Don’t Wait For Pension Reform – Build Your Own!

Imagine having guaranteed income which lasts as long as you do. It never runs out. You can’t outlive it. You don’t have to worry about the markets or interest rates. Once the monthly payments start, they never stop – month after month after month.


  • Most Canadians enjoy this when they start receiving their Old Age Security payments at age 65 – a maximum of 524.23 per month.
  • Some Canadians will also receive monthly payments from the Canada Pension plan – a maximum of 960.00 per month.
  • Fewer Canadians will receive monthly payments from a Defined Benefit pension plan which are based on their average income and the length of time they have contributed to the pension plan.
  • Still fewer Canadians receive payments from annuities- monthly payments from an insurance company purchased with a lump sum of tax-paid or registered funds.


What all of these income streams have in common is worry free, secure payments for life.

Let’s examine the most uncommon life-time payment plan – the annuity. It once was a very popular choice for setting up retirement income. In fact, when the Registered Retirement Savings Plan (RRSP) was established, it was the only income option available. Later, the Registered Retirement Income Fund (RRIF) was offered and soon became the preferred option. Similarly, pension plans have changed from Defined Benefit to Defined Contribution. In both instances, the net effect has been a transfer of control and risk to the individual receiving the income. This transfer also represented a shift from interest – based to market-based investments.

Annuities are beginning to make a come-back because market-based investments have been less than stellar in the last decade and the baby boomers are worried about the risk of outliving their income as they start their retirement .There isn’t much sizzle in a plain annuity so a complicated hybrid model was introduced five years ago called Guaranteed Minimum Withdrawal Benefit plan which offered lifetime payments along with a market-based component, annual bonuses, triennial resets etc. Complicated or not, Canadians jumped all over this product by investing almost 20 billion dollars in the last 5 years.

However, a case can be made for using a basic annuity for part of your retirement income. Let’s look at the following example of “Stacked Annuities”: Brad is 55 years old and plans on retiring 10 years from now. He has already accumulated 300,000 in his RRSP plan but wants to establish another layer of guaranteed income to add to the CPP and OAS pensions. He is able to contribute 20,000 per year to his RRSP. Instead of adding his annual contributions to his existing RRSP plan he purchases a registered deferred annuity every year with payments beginning at age 65. In the first year he purchases a 10 year deferred annuity, in the second year he purchases a 9 year deferred annuity etc.



The following table shows the amount of income purchased based on current annuity rates. (It should be noted that current annuity rates are at a historical low point and any increases in interest rates will increase the payments).
YearContributionLife Annuity Income at age 65
1 20,000150.31/month
Total 200,0001380.03/month



1380.03/month registered annuity payments plus CPP and OAS benefits will all provide Brad with a guaranteed lifetime income. He will still have his RRSP which he can convert to a RRIF to produce flexible income to match his lifestyle. If he used 5000 of his tax refund from his 20,000 RRSP contributions to contribute to a Tax Free Savings Account, he will have additional tax sheltered funds to complement his income.

If you want your income to last as long as you do, see a retirement spending specialist!

“Retirement Planning with Yogi” By: Grant Karst

The Baby Boomer have arrive at the retirement stage and like every stage of life they have gone through, it is going to be different for them. In fact, one financial institution has already give them a new name “Generation I” with the “I” standing for “income.” As the Boomer approach retirement they are confronted by many circumstances different from their parents’ generation:

  • They have spent more and saved less


  • They want to retire earlier and expect to live longer


  • Markets have no been kind to them in the last decade


  • Interest rates are at all times low

Perhaps Yogi Berra has some nuggets of wisdom for Generation I. He is one of the most quoted personalities of our time, so let’s see how his “Yogi-isms” apply to retirement planning.

