Better Retirement Choices – An Elegantly Simple Solution

Written by Doug Dahmer  |  January 31, 2017

“Life,” philosopher Albert Camus contended, “is the sum of all your choices.”

Do you think otherwise?

Good or bad. Easy or hard. Right or wrong. Every choice you make will impact your life to some degree.

Choices with little impact are often made without much thought and the trouble is this casual approach to decision making tends to be deployed on bigger and more impactful choices.

In my profession, as a retirement income specialist, I see poorly made choices all the time. They, unfortunately, tend to be life altering, irreversible and totally avoidable. Like a doctor passing along a gloomy prognosis, I am heartbroken to see the look on peoples’ faces when I tell them how a choice they made will put them at a disadvantage for the rest of their lives.

And, as I said, many of these damaging financial choices are often avoidable.

The Retirement Risk Zone Years (TRRZY)
The years leading up to, and the early years of retirement are packed with important choices that can create turning points in your life. We call this period of your life ‘The Retirement Risk Zone Years’ (TRRZY).

TRRZY has aptly earned this acronym because this phase of life contains the highest concentration of high impact choices that can lead to turning events, both good and bad, in people’s lives.
It is important to recognize that the number and frequency of tough and important choices increases during this time. In addition, the implications of choosing poorly intensify as both time and flexibility have turned from friend to foe. Successfully creating your best possible retirement years is directly linked to how well you navigate the challenging choices of TRRZY.
Over this nearly two decade period we must adapt our thinking to a new reality. Strategies that served us well during our savings years, can turn on their heads and start to work to our disadvantage as our flow of funds reverses from saving to spending. Those who fail to recognize and adapt to this new thinking, have a high propensity for making poor choices, many of which they will regret in future years.

Turning Points during “TRRZY”
There is work involved in making wise choices in the year leading up to, and during, the early years of retirement. With the right tools it is not difficult work, but it does requires attention, the right information, guidance and process.

Is it worth the effort? Absolutely. The alternative is the ongoing stress of wondering: Will I outlive my money

There are significant choices that if made properly can lead to:

  1. Optimizing your recurring retirement incomes like CPP and OAS by wisely choosing your optimal start dates, you are rewarded with hundreds of thousands of incremental income dollars.
  2. Avoiding expensive tax traps. By selecting to actively and strategically shift where we choose to source each years required cash flow, we have the ability to pre-determine which marginal tax bracket we land, whether or not we take full advantage of income splitting and if we get clawed back in Old Age Security. The goal of better choices is to minimize the amount of taxes we pay over the balance of our lives.
  3. Putting pension like disciplines in place as we choose to integrate the timing of future cash flows with our money management strategies. The goal of better choices is to mitigate our exposure to damaging market downturns.

Bottom line, the goal of better choices is to make your money work harder and last longer so you have the capacity to do more and worry less.
The tough choices during TRRZY can be broken into two distinct categories:
1. The last 10 Years of Saving Prior to Relinquishing the Security of a Pay Cheque:

  • How much longer should I choose to work?
  • Should I choose to make work optional?
  • How much more should I choose to save?
  • When should I choose to stop contributing to my RRSP?
  • Where should I choose to top up my final savings?
  • Will I choose to downsize my home? If so, when?

2. The first 10 Years of Drawing Down Upon Your Retirement Nest Egg

  • When should I choose to start to collect my Canada Pension Plan / Old Age Security?
  • How soon should I choose to convert my RRSP to a RRIF?
  • Can I afford to financially support the lifestyle I have chosen or do I risk outliving my money?
  • Where, from my various investment portfolios, will I choose to source the cash flow I require?
  • Will my choices for draw down positively or negatively impact the financial future of my spouse, when I die?
  • How much financial assistance can I choose to offer my children today (when they really need it) without risking putting my own financial future at risk?
  • Do I choose to leave an estate to future generations? If so, how much?

As a Retirement Income Specialist I see, first hand, how a little effort, the right tools and experienced guidance can help people make better choices. I have access to powerful tools that utilize state of the art technology to model your choices, compare the outcomes of each of your choices and ultimately prescribe the choice that best meets your specific situation.

Like A GPS
As baby boomers, we have come to rely on technology to make better choices. A GPS is probably the tool we are all most familiar with.

A GPS relies upon three key pieces of information – where you are now, your desired destination and your mode of transportation. Armed with this key information, your GPS identifies all possible routes (choices) you might follow to get to your desired destination. The GPS then rapidly computes millions upon millions of calculations as it measures the time it takes to travel the distance of each possible route.

The duration of travel times for each of the possible routes (choices) are compared to ultimately prescribe the route that will get you to your destination as quickly as possible. The whole process to a better choice takes milliseconds.

