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Your Retirement Income Blueprint

Daryl Diamond CLU CHFC CFP

Kennedy Campbell B.Comm, LL.B, MBA

Diamond Retirement Planning Ltd.

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www.Boomersblueprint.com

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Our Objectives for This Morning

1. Take you through the steps of our process

2. Discuss some key issues and considerations in retirement income planning

3. Provide some details on various retirement income streams

4. Look at income options for your pension plan

5. Questions

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We’ll Cross That Bridge ...

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We’ll Cross That Bridge ...

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• It’s complicated

• It needs to be addressed in a comprehensive way

• There are still many misconceptions

• Not prescriptive advice

• This is one time where people need specific advice

Retirement Income Planning

ONE GENERAL RULE:

“It depends”

This is NOT a continuation of the accumulation years

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1. Assess current lifestage

2. Establish lifestyle and time objectives

3. Determine financial goals and priorities

4. Create income needed through layering

5. Align Investments with the Blueprint

6. Assess impact on net worth

Step-By-Step Income Process

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Step 1: Assessing Current Lifestage

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Life Stages

Time-Driven Stages

• Positioning for target retirement date

• Looking to consolidate assets

• Transitioning

• About to start income

• Retiring at the same time as partner

• Already several years into retirement

• Changing lifestyle in retirement

Event-Driven Stages

• Divorce

• Grandchildren

• Change in health of family or friends

• Dealing with aging parents

• Becoming a caregiver

• Illness or disability of partner

• Losing their own health

• Death of partner

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How do you plan to spend your time?

Are you retiring or “transitioning”?

What role will work play in your plans?

What are your lifestyle and fulfilment goals?

What plans do you have for maintaining your physical

and mental well-being

Where will you reside?

Step 2: Establish Lifestyle Objectives

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Step 3: Determine Financial Goals and Priorities

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Step 3: Determine Financial Goals and Priorities

Initial income target

Additional cash flow in early years

Lump-sum requirements

Inflation considerations

Spending reduction in later years

Income for life and/or health insurance

Is there debt being serviced?

Project the numbers to what age?

Survivor issues

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Income Target

Needs Discretionary

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Data Gathering Forms

www.diamondretirement.com

www.boomersblueprint.com

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+

= Fulfillment

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Step 4. Layering Income

CPP Retirement Benefit TFSA

RRSP Old Age Security

Non-registered Investment

Locked-In Account

Pension Non-eligible Dividend

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What Income Sources … and in What Amounts?

• What is the income target?

• Which income sources are available?

• Which income sources do you use first?

• What dollar amounts do you take out?

• Which assets are best to use and best to defer?

• What is the dollar value of the various accounts?

• What is the age of the couple / person?

• What is their state of health?

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1. Using the least flexible income sources as they are available

2. Using least tax-efficient income sources in lower tax brackets

3. Working efficiently within the tax brackets

4. Putting the least amount of “strain” on an asset to deliver the next dollar to spend

Step 4 – Layering Income

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Withdrawal for $1.00 After Tax – Manitoba 2016

Fully Eligible Non-Elig Capital TFSA

Bracket Rate Taxable* Dividends Dividends Gains ROC 11,474 25.80% $1.35 $1.04 $1.20 $1.15 $1.00 31,000 27.75% $1.38 $1.07 $1.24 $1.16 $1.00 45,282 33.25% $1.50 $1.16 $1.34 $1.20 $1.00 67,001 37.90% $1.61 $1.26 $1.45 $1.23 $1.00 90,564 43.40% $1.76 $1.39 $1.60 $1.28 $1.00 140,388 46.40% $1.86 $1.47 $ 1.69 $1.30 $1.00 200,000 50.40% $2.01 $1.59 $1.84 $1.34 $1.00

*LIF, RRIF, Pension, CPP, OAS and interest and foreign dividends from non-registered assets

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Withdrawal for $1.00 After Tax – Manitoba 2016