  • “It ain’t over ’till it’s over”  –  Longevity is becoming increasingly important as retirees try to stretch our retirement assets over two or three decades. Most people don’t have defined benefit pension plans so there is a real possibility of outliving their income. But how much time do you want to spend managing your money when you are 80 years old?
  • “I usually take a two hour nap from one to four”  –   Having enough income to live comfortably is where most people focus their attention but preparing for a different lifestyle where every day is like a weekend presents challenged as well. How many games of gold do you really want to play in a week and what do you do in the other seven months in Saskatchewan?
  • “It’s Déjà vu all over again”  –    Maybe not. If Boomers are looking at their parents’ retirement as a reference point they may be disappointed. Their parents retired with little or no debt, were older, less active, and accustomed to living with their means. Interest rates were much higher and annuities were a popular choice for guaranteeing lifetime income.
  • “When you come to a fork in the road… Take it”  –   What to do? Leave your money in equities for better potential returns to fight inflation or move to fixed income assets to counter volatility and uncertainty. Should annuities be considered? What about these new Guaranteed Minimum Withdrawal Benefit plans? Saving may have been difficult but spending may be harder.
  • On why New York lost the 1960 series to Pittsburgh “We made too many wrong mistakes”  –  If you make a mistake when you are still earning an income, you can adjust and recover. Mistakes made during retirement often have permanent consequences. Not having the right asset mix, spending too much too soon, or not factoring inflation into your plans can leave you wanting later on.
  • “You can observe a lot by watching”  –   Look around and see how others have prepared for retirement. Did they discuss how spending 24/7 together will impact their marriage? Are they counting on their kids looking after them when they need long-term care? Do they have a retirement budget? Did they start with a retirement spending plan?
  • “The future ain’t what it used to be”  –    For some who retired in the last two to three years, their future is not what they thought it would be. For others retiring without a retirement spending plan as a guide, their future is a moving target changing with markets, interest rates and unforeseen challenges.
  • “If the world were perfect, it wouldn’t be”  –   You can’t plan everything but you can start with getting expert advice from someone who specializes in retirement spending. It is a different skill set than providing advice on accumulating assets because new factors like sequence of returns, survivor income and estate planning must be incorporated.

When is the right time to start you retirement spending plan? When Yogi was asked what time it was he asked                                 “You mean now?” He also said, “It gets late awfully early around here.”

Thanks, Yogi!

“Investing” By: Grant Karst

Why do so many investors do exactly the wrong thing at the wrong time?

Why did so many investors take money out of the equity markets in the last quarter of 2008 and the first quarter of 2009, when the market was at its lowest point?

Why were many investors reluctant to add money to their equity mutual fund RRSP in January and February 2009 when the market was offering discounts of 40 to 50 percent?

Why did a large percentage of investors miss the significant market rally in 2009?

Why are thousands of investors still sitting on the side- lines in Money Market funds waiting for a “sign” that it is time to get back into the market?

Why will thousands of investors jump back into the market again after it has increased in price by 20 percent or more?

Why do people clamor for sales when they buy everything except investments?

Why do investors repeatedly sell what has decreased in price and buy what has increased in price?

Why do most investors receive a fraction of the market returns?


Why is this investing stuff so difficult to get right?

Why? Because we are hardwired to fail at investing.

Before I go any further, I want to acknowledge that there is a small percentage of the investing public that these comments do not apply to. These individuals have managed to override the hard-wiring affecting most of us, and consistently make sound, objective decisions about their investments. They don’t always make the right calls, but their batting average is good enough to produce positive long-term results.


O.K., let’s get back to why investors behave badly. Behavior scientists have identified many reasons to explain investor behavior, but the two biggest emotional culprits which sabotage our decision making are fear and greed. It isn’t simply that these emotions are so powerful, but that they unfortunately they have an unequal effect on us.


The fear of loss is estimated to be two to three times stronger than the euphoria of gain or profit. Consequently, the emotional effect of a 10% loss is not equal to a 10% gain. The loss feels like a 20 or 30%, so panic sets in. The 10% gain satisfies our greed motive but does not have enough staying power to offset the panic when it sets in.

