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Problem
Sheila and Mike have their investments with one of the big brand name Wealth Management firms tied to the bank. One of those institutions that everyone knows and blindly trusts. Their advisor invests their money and is paid a percentage of their investable assets. They have been building their wealth for decades. They are not sure what amount of income they can derive from their pensions and investment accounts.
Additionally, they are unsure as to how and when to withdraw their money tax efficiently out of their various investment accounts. They know CRA is waiting in the shadows ready to tax them. They have company pensions, CPP, OAS, RSP’s, LIRA’s, TFSA’s and non-registered accounts (individual and joint). They want to be able to spend their wealth comfortably. How much of it they can spend once they retire takes thoughtful planning.
Living off their resources is their goal of financial independence and the trickiest part to get right. This phase is known as decumulation. Decumulation is a word referring to the decumulation of assets in order to maintain your quality of life in retirement. Asset decumulation is a major component of retirement income planning and it rarely gets the attention it deserves. Everyone talks about saving and investing but no one ever talks about the most tax efficient way to spend during retirement.
What is the best way to decumulate their assets?
This is a simple question on the surface, but the answer isn't always obvious. First, we would need to define the client's goals.
For instance, are we optimizing for the,
Their objective was simple:
More recently they asked their advisor, which accounts do we take money out of and in which order to pay the least amount of tax? It was an awkward conversation to say the least with no succinct answer. Their confidence diminished as they realized their advisor was not giving them answers but rather off the cuff options with no thought-out strategy in writing. Upon further questioning they came to realize that their Wealth Advisors focus was on their investments, and he would not create financial plans, retirement plans or a retirement decumulation strategy. They thought to themselves isn’t this what Wealth Management firms do? That is like going to a tire shop and they say, “we only put tires on, we do not take them off”.
There was considerable money at stake and they needed a real strategy. As a result of these shortcomings, they became disillusioned and lost faith in their current Wealth Advisor. They felt their questions and needs were straight forward and that many other retirees must have requested this planning service before them. They decided it was time to start exploring other alternatives.
In closing, Sheila and Mike said, “We have been saving for decades for this moment and we can’t afford to make any errors and pay excess tax due to poor planning”.
Solution
We met at my office and took them through our initial process called the Financial Road Map experience. In about an hour, we determined a clear path on how to move forward to achieve their ideal life vision. We then created an overarching strategy addressing all of their issues. We determined their desired level of income during retirement and created a decumulation strategy which highlighted how much should be taken out of which account and when, to pay the least amount of tax over their lifetime. Commonly referred to as the distribution phase.
We helped them prepare for the unexpected. We created a flexible retirement portfolio that provided a buffer for when their decumulation investing strategy takes a hit from the economy. We created a buffer with cash and a more conservative investment portfolio worth 3 years of expenses. The starting point of a bad sequence of returns begins with having to continue decumulating their investment portfolio in a down market (bear market) to fund their retirement expenses. The way to prevent this from happening, is to have the flexibility to pause decumulation of their long term investment portfolio and use short term assets to fund their retirement cash flow. The simplest way to achieve this is to maintain a buffer of 3 years' worth of retirement expenses. This buffer creates the flexibility of choosing not to touch their long term investment portfolio in a down market year, giving it the time, it needs to recover.
We also completed their “Truth in Fees Transparency Report” which clearly breaks down their current total advisor and investment fees they are paying in percentage and in dollars. After completing their “Truth in Fee Transparency Report” on their $3.8M investment accounts we determined they were paying over $77,000 every year in fees for Money Management alone (No financial planning advice) We illustrated how they could easily reduce their fees to a flat fee of $28,000 every year (including a Comprehensive Written Lifetime Financial Strategy) Their savings is $49,000 every year!
We then discussed the various investment alternatives and how to properly structure their portfolios in alignment with their values, goals, comfort level and overarching Comprehensive Written Lifetime Financial Strategy.
Outcome
It’s important for investors to focus on their future retirement income goals and spending needs before retiring and start thinking through ways they can maximize the income producing potential of their hard-earned investments alongside their expected pension benefits.
Sheila and Mike now have a clear picture and an overarching financial strategy that addresses all their significant financial issues. The impact to them is peace of mind and confidence in their future. They are now on track to achieving their goals and are confident about their future. A new advisor relationship was created that considered their complete financial situation and not only money management.
Are you ready to be rescued from your current investment centric advisor?
If you are ready to get really serious about living your Ideal Life and getting your financial house in perfect order, please call me at 403-543-7226 or email me at dean@ideal-life-experience.ca to get started. I look forward to working with you to reach all of your goals.
Dean Kendall is a Financial Organizer in Calgary, handling all of the financial affairs for a select group of clients who value unbiased quality advice for one simple flat fee.
His book - Stop Paying Hidden Investment Fees! Click here for more information https://www.ideallifeexperience.com/Stop-Paying-Hidden-Investment-Fees
Newest book - Becoming The Champion of Your Dreams: How to Set and Achieve Your Most Important Goals Click here for more information. https://www.ideallifeexperience.com/Becoming-the-Champion-of-Your-Dreams
In addition, Dean is a 3X Canadian National # 1 Amateur, a 5X Canadian National #1 Professional BMX rider, downhill mountain biker and an avid snowboarder. He is an expert at winning. Let him show you how to win the money game. You can reach Dean at dean@ideal-life-experience.ca or Phone 403-543 -7226
Copyright 2008 – 2022 by Dean Kendall. All rights reserved. 403-543-7226 dean@ideal-life-experience.ca