of asset mix and manager mandates

Multiple Asset Investing

S h ort Te rm

L iq u id

C A S H

S h ort Te rmM ed iu m Term

L on g Term

D u ra tion

F ed era lP rovin c ia lC orp ora te

Issu er

C an ad ianU .S .A .

In te rn a tion a l

O rig in

D E B T

C on serva tiveA g g ress iveS p ecu la tive

B ias

G row thV a lu e

M om en tu m

S tyle

C an ad ianU .S .A

In te rn a tion a l

O rig in

E Q U ITY

P O R TF O LIO

Asset Class Diversification Reduces Market Risk

05

10152025

30354045

50

1 2 3 4 5 6 7 8 9 10

Portfolio

Volatility

# Asset Classes

Portfolio Multiple Asset• Cdn Fixed Income

• High Yield Income

• Global Fixed Income

• Cdn Dividend Growth

• Cdn Growth

• Cdn Small Cap

• U.S. Value

• U.S. Growth

• International Value

• International Growth

• Global Sm - Mid Cap

34,500

23,100

46,500

27,600

27,300

18,300

30,000

30,000

21,450

21,450

19,800

300,000

Portfolio SelectionsTaken From A “Short List”

• AGF American TAA $30,000• AGF International Value $20,000• AIM Global Theme $25,000• BPI American Equity Value $20,000• C.I. Cdn Bond $25,000• C.I. International Balanced $20,000• Fidelity Global AA $20,000• Standard Life Dividend $27,700• Fidelity Cdn Growth Co $18,300• Ivy Canadian $22,000• MacKenzie High Yield Bond $23,000• Ivy Mortgage $25,000• C.I. World Bond $25,000

RSP versions of funds will be used to meet foreign content restrictions

Experience

… is what you get

… when you were expecting something else

Advisors Are No Better !

January 01 2001 - Oct 31, 2001

AGF Mutual Funds $2,000,000,000 net sales

Fidelity Mutual Funds $1,000,000,000 net sales

International Value 65%

Investing To Cope With Inflation

Return Inflation ‘Real’ Return

U.S Small Cap Stocks 14.3% 4.2% 10.1%

U.S Large Cap Stocks14.0% 4.2% 9.8%

Canadian Stocks 11.5% 4.2% 7.3%

Long-Term Bonds 7.4% 4.2% 3.2%

T-Bills 6.3% 4.2% 2.1%

Source: Andex Associates Inc.

Average returns of asset classesover the last 50 years - to December 2000

Asset AllocationU.S.Investment Returns From 1945 To 1997

Number ofYears Losses

Over 5%

Worst Loss InA Year

Historical 53Year Return

1. 100% Stocks 8 Years (26.5%) 12.9%

2. 60% Stocks/40% Bonds 3 Years (14.3%) 10.3%

3. 40% Stocks/60% Bonds 1 Year (7.9%) 8.8%

4. 100% Bonds 1Year (6.1%) 5.8%

Source: Ibbotson & Associates

Investment ReturnsAssuming capital of $200,000

Years before account is exhausted

Monthly 5.5% 7.0% 8.5% Income

$1,500 16.8 20.5 28.5

$1,500 @ 2.5% 13.5 15.3 17.8

How Long Will Your Investments Last?

5% 6% 7% 8% 9% 10% 11% 12%

6% 37 * * * * * * *

7% 25 33 * * * * * *

8% 20 23 30 * * * * *

9% 16 18 22 29 * * * *

10% 14 15 17 20 27 * * *

Rate of Return

Rate of Withdrawal

* Capital will never be exhausted Years

Loss Of Capital $100,000 Income @ 10%

Full 10% .25 .50 .75 1.00

5 99,634 98,440 97,252 96,086 94,927

10 98,867 95,372 91,962 88,635 85,390

15 97,611 90,406 83,494 76,864 70,507

20 95,553 82,368 69,954 58,271 47,283

25 91,493 69,356 48,301 28,898 11,041

YTE 37 35 30 26 25

$833 Monthly Income

@2.5% 19 18 17 16 15

LIF Investment Fund SelectionTHE CASH WEDGE

Initial Value $228,159

$40,159

$40,000

$18,000

$40,000

$30,000

$30,000 $15,000

$15,000

Fund G

Fund F

Fund EFund D

Fund C

Money Market

Fund BFund A

History LessonDon’t Miss The Recovery

Market Bear Bear Bull Top Duration Decline Increase

May 46 38 30% 267%Aug 56 14 22% 86%Dec 61 6 28% 80%Feb 66 8 22% 48%Nov 68 18 36% 73%Jan 73 21 48% 226%Nov 80 21 28% 233% Oct 87 4 35% 67%Jul 90 3 20% 427%Mar 00 Sep 21 36% ??

The Investment Decision Process

Written financial plan

Objectives, risk tolerance of investors

Risk/return characteristics of asset classes

Long term asset mix

Selection of Funds Bonds/GICs/Annuities

Investment Policy Statement

Monitoring / RebalanceTake profits

Five Stages of Retirement Planning

1 Accumulation

2 Positioning

3 Income Structure

4 Disposition

5 Distribution

Your health is your wealth

It may be your health that destroys your wealth

0 5 10 15 20 25 30

Health

Personal Choice

Mandatory retirement

Unemployed

Old Enough

Early retirement

Family reasons

Spouse retired

Other Reasons

WomenMen

%

REASONS FOR RETIRING

Source: Statistics Canada General Social Survey, 1994

D ____________

D ____________

D ____________

D ____________

THE FOUR D’s OF TAX PLANNINGTHE FOUR D’s OF TAX PLANNING

EDUCT

IVIDE

EFER

ISCOUNT

1. Adapting your residence for special needs

2. Paying for private care at home or for a care facility “per diem”

3. Seeking more immediate medical treatment

Critical IllnessMajor costs of dealing with an illness that are borne by you:

1. Adapting your residence for special needs

2. Paying for private care at home or for a care facility “per diem”

3. Seeking more immediate medical treatment

Critical IllnessMajor costs of dealing with an illness that are borne by you:

4. Paying for experimental or alternative medical treatments

5. Seeking the best physicians and facilities to treat your illness

1. Adapting your residence for special needs

2. Paying for private care at home or for a care facility “per diem”

3. Seeking more immediate medical treatment

4. Paying for experimental or alternative medical treatments

5. Seeking the best physicians and facilities to treat your illness

Critical IllnessMajor costs of dealing with an illness that are borne by you:

6. Covering the costs of extended travel or relocation

7. Paying the costs of drugs and treatments not covered under provincial plans

The Complete List of U.S. Medical Facilities That Take

Canadian Money At Par

1.

2.

3.

4.

5.

Using Your Own DollarsFor Critical Illness Costs

To get $1.00 U.S. requires C$1.50 From RRSP … it requires $2.00 to get

$1.00 After Tax To get $1.00 U.S. , after-tax, requires

$3.00 from your RRSP So, an $80,000 U.S. procedure will take

$240,000 of RRSP assets

Providing You With A Choice When Critical Illness Strikes

1. Use retirement asset (RRSP’s, Savings etc.)

2. Sell fixed assets ( House, Cottage, Valuables)

3. Settle for what treatment is available and when it is available

4. Impact other family members financially and emotionally

Your Only Choices to Cover Expenses May Be:

We were young and we thought

we were immortal. We thought

they were immortal.Now we realize

we have gotten olderalong with our heroes.

Beatles fan Rick Glover, 47

Critical Illness Coverage

1. Allows people to make choices

2. Protects lifestyle of you and spouse

3. Refunds all premiums at death if no prior claim has been paid

The Canadian Health Care System is not going to get any better !

If I could show you a way to have immediate access to the U.S. healthcare system for 5 or 6 dollars a day, would you be interested?

Always be nice to your children …

… because they are the ones who will choose your rest home

Phyllis Diller

Do The Following Reflect Your Feelings and Priorities?

I DO WANT TO

• Continue to enjoy a certain quality of lifestyle• Ensure my spouse can enjoy retirement• Be able to make choices• Maintain my independence and dignity• Be able to have access to the amount of care

and the type of care that I will need

Do The Following Reflect Your Feelings and Priorities?

I DON’T WANT TO

• Be a burden to my spouse or on my family• Be forced to accept the lowest form of care / facility• Have to go on long waiting lists• Reduce or exhaust my retirement assets by paying for my

long-term care• See my children’s/grandchildren’s inheritance reduce• Create emotional and financial hardship for my spouse or

family

Who Is Buying LTC ?

Average age is 65

75% of buyers are between 55 and 74

Approximately 60% male, 40% female

Average premium is $1,400 / yearSource: Munich Re Canada

We Need To Communicate

• Health risk does not mean dying

• This is not putting yourself in a “home”

• May not result in you losing your life but in losing your life savings

• What is and what is not covered by government programs

The True Cost For Coverage

- A claim validates purchase decision

- Refund of premium options

- Give up the net, after-tax return

Is it better to give up potential investment returns or lose capital?

Using insurance vehicles to cover “risks” allowsyou to have greater discretion with your capital

Two Excellent Reports

• Will The Baby Boomers Bust the Health Care System - C.D. Howe Institue

• Home Care What We Have, What We Need

- Canadian Healthcare Coalition

1. SAVE

2. SPEND

3. LEAVE

There Are Only Three Things That You Do With Money

Insurance Company

Let the Insurance Company pay Revenue Canada

Pass FULL Estate Value to Family

Preparing For The RRIF Tax

OR . . . . . . . . . . . . . . . . . . . . .

Insurance Company

Let the Insurance Company Provide the Inheritance

Spend What You Have Saved

Taxation of Registered Assets

Remember …

This is not a potential tax,

it is an ultimate tax

Any taxable residue could be directed to

a church or charity

But replacing it with joint, last-to-die insurance

We’re spending our childrens’ inheritance

We do not inherit the world from our ancestors …

We borrow it from our children

Chief Seattle

What Line Completes These Client Sentences ?

I wish I would have known that …

I wish I would have met you ...

I wish I would have done that …

TEN YEARS AGO !

Mass Marketing

The Marketing Shift

Martha Rodgers

CustomersReached

1:1 MarketingCustomer Needs Satisfied

The Future Markets

Critical Illness Health Insurance Long Term Health Care Elective Procedure Coverage Wealth Management Intergenerational Estate Transfer Tailored Planning and Advice

What Are Clients Really Seeking?

• A Trust Relationship

• Security and Safety

• Peace of Mind

• Care For Loved Ones

• Remembrance / Legacy

• Insight

Use Our Expertise

Most people plan only one retirement

How many things do people do well

that they do only once?

Use Our Expertise

Most people plan only one retirement

How many things do people do well

that they do only once?

We plan 2.5 retirements each week

Why We Are Worth 1% / Year• Investment allocation on a tailored basis

• Save people ____% from mistakes

• Save them time, stress, worry

• Save them $______ yr in income taxes

• Preserve 10’s - 100’s of thousands of $ in estate value through conservation

• We can manage the risks for them

• Provide continuity for spouse and heirs

Positioning For The Future

• Take on the role of a consultant

• Have a written process for your clients

• Use comprehensive planning

• Address risk management issues

• Specialize and develop strategic alliances

• Evolve your money practice in the direction of asset-based compensation

• Pursue your work with a passion

AEGON Mission Statement

MakeMoney

RespectOthers

HaveFun

RespectYourself