All posts by Adrian Mastracci

Two notable books to guide your ‘Retirement’ journey

“Books are the bees which carry the quickening pollen from one to another mind.” — James Russell Lowell, poet and author

This week I highlight one of my best recommendations for Retirement. Invest in self-education with some quality reading. The critical factor is how to select just a couple of books.

Investors have a thirst for knowledge about their precious retirement journey. They seek detailed information to assist in navigating the capital accumulation process to achieve retirement. Then comes the desire of making that capital outlast the spending phase.

Walk into any well-stocked bookstore and the retirement section will seem like a maze. There are plenty of titles competing to become permanent occupants of your precious bookshelf space.

My two book selections provide insight and understanding into the design and management of the retirement nest egg. The authors are well known. The books complement one another.

The emphasis is understanding long-term principles, policies and best practices that steer the family’s retirement goals from dreams to realities. Getting fully acquainted with these two books helps craft better decisions about retirement. Something for everyone’s retirement toolbox.

Photo: Kia Meiklejohn

Falling Short: The Coming Retirement Crisis and What To Do About It, by Charles D. Ellis, Alicia H. Munnel, and Andrew D. Eschtruth

This century has clearly shown that we are living longer, health costs are rising and employer pensions are diminishing. That is the big picture applicable to retirees in the USA. However, similar arguments also exist for the Canadian retirement landscape.

The good news is that what is seemingly a dire retirement situation can be easily rectified by implementing a few coordinated steps. This book makes you appreciate the scope of that big picture. Working a little longer, saving a bit more, judicious use of government benefits and being smart about portfolio draws are some of the key answers that deliver.

The message for every retiree is that a successful retirement is about being empowered to look after the personal situation. At age 60, it is not unusual for retirement to last into the 90’s for at least one spouse.

Yes, long term retirement that spans decades is expensive. Sensible and methodical decision making is sound advice for all ages. It renders the scope of the big picture into realistic solutions.

Retirement projections have the answers

Much has been written about the level of retirement readiness and capital needs required to fund that long-term family objective. I submit that the retirement projections have the answers.

I am, however, puzzled by this key observation: “None of the potential clients I’ve met for the first time in the past five years had a recent retirement projection.”

There is much talk and little walk of the talk around this subject. Even though retirement is a top priority for investors and their families.

You are wise to start crafting your personal retirement projection. The sooner the better, then revisiting it every three to five years.

This is something I encourage everyone to mull over. “How do you assess whether your retirement prospects are on target if you have no personal retirement target in mind?”

I summarise three more observations from meetings with potential retirees:

  • Most have not come to grips with the possibility of retirement lasting 25 to 30 years, maybe longer.
  • Most have not thought about the implications of their portfolios receiving little or no saving capacity after retirement.
  • Most are not prepared for escalating costs of health care, say a retirement home facility, even if for only one spouse.

Planning three decades of dependable retirement income is the new money management challenge. Especially, during times of continued low returns.

Very few investors now retired, or nearly retired, have a “retirement projection.” I liken it to building a home without the blueprint.

I don’t know of anyone who builds homes this way. However, there is no shortage of investors who continually try to assemble and guide their retirement nest egg without a personal plan of action. They just buy stuff for the investment shelves.

Retirement surveys keep popping up frequently with similar messages. Typically about how investors are not fully prepared for the long retirement journey.

Some may have accumulated too much debt or too few assets. Others may have incurred too much risk. Perhaps, many may not be saving enough.

Reasons aside, it is rare to meet someone who has a grasp of the capital ballpark required to fund retirement. The main ingredient is the “retirement projection,” also known as the “capital needs” analysis.

The basic step of preparing a retirement projection is a very informative process. I favour constructing one for every client well before retirement and updating it periodically.

The retirement projection is the starting point for everyone considering retirement or actually now retired. It is a ballpark indication of what the family capital needs look like for the long run.

My projection covers several key retirement aspects, such as:

  • Providing long-term retirement income goals, possible health costs and inflation factors.
  • Reviewing the family’s total expenses and cash requirements for projects and purchases.
  • Inclusion of income sources, like employment, pension benefits, real estate, CPP and OAS.
  • Assumptions for possible home downsizing, longevity, special needs and pension funding.

The analysis brings to light these important facts:

  • Capital estimate of funds required to achieve your retirement goals and desires.
  • Periodic saving capacity required by your investment plan.
  • Annual return estimates to reach and maintain your desired retirement lifestyle.
  • Whether your retirement goals are achievable or in need of periodic adjustments.