To compound the problem there is “free” advice from colleagues and family, plus the media, focused on sensational negative events. It is no wonder that investors start selling low and buying high and wonder why they can’t make any money!

I have long ago given up trying to change this emotional hard-wiring. Instead, I have accepted that investors behave irrationally, and developed an investment-planning process which recognizes as a central theme that investor behavior will have the largest bearing on the success of the investment program. Unlike many investment planning processes, mine does not start with researching rates of return, MER (management expense ratios), volatility, investing styles, market trends, interest rates, etc. Instead, I focus on the investor—not the investment. First we have to know why an individual is in- vesting. It sounds straightforward, but this is often overlooked, or it is assumed that every- one wants to invest in the market.


Many years ago I asked a client who had several hundred thousand dollars invested in GICs why he wasn’t taking advantage of higher potential returns and better tax treatment of the returns by investing in equities. His answer: “Because I don’t have to. I can’t spend the money I’m making now, so why should I complicate things?”


If investors are gong to stick with an investment plan, they have to have a strong underlying reason for doing so. If they do not, the first sign of adversity, i.e., a bear market, will make them question their plan.


Our process is called Blue Sky Planning. It involves an optimistic visualization of an individual’s financial future as it pertains to his or her family, career/business, retirement and estate. One or all of these areas will answer the question “Why are you investing?” This discussion will also tell us how much the investor will need, which in turn tells us what kind of a return he or she needs to receive.


Once we understand why an individual is investing, we move on to the next question:

“What kind of investment strategy will give you the best chance of avoiding the typical investor mistakes caused by fear and greed?”


For some investors, simply recognizing the un- equal power of these emotions, along with coaching from their advisor, is enough to provide a framework to keep the plan on track. Often, having a diversified portfolio with automatic re- balancing minimizes the emotional extremes. Others are willing to pay for guarantees and downside protection. For some, having part of their investments in safe, simple products allows them to invest some of their money in the market and deal with the volatility.

We always emphasize that there are no right or wrong products, but there are products that are right for the investor.

Just because most of us are hardwired to fail at investing does not mean our investment strategy has to fail. If we know why we are investing, and have created an environment conducive to good investor behavior, we can enjoy not only reaching our investment targets but also the journey along the way.

Will You Bogey Your Retirement?

The golf season has finally arrived – a little late, a little wet – but golfers are hitting the links with vigour. It is a relatively short golf season is Saskatchewan so we learn to play in all kinds of conditions; wind, rain, mosquitoes, and more wind! It is much like life where we control some parts of our environment and learn to deal with the rest.

Did you know the game of golf has much in common with financial planning?

Let’s have a look;

  • Environment: The course is where the golf game is played with lush fairways and hazards along the way. You can take lessons, use course knowledge and a game plan to improve your chances of scoring well or play with reckless abandon and take what you get. Working with a financial advisor and having a plan increases your chances of hitting your financial goals or you can” wing it “and see what happens.
  • Equipment: The tools of golf are clubs and a ball. Some are better than others but you have to learn to use them. Millions of dollars are spent to convince you that new equipment will change your game, however, your natural ability, commitment to improving and practice will have a bigger impact. Investors look for a “get rich quick” scheme or a hot new product they learn about at a seminar. Occasionally it works. More often, a solid framework for making investment decisions along with a plan to make your efforts relevant to your life goals with win the day.
  • Tracking Progress: In a golf game every hole is tracked – eagle, birdie, par, bogey are terms to measure your efforts against a standard. Your handicap tells you how your overall game is progressing. A financial plan, whether formal or ad hoc, is measured too. A financial advisor will chart your progress towards financial and life goals to keep you motivated and make adjustments where necessary. Individuals who are working their own plan often use short term results to make long term decisions, often with negative consequences.
  • Attitude: In golf, as in life, you often get what you expect. If hitting over water intimidates you, there is a good chance your shot will end up wet. When you can block out negative thoughts and leave a bad hole behind, your score will improve. Realistic expectations of your efforts to achieve financial targets will go a long ways towards a successful plan. If you only invest when you “have the money” or when markets are good, there is a good chance you will come up short. Expecting reasonable long-term returns with a disciplined investment plan will give you the results you want.