Fully Eligible Non-Elig Capital TFSA

Bracket Rate Taxable* Dividends Dividends Gains ROC 11,474 25.80% $1.35 $1.04 $1.20 $1.15 $1.00 31,000 27.75% $1.38 $1.07 $1.24 $1.16 $1.00 45,282 33.25% $1.50 $1.16 $1.34 $1.20 $1.00 67,001 37.90% $1.61 $1.26 $1.45 $1.23 $1.00 90,564 43.40% $1.76 $1.39 $1.60 $1.28 $1.00 140,388 46.40% $1.86 $1.47 $ 1.69 $1.30 $1.00 200,000 50.40% $2.01 $1.59 $1.84 $1.34 $1.00

*LIF, RRIF, Pension, CPP, OAS and interest and foreign dividends from non-registered assets

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Amount “Net Income” Thresholds

Personal Exemption 11,474 n/a

The Age Amount 7,125 35,927 – 83,427

The Spousal Amount 11,474 11,474 – net income

Pension Amount 2,000* n/a

Old Age Security (OAS)

73,755 – 119,398

* Federal

Other “Net Income” Thresholds

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Taking the Long-Term View

Today Future Survivor Estate

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Step 4 – Layering Income

1. Using the least flexible income sources as they are available

2. Using least tax-efficient income sources in lower tax brackets

3. Working efficiently within the tax brackets

4. Putting the least amount of “strain” on an asset to deliver the next dollar to spend

5. Looking for income-splitting opportunities

6. Determining which assets are best to use and which are best to defer

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• Non - Registered Capital

• Tax-favoured Income

• RRSP / RRIF income

• Taxable Distributions

• Pension / “locked income”

• Government Benefits

Order of Income “Layering”

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Thoughts on starting OAS at age 65

• Currently $570.52 monthly (full eligibility)

• OAS income ends upon death of the recipient

• Use this income rather than withdrawing from personal

assets

• What if the rules change?

Old Age Security (OAS)

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Considerations:

• Age at time of decision

• Fully retiring or still working after 60?

• Age when contributions stop / stopped

• Single or married?

• If married, are there two full contributors?

• Is there RRSP contribution room available?

• What are the other income-producing assets?

• Current state of health

• Family longevity

CPP Retirement Income – Sooner of Later?

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CPP Retirement Income – Sooner or Later?

Age at Start 2016 Onward Notional Crossover Age 2016 Income

60 -36.00% 73.9 $699

61 -28.80% 74.9 $777

62 -21.60% 75.9 $856

63 -14.40% 76.9 $934

64 -7.20% 77.9 $1,013

65 0% - $1,092

66 8.40% 76.9 $1,184

67 16.80% 76.9 $1,275

68 25.20% 76.9 $1,367

69 33.60% 76.9 $1,459

70 42.00% 76.9 $1,550

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Pension Income

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1. Life Income Fund

2. Variable Annuity

3. Conventional Life Annuity

… or any combination of these

Income Options for Your MASBO Pension

Assume that we have $100,000 of pension value

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1. Life Income Fund (LIF)

• Money from pension is moved to an investment account

• Maximum income is determined annually – this will vary year to year

Age of annuitant on January 1st

Account Balance on January 1st

• There is a minimum amount that must be brought into income annually

• Money can be “unlocked” for survivor spouse

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LIF Income / Account Comparison – Variable Portfolio

Age 5% Income* 4% Income* 5% Value** 4% Value**

60 6,364 6,364 98,144 97,175

70 6,013 5,499 78,833 71,387

80 5,592 4,628 50,612 41,461

90 3,495 2,607 15,461 11,412

* Annual Maximum ** Year-End Account Value

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Life Income Fund – Ability to “unlock 50%”

Pension

PRIF LIF

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• An investment option for a LIF

• Transfers risk to insurer

• Has a guaranteed level of income for life

• Income may increase with investment performance

• Has an account balance

2. Variable Annuity

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Variable Annuity - Minimum Lifetime Income

Age Male Female Joint

55 3,500 3,220 2,900

60 3,720 3,470 3,190

65 4,170 3,890 3,610

70 4,500 4,220 3,940

Source: Sun Life Financial

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• Purchase income with pension value

• Income is guaranteed for life / lives, depending on option chosen

• No account balance

• Potential estate value (15 years)