A retirement projection allows the design of a customised investing road map tailored to each client. It also ensures that what the client seeks is reasonable and suitable vis-à-vis family goals.

Most investors do not feel comfortable navigating their retirement math. A solution is to engage a professional who is well versed with retirement projections.

You are wise to start crafting your personal retirement projection. The sooner the better, then revisiting it every three to five years.

Clearly, up-to-date retirement projections have the answers. It’s time for action if yours is missing in action.

 Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA  started in the investment and financial advisory profession in 1972. He graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971,  then attended the University of British Columbia, graduating with the MBA in 1972. This blog is republished here with permission from Adrian’s new website, where it originally appeared on May 23rd

How to handle windfalls, inheritances, gifts, estate freezes

“We should all be concerned about the future because we will have to spend the rest of our lives there.” — Charles F. Kettering (1876–1958), American inventor

Will a lifetime of work help the next generation’s financial security? Let’s imagine.

Boomers and younger generations often receive cash and other financial assets from several sources. Three popular ones come to mind, such as inheritances, gifts and estate freezes. Let’s call them wealth transfers or windfalls. Some are modest while others are substantial. All ought to be much appreciated.

In Canada, the value of transfers is estimated to exceed $1 trillion. Similarly, the US ballpark is likely higher than $10 trillion. These windfalls serve as a welcome boost for ageing boomers. Especially where the nest egg is in need of a little help.

Inheritances consist mostly of family homes, cottages, land, income properties, stocks, bonds, mutual funds, family businesses, cash and term deposits. Gifts typically include cash and equivalents, savings and a variety of deposits. An estate freeze often involves private companies, family businesses, farms, income real estate and family trusts.

Don’t make any snap decisions that cannot be reversed. Don’t sell things you now own or buy anything new, like stocks or real estate.

Receiving a wealth transfer is like winning the lottery. We are human and can fall prey to emotional, spur of the moment decisions. Avoiding the pitfalls of dealing with our exuberant feelings of sudden wealth is not always easy.

No need to rush

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Two free lunches: Diversification and Rebalancing

“Excellence is not a skill. It is an attitude.” — Ralph Marston

Diversification and Rebalancing strategies are two essential, time-tested portfolio tools. They improve your chances of achieving better consistency of long-term returns. Tasty free lunches are still being served in your investing patch.

Diversification spreads your risks among a variety of investments. Rebalancing makes periodic adjustments to bring allocations back in line with targets set within your road map. I assume that your road map is in place.

Experience shows that asset mix decisions have the greatest impact on your portfolio returns than any other factor. The foundation of investing your nest egg requires patience, discipline and clear investment policies.

Diversification is one necessary safeguard. You don’t want problems arising in any asset class to ruin your well designed portfolio. Diversification increases the odds of you being right more often. If some selections are suffering, others can help cushion the rest.

Initial allocations and weights of your portfolio selections will drift over time as markets rise and retreat. When drift becomes significant, it affects your investment profile and typically requires some re-balancing.

Periodic rebalancing strategies sell some assets and buy others within your asset mix. My preferred time to rebalance is when you inject new money into the portfolio or withdraw some. Use rebalancing techniques as portfolio tweaks, not for wholesale changes.

Possible ways

I highlight 10 ways to achieve portfolio changes: Continue Reading…

6 ways to ensure you won’t outlive your money

“Retirement: World’s longest coffee break.” —Author Unknown

Over the years you’ve taken plenty of advice, saved and invested diligently. Now you and your family are knocking on retirement’s door or, perhaps, in its midst.

The good news is the family members will likely live longer than before. The flip side is that more money may be required to fully fund retirement lifestyle.

Let’s assume that retirement spans from age 60 to 90, often longer. Many worry that the money won’t last and runs out during retirement.

Analyze life expectancy of the immediate family members for both spouses or partners. Specifically, review the current ages of grandparents, parents, uncles, aunts and cousins.

Some are petrified at the mere thought of such a prospect becoming reality. The question becomes what you can do to at least contain this situation.

I summarize six essential ideas designed to ballpark your lifestyle needs and help your retirement money last:

1. Family life expectancy

Analyze life expectancy of the immediate family members for both spouses or partners. Specifically, review the current ages of grandparents, parents, uncles, aunts and cousins. Get familiar with the ages attained by family members that have passed away. Pay attention to patterns of critical illness and longevity.

Today, it is commonplace for many to live well into their 80s. It is wise planning for a family to expect that at least one spouse could easily live past age 90. Another expectation is that family longevity continues to increase. Updating the retirement projection refreshes the family’s capital needs for the desired lifestyle.

2. Becoming too conservative
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