Will You Bogey Your Retirement

There is one major difference between golf and financial planning. If you have a poor golf game because of lack of effort, preparation and practice, you can blame your old clubs or the “golf gods” and get on with life because it is only a game. If your financial plan doesn’t work – and everyone has one by design or default – you live with the consequences forever. It may even hurt your golf game!

Gifts For Grandchildren

By Grant Karst, CFP, CLU, CHFC

Someone once said, “If had known how much fun grandchildren are, I would have had them first!”

Grandchildren truly are special and grandparents love to shower them with attention and gifts. Here are a few ideas for gifts that won’t end up in the toy pile and will provide a lifetime of benefits.

Registered Education Savings Plan (RESP)

The value of a post-secondary education is priceless, but it is also expensive. The costs of tuition, books, and accommodations are increasing faster than inflation and it is difficult for parents to set enough money aside for education while paying their mortgage and for their children’s activities. Fortunately, the federal government provides assistance by offering education grants in an RESP, but there is a catch— money must go into the plan before the grant is awarded.

Where will the money come from? You guessed it-generous grandparents who are able to leverage their savings in an RESP for their grandchildren. For every dollar deposited into an RESP, the federal government adds a 20 per cent education grant. The deposits and grants grow tax-sheltered until the funds are used for a qualifying post-secondary program. When the money is paid out, the grants and earnings are taxable to the student which usually means little or no tax is paid. A $100 per month deposit plus the 20 per cent grant earning five per cent interest over 18 years will grow to over $35,000!

Life Insurance

Starting a life insurance program for a grandchild is a gift that keeps on giving. Whole Life insurance is a popular choice for this gift because it offers the following benefits;

  • Level life-time premiums based on the age of the child.
  • Tax-sheltered cash values.
  • Dividends that purchase additional paid-up insurance which also grows tax-sheltered. Dividends are not guaranteed and will vary upward or downward.
  • Protection of insurability. Once the policy is in force, any changes in health or risks associated with occupation, avocation or lifestyle will not have an impact on the premiums.

Let’s examine a policy for a new granddaughter. The premium for a $100,000 policy is $75 per month. At age 20, the dividends purchasing additional insurance more than doubles the original value to over $200,000. At age 40, the policy has grown to half a million. If the child lives to 100, which may be common by then, the policy has a death benefit of over three million dollars and the premium is still 75.00 per month. The grandparent can start the policy and transfer it without incurring any taxes to the grandchild when she is an adult.

Critical Illness Insurance

Purchasing critical illness insurance for a grandchild has similar benefits—level premiums based on the age of the child and protection of insurability—but there are additional features unique to this type of policy. A lump sum benefit is paid out in the event the child is diagnosed with a critical illness like cancer (over 25 illnesses are covered). No one likes to think of this happening but if it does, money is often needed for treatment, care and recovery.

The parents in this situation don’t need financial stress added to their plate and the grandparents may be called upon to help out. On the bright side, if a claim is never made, all or a portion of the premiums paid can be recovered. For example, a premium of $57.00 per month will pay for a $100,000 policy on a new granddaughter. At age 25, 75 per cent of the premiums paid ($12,697) are paid out if there hasn’t been a claim. The policy continues to provide coverage at the same premium rate and 100 per cent of the premiums paid can be recovered any time after age 40 if the policy is terminated.

Do you want to give something special to your grandchild? Give them a gift they will never grow out of. Give them a gift that will make a difference in their lives long after you are gone.