stats
globeinteractive.com: Making the Business of Life Easier

   Finance globeinvestor   Careers globecareers.workopolis Subscribe to The Globe
The Globe and Mail /globeandmail.com
Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space


Search

space
  This site         Tips

  
space
  The Web Google
space
   space



space

  Where to Find It


Breaking News
  Home Page

  Report on Business

  Sports

  Technology

space
Subscribe to The Globe

Shop at our Globe Store


Print Edition
  Front Page

  Report on Business

  National

  International

  Sports

  Arts & Entertainment

  Editorials

  Columnists

   Headline Index

 Other Sections
  Appointments

  Births & Deaths

  Books

  Classifieds

  Comment

  Education

  Environment

  Facts & Arguments

  Focus

  Health

  Obituaries

  Real Estate

  Review

  Science

  Style

  Technology

  Travel

  Wheels

 Leisure
  Cartoon

  Crosswords

  Food & Dining

  Golf

  Horoscopes

  Movies

  Online Personals

  TV Listings/News

 Specials & Series
  All Reports...

space

Services
   Where to Find It
 A quick guide to what's available on the site

 Newspaper
  Advertise

  Corrections

  Customer Service

  Help & Contact Us

  Reprints

  Subscriptions

 Web Site
  Advertise

  E-Mail Newsletters

  Free Headlines

  Globe Store New

  Help & Contact Us

  Make Us Home

  Mobile New

  Press Room

  Privacy Policy

  Terms & Conditions


GiveLife.ca

    

PRINT EDITION
Making the most of investments to meet travel goals, long-term woes
space
space
By DIANNE MALEY
Special to The Globe and Mail
  
  

Email this article Print this article
Saturday, February 10, 2018 – Page B11

Nancy is 74, a widow with two daughters. Last year, she sold her modest house in a small Ontario city to free up enough money to travel while her health is good. She has no work pension.

Now, Nancy would like to squeeze more out of her investments to give her a bigger travel budget for the next five years.

Her goal is to be able to spend a total of $36,000 a year. Longer term, she wants to preserve enough money to cover home care or other health-care needs that might arise.

"Realizing monthly rent and health care may likely increase substantially beyond five years, my goal is to have sufficient projected income to age 95, and have some remaining asset balance as a contingency," Nancy writes in an e-mail.

"Can my existing RRIF [registered retirement income fund] and financial holdings as structured contribute the monthly income to meet my goals?" she asks.

As with many people, Nancy made the big decisions first and then wrote to Financial Facelift for advice.

Awhile ago, Nancy took her concerns to her daughter, revealing how she had invested proceeds from the sale of her house at her local bank branch. The daughter says shes suspects "the planning and product selection might not have been in her mother's best interest."

We asked Matthew Ardrey, a vice-president and financial planner at TriDelta Financial in Toronto, to look at Nancy's situation.

WHAT THE EXPERT SAYS

Nancy is receiving combined Canada Pension Plan and Quebec Pension Plan benefits of $8,577 a year and Old Age Security benefits of $6,996, Mr. Ardrey notes. In addition, she has a small survivor pension of $3,961, which is not indexed to inflation.

The balance comes from her RRIF.

Nancy is spending about $2,200 a month today. She would like to travel more and enjoy life now that she has some additional savings, the planner says. Her goal is to spend $3,000 a month during the remainder of her retirement, adjusted for inflation.

Nancy feels that this same $3,000 a month would be sufficient to cover off any nursing-home costs she may face in future.

In drawing up his plan, Mr. Ardrey assumes Nancy will live to be 95 and that the inflation rate will average 2 per cent a year.

The plan assumes Nancy continues to transfer $5,500 a year from her taxable investment account to her tax-free savings account.

"Reviewing her current portfolio, she has almost three-quarters in bank mutual funds, one-sixth in a GIC [guaranteed investment certificate] and one-tenth in index-linked GICs," the planner notes. "So, just over a quarter of her portfolio is locked in and thus could create a liquidity issue if the stock market were to drop and Nancy needed to draw on her portfolio to cover living expenses," he says.

"If 40 per cent of her cash and fixed-income allocation cannot be redeemed on demand, it may cause her to have to [sell and thereby] crystallize her equity losses."

To note, the five-year GIC does have a once-a-year redemption on the anniversary date of up to 25 per cent of the initial value.

Nancy's asset mix is 19-percent cash equivalents (which includes the GIC, but not the index-linked GICs), 25-per-cent Canadian bonds, 5-per-cent global bonds, 27-per-cent Canadian equities, 15-per-cent U.S. equities and 9-per-cent international equities. "So she has about a 50/50 mix between equities and the fixed income and cash-equivalent allocation," Mr. Ardrey says.

This mix seems reasonable for a 74-year-old widow looking for income, he says. "But when we look at the long-term historical rate of return on this portfolio's underlying asset classes, it is 4.06 per cent." That's before deducting the average investment cost of 1.75 per cent a year on the almost three-quarters of her portfolio that is in bank mutual funds.

