Congratulations, you’ve outlived your money

Adam Desaulniers

As investors belatedly clamour to reevaluate the risk exposure in their portfolios, it may also be time to rethink just how long retirement will actually last in the 21st century.

“You do hear people say ‘I didn’t expect to live this long,’” attests Montreal Financial Security Advisor Stephen Laing of Sun Life, who’s had to put more than a few sobering forecasts into clients’ hands. “The sad fact is that people are already outliving their money.”

Sadder still are those who’d be in good shape were it not for chasing “top performers” – but a serene and evenhanded approach isn’t always an easy sell in a bull market, he contends: “Greed gets in the way of good decision-making – somebody else is getting a better return, grass is greener, plans get put aside...” And as rosier and rosier projections compete for attention, he notes, people start ignoring the proviso that “past performance is no guarantee of future results.” Laing takes issue with the way statistics are used to market some securities. “People have to be very careful when they read that kind of information,” he says, pointing out that it’s taken from numbers that represent a snapshot in time – the choicest slice of the performance graph.

A sound and durable strategy, he maintains, will use “very conservative numbers” as a baseline, and map out alternate scenarios, including (especially) dire ones. “Sometimes people need to look at extenuating circumstances, and see what impact it’s going to have on their income or their asset base. Using software we put the dots together, and do a projection, and work out a cashflow for the year. There’s nothing set in stone,” he says. “It’s theirs to do with what they want. But they can see, physically, in their hands, whether they need to worry or not. Sometimes it will mean looking at going back to work to maintain your standard of living.”

The demands on the client are “not too complicated,” he professes, “other than the fact that one should have some idea of how much one needs to live on.” Some arrive with expectations skewed by inexperienced, starry-eyed advice – the kind that says next year’s growth will make up for this year’s capital depletion – and actually have to be reminded: “If you’re taking out money, and not replacing it, over time, when you need it most, naturally, it’s dissipated.”

Investors in this situation, he maintains, need to consolidate into “products that hedge against the downside” with less stock market exposure.

For investors with the opposite problem – too much taxable income from pensions, savings, and other assets – Laing touts a new tax change for RRIF recontributions, allowing investors to put back up to 25% of the mandatory minimum they have to take out for 2008. This government-mandated percentage, based on age, is required to be withdrawn and taxed annually, which he argues “can add up to a substantial amount on income you’re not using.”

The paperwork isn’t ready-made, and Laing advises “writing a letter of direction to the institution, indicating the amount being recontributed, and the certificate or fund or account that’s receiving the money, signed and dated with a cheque,” before the deadline of March 1, 2009.

Stephen Laing can be reached at stephen.laing@sunlife.com or 514-866-5811 x 2212.