However, the value of a GPS does not end there. The GPS also:

  1. Monitors your progress along the chosen route and in a step by step fashion informs you of upcoming required actions.
  2. Looks ahead for the possibility of traffic congestion, construction etc. and recommends changes that improve upon the original recommendation.

Today, those who want it, have access to tools that operate on a similar basis to your GPS. They provide an elegantly simple solution to making better retirement choices.

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Debt is more than a four letter word during your drawdown years

Written by Doug Dahmer  |  April 26, 2016

The month of April is always a particularly busy time for Retirement Income Specialists. One of our key roles is to provide each of our clients with a year by year drawdown recipe: outlining how much and where to source their annual cash flow needs. The ultimate goal is not to minimize the amount of income tax they pay on any given year, but instead to minimize the amount of tax they pay over the balance of their lives. Please note, these two goals are frequently confused, and seldom accomplished simultaneously as you will need to pay more tax sooner in order to pay significantly more later.

One of our many sources of insight for the guidance we provide, is found within our clients annual tax returns. At the same time, our clients’ previous years tax returns act much like a report card, keeping them informed as to how well we performed our role over the previous year, as we endeavor to accomplish this important long term goal.

The other day as I was reviewing Ben and Sharon’s 2015 tax returns, they shared a family story with me that spoke directly to the critical role a Retirement Income Specialist can play in helping those in their drawdown years make better strategic funding choices.

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Debt & Taxes

Written by Doug Dahmer  |  April 19, 2016

For nearly 25 years I have been working with clients to help them maximize the life span and utility of their financial resources. I suspect you are tired of hearing it, but let me state the obvious, and then add a caveat. The obvious: It starts with a lot of early preparation. The caveat: This preparation must be guided by those who truly understand the differences between accumulating money and living off that money.

Those who specialize in helping those in their spending years understand that the key to success is to get people consciously engaged in what they want the second half of their life to look like. In other words, 1) what do you want to do? 2) When do you want to do it? and 3) How big do you want to do it?

This forward knowledge is like the picture on the box top of a jigsaw puzzle: an indispensable tool to successfully connect the pieces of the puzzle to create the conclusion you desire. Knowing well in advance how much our clients’ need, and when they will need it, provides the cash flow patterns that enable us to develop the optimum drawdown plan. This is a year-by-year prescription specifying how much cash to withdraw and which asset portfolios (RRSP, OPEN, TFSA, Corp Holding Acct) to source it from.

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Get both a bird in the hand and two in the bush

Written by Doug Dahmer  |  November 19, 2015

Canadians from across the country are starting to look at their Canada Pension Plan with the respect it deserves. The reaction to our CPP Optimizer research report has been overwhelming. In a nutshell, the CPP benefit for a couple can be in excess of $700,000 over their lifetime and the research study demonstrates that the difference between starting your benefit at the least beneficial date and starting at the best date is over $300,000.Birdinhand

Unfortunately, not everyone knows these statistics. From comments in social media, I can see that many people are trapped in the old school, conventional wisdom that you take your benefit as soon as you retire. “A bird in the hand…” is a common thread of discussion. For some people, this choice will be a mistake of enormous proportion.

Their concern is that they might die early and miss out. This a possibility, but with $300,000 at risk, a wise man will assess the probability of this possibility. For those people with adequate assets and an expectation of living for a while, I can understand their desire to have incremental income coming in during their Go-Go Years (why would I defer my CPP to my Slow-Go Years?) Let me encourage you to consider the following question: If you could find a 5 year GIC with a Canadian Government AA rating and 8.4% interest rate which is also indexed for inflation, how much money would you move into this investment? For an extremely low risk investment with a great return, I bet the answer is: everything.

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Easy Money Most Canadians Miss

Written by Doug Dahmer  |  September 30, 2015

Canada Pension Plan. You’ve earned it, got it coming to you and boy are you going to get it… or at least some of it. That’s the crazy part. Many Canadians will inadvertently pass up well over $100,000 of their CPP entitlement by not paying attention to when they start to draw their benefits.iStock_000038238254_Large

Here are 5 things you really need to know about your CPP Benefit:

1. Most People Underestimate the Impact of CPP

Your CPP benefits are a big deal. For a couple, where both spouses have regularly contributed to the CPP plan, the lifetime CPP income they can anticipate will likely exceed $700,000. Consequently, it represents an important strategic contributor to the creation of a sustainable retirement income.

2. Conventional Wisdom is Dangerously Outdated

The difference between the best time for you to start your CPP and the worst time can be over $100,000. No kidding. (In a second, I am going to show you how to check your differential.) The CPP rules changed, effective 2013, and everything everybody ever thought they knew about starting CPP benefits needs to be thrown out the window. When it comes to CPP ‘that was then …this is now.’ Those who choose to rely on dangerous and outdated conventional wisdom will have the rest of their lives to look back in regret.

