Managed Money Reporter Newsletter — Issue 253, September/October 2009

Editors: Carl Spiess & Allan McGlade

Featured Articles

How much do you need to retire?

Carl Spiess

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA, Director, Wealth Management

80% 10x 5% graphicThe following research may be of interest to you, whether you think you are too young to set a retirement target, or if retirement is fast approaching for you, or even if you have retired. There are a number of ways to target a retirement income, and we would like to discuss the numbers 80% / 10x / 5% and how they link together to help set a retirement income goal.

80% replacement ratio

Historically, advisors have recommended that clients target 60% to 80% of their pre retirement income as their post retirement income goal. But some critics feel that 80% is far too high a number, since in retirement many expenses like commuting to work will be much lower, and hopefully children have left the nest and the mortgage will be paid off. So what is the right target? Recent numbers from Statistics Canada suggest that most Canadians actually retire with incomes that level off just under 80% of what they were earning when they were 55 years of age (see chart, below). And in general, when we meet with clients, we find that having more available income in retirement is generally always preferable to having less. Especially if there are grandchildren to spoil, travel to be taken, or health care expenses for parents on the horizon.

On average, retirement income is about 80% of pre-retirement income

10x final salary

If you have asked us for help with life insurance, we generally begin by looking at coverage based on the simple 10x current salary for clients with mortgages and young children. The lump sum of 10x income could then be used to set up and income stream to replace your salary should you not be able to provide for your family. As it turns out, having a retirement nest egg target of 10x your final salary also works very well for setting a retirement goal that can provide an income stream.

5% withdrawal rate on a fixed amount

The most common response to the question "How much do you need to retire?" is a quick "If I had a million dollars"... Is it really that much? Years ago, thinking that 10% would be a reasonable withdrawal rate had many portfolios declining too quickly. Research has shown that a 5% withdrawal rate is much more sustainable. It is likely that this 5% is the reason that Guaranteed Minimum Withdrawal Benefit plans (GMWB) plans (like Manulife's Income plus and SunWise Elite) offer 5% as their guarantees. What this means is that yes, if you need a $50,000 per year income, 5% of $1,000,000 will provide that amount. See the chart, below, for how long income can last at various withdrawal rates on a typical balanced portfolio.

Use a withdrawal rate of 5% to reduce the likelihood of running out of money early.

Bringing 80% / 10x and 5% together

So let's bring some of these concepts together, and back to the real world for Canadians. From the chart, below, statistics show an average annual pre-retirement income of $62,500 in Canada (based on active employees in Group Savings Plans with Fidelity investments). We are comfortable that Canada Pension Plan (CPP) and Old Age Security (OAS) will provide $16,685. So if we target 80% of the $62,500 that would be $50,000 of income required, leaving a $33,315 income shortfall. If we had a portfolio with $666,300 and set up 5% withdrawals, that would provide a sustainable amount. (If a $666,300 portfolio is not realistic, then downsizing a mortgage free home or looking at a reverse mortgage could help supplement income.) See the bar chart and notice how a $666,300 portfolio is roughly 10x the pre-retirement salary of $62,500, nicely tying the 3 numbers together.

How are 80-10-5 linked?

What is your number?

To help determine your retirement target, or sustainable retirement income figure, please use our investment tools, or contact us to help set up or update your retirement plan. We can put together a plan for accumulating and then sustainably drawing a retirement income.

More on post-retirement income


Due diligence

Scotia Financials Summit 2009 logo

Meeting with Canadian bank heads

By Carl Spiess, CFP, CIM, FMA, FCSI, MBA, Director, Wealth Management

Two weeks ago, as part of the Scotia Financials Summit 2009 conference, I was invited to attend small question and answer sessions with the various bank heads. The majority of the questions were being asked by Shane Jones, co-manager of the 4-star ranked Scotia Canadian Dividend fund.