3. Conventional Annuity

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Conventional Annuity Income Comparison

Source Cannex: As of June 02, 2016 All quotes Guaranteed 15 years Income shown as annual total

Single Male Age 60

Single Male Age 65

Joint Life* M60 / F58

Joint Life* M65 / F63

High quote 5,220 5,832 4,988 5,052

Low quote 4,812 5,256 4,416 4,536

*Joint Life quote based on 60% survivor income

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RRSP / RRIF

• Fully taxable as income when withdrawn

• Optimal use – deduction rate is greater than inclusion

rate

• Matures at December 31, in year you turn age 71

• There is a minimum amount of income that must be

withdrawn

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Minimum Withdrawal Formula

Age Old % New % Age Old % New %

70 5.00 5.00 83 9.58 7.71

71 7.38 5.28 84 9.93 8.08

72 7.48 5.40 85 10.33 8.51

73 7.59 5.53 86 10.79 8.99

74 7.71 5.67 87 11.33 9.55

75 7.85 5.82 88 11.96 10.21

76 7.99 5.98 89 12.71 10.99

77 8.15 6.17 90 13.62 11.92

78 8.33 6.36 91 14.73 13.06

79 8.53 6.58 92 16.12 14.49

80 8.75 6.82 93 17.92 16.34

81 8.99 7.08 94 20.00 18.79

82 9.27 7.38 95 20.00 20.00

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Income Layering IN

CO

ME

CPP

Non-Registered Investment Income

Non-registered capital

Life Income Fund

RRSP / RRIF

RRSP / RRIF Old Age Security

60 65

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Step 5 – Aligning Investments with The Blueprint

• This is different from the accumulation years – game change

• Investments need to be aligned with The Blueprint, not the other way around

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A Change from Accumulation to Income

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Step 5 – Aligning Investments with The Blueprint

• This is different from the accumulation years – game change

• Investments need to be aligned with The Blueprint, not the other way around

• There are Investment Managers who truly add value in negative markets

• There are different tools and strategies unique to efficiently creating retirement income

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Variable Investment Math

1 2 3 4 5 6 7 8 9 10 Ann Ret

7 7 7 7 7 7 7 7 7 7

9.4 14 13 23 -4 10 -1 21 -4 -7

-7 -4 21 -1 10 -4 23 13 14 9.4

7%

7%

7%

Source: Your Retirement Income Blueprint

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Accumulation Math

1 2 3 4 5 6 7 8 9 10 Value

7 7 7 7 7 7 7 7 7 7

9.4 14 13 23 -4 10 -1 21 -4 -7

-7 -4 21 -1 10 -4 23 13 14 9.4

$196,715

Source: Your Retirement Income Blueprint

$100,000 Investment

$196,715

$196,715

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Withdrawal Math

1 2 3 4 5 6 7 8 9 10 Value 7 7 7 7 7 7 7 7 7 7

9.4 14 13 23 -4 10 -1 21 -4 -7

-7 -4 21 -1 10 -4 23 13 14 9.4

$100,000

Source: Your Retirement Income Blueprint

$100,000 Deposit $7,000 Withdrawn Annually

$112,528

$ 83,586

$28,942 35%

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Step 6 Assessing The Impact on Net Worth

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Making the Best Use of Your Income-Producing Assets

OUTCOME

Income Management

Investment Management

Risk Management

Asset Management

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Questions

Diamond Retirement Planning Ltd.

111 Pulford Street

204 -949-4749

www.diamondretirement.com

www.boomersblueprint.com

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Disclaimer and Copyright

While every attempt has been made to assure the accuracy of content, the author assumes no liability for any errors or omissions. The author also assumes no liability for subsequent use of this information by advisors or consumers. The contents and information contained is copyright as indicated below and may not be reproduced in any manner without written consent from the author. Charts and illustrations may have been provided by third parties and are believed to be accurate, though no warranty is provided and is subject to separate copyright.

Content and opinions are those of the author and may or may not reflect advice, recommendations, explanations or practices . For illustration only. No advice should be taken as applicable or appropriate without consultation with a qualified and accredited financial advisor.