3. Don’t Overlook the Survivor Benefit

Previous generations grew accustomed to simply starting their CPP as soon as their employment years ended. After all, the sooner you started, the longer you collected, and the more you were likely to receive.

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Canada Pension Plan Optimization

Written by Doug Dahmer  |  September 14, 2015

My wife, Nancy, is a healthcare professional, and I am never sure how much interest she has in financial matters. She appears to listen attentively when I start to ramble about issues affecting retirement, but I think she does so to humor me. She is, I think, more interested in new techniques for wound management than tax minimization or income optimization.

So, I was really surprised when she handed me a slip of paper with an email and told me about one of her colleagues named Shirley. Shirley is in her final 18 months of work. Her husband is looking to retire before that. He will be 63 and she will be 61, when they pull the trigger on their retirement.

Shirley had mentioned in one of her conversations with Nancy that like their parents, she and Dan would be starting their CPP right away, to align with when they began to draw upon savings to fund their retirement. A light went on in Nancy’s head as she remembered my months ago breakfast lecture on CPP entitlements and the financial benefit of starting CPP at the right time.

All she said was “You should ask Doug when the best time to start CPP is, for you.” Who would have thought it? Nancy = ace referral person.

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Retirement Income Specialists – A Rare Bird to be on the Lookout For!

Written by Doug Dahmer  |  August 18, 2015

Retirement Income Specialists are a very rare breed of financial planner. So rare, in fact, that to date, the vast majority of Canadians are unaware of their existence and consequently very few have benefited from the very valuable, and much needed, services they provide.

This new specialized category of financial advisor is at the leading edge of strategically assisting Canadians to convert their accumulated retirement nest egg into a reliable and sustainable income stream.iStock_000013964590_Medium

Long Lived Boomers Face New Challenges and New Opportunities

The challenges are not for the faint of heart. With baby boomers living longer, the years to be funded have increased significantly. There is no clear path to follow, as baby boomers are redefining retirement in terms of both planned activity level and their desire to slowly transition out of active employment. Most importantly baby boomers represent the first generation where the vast majority will be left to their own devices to cobble together a process to fund their lifestyle after work ends. Their parents and grandparents enjoyed the luxury of a company sponsored pension plan, where talented, disciplined pension plan managers assumed the daunting responsibilities. Never before have there been so many people left to their own devices to fund their life after work.

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You Think That Was Hard? Try This!

Written by Doug Dahmer  |  June 8, 2015

How you deploy your accumulated assets to fund the second half of your life is much harder than how you built them up in your accumulation years.
Read this again if you need to, but be sure you get this point. iStock_000000444538_Large

First, build an asset pool under the spell of “Dollar Cost Averaging over the long-term” the favorite aphorism of the investment management salesperson. For the 30 odd years of your prime saving and accumulation years, this mantra encourages you to keep giving money to them, disguises bad performance and promises you future success. Given enough time however, let’s hope you have more than when you started.

That’s the easy part.

Now, try to make this asset pool last a lifetime.

Make it survive the inevitable market corrections of 10 – 50%. Make it survive the tax traps many people blunder into. Make it survive the unforeseen life events that come out of nowhere and dismantle your life’s savings.

That’s the hard part.

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The Financial Plight of the Surviving Spouse

Written by Doug Dahmer  |  May 13, 2015

Take me with you when you go, girl

Take me anywhere you go

I’ve got nothin’ here but me, babe

Take me with you when you go

– Jack White

Over my nearly 30 years of financial planning, death in a client family has given me both agonizingly poignant moments but also moments of tremendous encouragement for the human condition.iStock_000004186083_Large (427x640)

I have had the pleasure of working with bereaved spouses in circumstances that let them stay in the family home and give their families the support and foundation they so desperately need. I have had the achingly sad moments of having to tell others how their worsened financial future will unfold due to their altered circumstances.

Though happily an uncommon occurrence in my practice I was reminded of the dramatic financial impact of death on the remaining spouse when a widowed referral came to me for a second opinion. To her credit she and her husband had done many things right. Planned. Saved. Invested. Everything they thought they needed to do in their accumulation years. The only problem was it was too superficial and failed to address an inescapable truth: a husband and wife almost never die at the same time.

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Winning and Losing the Tax Game

Written by Doug Dahmer  |  April 10, 2015

business trapMany of my clients and friends still believe that there is inherent fairness in government programs.

When I point out disparities in medical services, government contracts, municipal board decisions, welfare payments and the greatest of them all- taxation- I, sadly, waken them to the painful reality that lots of government programs just aren’t fair.

Too often in our first world, enlightened, democratic society it is still “What you know”, “Who you know” and “When you know”.

While I cannot help with many of the program disparities, I can help in one and that one is the most important to you anyway. Taxation.

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