We met with:

  • Bank Nova Scotia CFO, Sabi Marwah and Risk & Treasury Head, Brian Porter
  • TD Bank CFO, Colleen Johnson
  • National Bank President and CEO, Louis Vachon
  • RBC President and CEO, Gord Nixon

It was very comforting to hear about the strong results that Canadian banks continue to deliver, and the sound management that has made our banks shine as the best and most well respected in the world. Canadian bank shares are all approaching their 52 week highs, and this reflects the lower than expected loan losses and gross impaireds. Canadian banks have maintained their dividends through this period, and continue to show signs of sustainable growth.

Bank shares make up a significant portion of the Canadian index, and are core holdings in many dividend and large cap mutual funds, like the Scotia Canadian Dividend fund, one of our core recommended funds. Keeping an eye on the underlying investments in your portfolio, and access to, contact with, and monitoring the managers who run your investment funds is a key part of the service that we provide for you.

More on Scotia Financials Summit 2009


Did you know that October 5-12 is Financial Planning Week...?

October 5-12 is Financial Planning Week

As part of an ongoing campaign to make financial planning more a part of Canadians' lives, the Financial Planners Standards Council (FPSC) has declared October 5-12 as the inaugural Financial Planning Week.

In its inaugural year, Financial Planning Week will raise awareness and invite a call to action to all stakeholders to collaborate and enact meaningful change for the benefit of all Canadians. Concurrently, similar themed weeks are being held in Quebec, and the US.

Get started thinking about your financial situation today! Here are some ways you can "celebrate" Financial Planning Week.

  • Create - and stick to - a weekly budget
  • Keep all your receipts to find out how much money you are spending on "the little things"
  • Establish an emergency fund
  • Review your insurance coverage
  • Calculate your net worth
  • Look up three financial terms that you've never understood
  • Teach your child to save 10% of their gift money
  • Think about preparing a will and a living will
  • Understand your employee benefits package

Contact us if you have any questions or need help with any of the above tasks....

More on Financial Planning


More funds moving to fixed expenses

Operating expenses are part of a Fund's management expense ratio (MER). Currently these expenses vary from year to year, making MERs difficult to predict. Fixed administration fee structures have been adopted by a number of Canada's largest mutual fund companies. Recently Northwest/Ethical mailed unitholders about capping their expenses, and Fidelity will be doing the same shortly.

If the proposals are approved, it will be easier for investors to estimate the costs of investing in mutual funds that have fixed their expenses. We believe this is an appropriate time for funds to continue with this trend and make these changes because they will provide investors with greater cost certainty in uncertain times.

More on fixed expenses


Mackenzie Financial announces Canada's Top Teen Philanthropist

Do you know a Canadian teen philanthropist?

Do you know a 13-19 year old teen who donates time, money or both to a charitable cause? Mackenzie Investments is looking for Canada's Top Teen Philanthropist. Cash awards up to $5,000 dollars for the teen and their charity are available.

See the link, below, for more details and about last year's winner:


Scotiabank most sustainable

Dow Jones Sustainability Logo

Scotiabank has joined the group of 11 blue-chip Canadian companies recognized on the 2009 Dow Jones Sustainability World Index (DJSI World). The 317 global enterprises acknowledged on the DJSI World comprise the top 10 per cent of the largest 2,500 companies listed on the Dow Jones Global Total Stock Market Index. The annual initiative reviews economic, environmental and social performance such as corporate governance, risk management, climate change mitigation, supply chain standards and labour practices.

For more information, please see Scotiabank's corporate social responsibility page, or to make your investments more socially responsible, please visit our socially responsible investment page.

More on DJSI and Scotiabank


Recommended Link of the Month

Financial Planners Standards Council Logo

The Financial Planners Standards Council, sponsors of Financial Planning Week, have a website that is a great place to learn more about financial planning and working with your advisor:



Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

ScotiaMcLeod is a division of Scotia Capital Inc., member of CIPF.

Security | Privacy Policy | Legal Information | Important Information | Site Map




® Registered trademark of The Bank of Nova Scotia, used under licence. ™ Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod®, a division of Scotia Capital Inc. ("SCI"). Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of SCI. Insurance services are provided by Scotia Wealth Insurance Services Inc., the insurance subsidiary of SCI. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Québec) representing Scotia Wealth Insurance Services Inc. SCI is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

The Spiess McGlade Team is a personal trade name of Carl Spiess and Allan McGlade.