If past returns continue in the future, Nancy will fall short of her goal, Mr. Ardrey says. She will exhaust all of her savings just after she turns 91.

"To make this scenario feasible, Nancy would have to reduce her spending target by $200 a month (to $2,800), which is about 7 per cent of her overall budget," the planner says.

Alternatively, she could take steps to improve her asset mix and investment strategy, he says.

By replacing the cash assets with low-risk, conservative income investments that act as alternatives to bonds and GICs, for example, and balancing the geographic exposure of her equities, he estimates Nancy would be able to achieve a return of 6.5 per cent a year. Her new asset mix would be 20 per cent alternative income investments, 30 per cent fixed income and 50 per cent equities with an equal distribution among Canadian, U.S. and international markets. "This return, after estimated investment costs of 1.5 per cent a year, would net her 5 per cent a year before inflation." With this higher rate of return, she would be able to meet her retirement spending goal.

Nancy is not an experienced investor, so she needs help. To get the type of portfolio Mr. Ardrey recommends, she could turn to an investment counsellor, or the investment counsel arm of a financial planning firm.

Nancy and her daughter could begin by looking at the website of the Portfolio Management Association on Canada. Investment counsellors charge an annual fee and have a fiduciary duty to act in the best interests of their clients.

Alternatively, because her portfolio may not meet the minimums of some investment counsellors, Nancy could switch gradually to low-fee, balanced mutual funds with solid track records. (Two of the more popular low-fee funds can be bought directly from the fund company with an initial investment of $50,000.)

Even with the higher return, Nancy will have very little cushion, Mr. Ardrey says. "This leaves very little room for error in her budgeting." He suggests she review her budget now to ensure she will have the money she needs in future.

Want a free financial facelift?

E-mail finfacelift@gmail.com Some details may be changed to protect the privacy of the persons profiled.

CLIENT SITUATION

The person: Nancy, age 74 The problem: How to generate a little more return from her investments.

The plan: Shift gradually from bank funds and GICs to a lowercost fund company or investment counsel.

The payoff: A return high enough to allow her to travel more, at least for awhile.

Monthly net income: $2,945 Assets: Term deposits $10,630; income portfolio $99,055; GICs $50,000; RRIF $98,805; TFSA $52,230. Total: $310,720 Monthly outlays: Rent $1,000; utilities $100; insurance $10; transportation $160; groceries $250; clothing $10; gifts, charity $50; travel $250; dining, drinks, entertainment $85; personal care $40; club membership $30; medical, drugstore $75; phones, TV, internet $140. Total: $2,200 Liabilities: None

Associated Graphic

JOHNNY C.Y. LAM/THE GLOBE AND MAIL


Huh? How did I get here?
Return to Main Marcus_Gee Page
Subscribe to
The Globe and Mail
 

Email this article Print this article

space  Advertisement
space

Need CPR for your RSP? Check your portfolio’s pulse and lower yours by improving the overall health of your investments. Click here.

Advertisement

7-Day Site Search
    

Breaking News



Today's Weather


Inside

Rick Salutin
Merrily marching
off to war
Roy MacGregor
Duct tape might hold
when panic strikes


Editorial
Where Manley is going with his first budget




space

Columnists



For a columnist's most recent stories, click on their name below.

 National


Roy MacGregor arrow
This Country
space
Jeffrey Simpson arrow
The Nation
space
Margaret Wente arrow
Counterpoint
space
Hugh Winsor  arrow
The Power Game
space
 Business


Rob Carrick arrow
Personal Finance
space
Drew Fagan arrow
The Big Picture
space
Mathew Ingram arrow
space
Brent Jang arrow
Business West
space
Brian Milner arrow
Taking Stock
space
Eric Reguly arrow
To The Point
space
Andrew Willis arrow
Streetwise
space
 Sports


Stephen Brunt arrow
The Game
space
Eric Duhatschek arrow
space
Allan Maki arrow
space
William Houston arrow
Truth & Rumours
space
Lorne Rubenstein arrow
Golf
space
 The Arts


John Doyle arrow
Television
space
John MacLachlan Gray arrow
Gray's Anatomy
space
David Macfarlane arrow
Cheap Seats
space
Johanna Schneller arrow
Moviegoer
space
 Comment


Murray Campbell arrow
Ontario Politics
space
Lysiane Gagnon arrow
Inside Quebec
space
Marcus Gee arrow
The World
space
William Johnson arrow
Pit Bill
space
Paul Knox arrow
Worldbeat
space
Heather Mallick arrow
As If
space
Leah McLaren arrow
Generation Why
space
Rex Murphy arrow
Japes of Wrath
space
Rick Salutin arrow
On The Other Hand
space
Paul Sullivan arrow
The West
space
William Thorsell arrow
space





Home | Business | National | Int'l | Sports | Columnists | The Arts | Tech | Travel | TV | Wheels
space

© 2003 Bell Globemedia Interactive Inc. All Rights Reserved.
Help & Contact Us | Back to the top of this page