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Susan O'Brien
Kathy Eliuk
Blair Baert
Robyn Carson

Tel: 403-503-7748

Address
Eighth Avenue Place, East Tower
525 8th Avenue SW - Reception on 10th Floor
Suite 1100
Calgary, AB
T2P 1G1
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Retiring Executive



The Background:


Jerry (age 61) and Elaine (age 59) have been married for 35 years and have two adult children. Elaine worked as a full-time mother and volunteers in her spare time. Jerry has been an executive at a major Oil & Gas firm for the past 14 years and recently announced his retirement.

Jerry has a defined benefit pension plan through his employer and has 90 days to decide whether they take a monthly paycheque for life or commute the value of the pension and invest the funds outside the company.

As a result of being diligent savers, the couple has a number of income sources in retirement, including RRSPs, TFSAs, Non-Registered accounts, Canada Pension Plan, Old Age Security and potentially the defined benefit pension plan through Jerry’s employer. Jerry and Elaine are do-it-yourself investors and would like more clarity on how the pieces of their retirement income puzzle will work together to generate the most tax-efficient income stream for the rest of their lives. After consistently growing their net worth over the past few decades, the couple is now faced with the psychological hurdle of no longer receiving a regular paycheque and instead relying on their investment accounts to fund their lifestyle.

Admittedly, the couple didn’t spend a lot of time on their investment portfolio over the years. Jerry has accumulated a significant position in company stock as a result of option awards throughout his career.

They are excited for the next stage in their life, but wonder if their wealth will be enough to live out their dreams in retirement. 

Key Goals / Priorities:
  1. Should the couple take the defined benefit income stream for life or commute the value of Jerry’s pension?
  2. How much income will the couple’s portfolio generate in retirement and what is the most tax-efficient method for withdrawing these funds?
  3. Are there any additional tax planning strategies available to them?
  4. How should they invest their money to generate the returns required to meet their goals while maintaining downside protection?
The Susan O’Brien Group Wealth Advisory Solutions:

Jerry and Elaine were referred to our team by another couple that have worked with us for years and understand the tremendous value and clarity of our holistic wealth planning approach. As we do with all of our clients, we began our relationship with Jerry and Elaine by conducting a deep discovery to generate a snapshot of their current financial position and identify their unique goals and aspirations. We then created a written financial plan, including key recommendations and an action plan to align, integrate and implement every facet of their financial lives.

Pension Strategy
We reviewed the quantitative and qualitative factors that should be considered when choosing a pension income option vs. commuting the value of a pension plan. For our quantitative analysis, we determined that if the pension plan was commuted it would have to generate a 5.65% annual return to age 90 to equal the value of the pension income. Jerry and Elaine’s annual retirement income goal is $250,000 after-tax and the pension income option could provide the first $80,000 or roughly 1/4 of their required funds.

Qualitatively, Jerry and Elaine aren’t concerned about maximizing their estate as they feel their children have already benefited significantly from their wealth and now have careers of their own. They also have no concerns about the long-term viability of Jerry’s employer, including their ability to pay their pension obligations. Given these factors and the 5.65% return that would be required from the investment portfolio, we recommended they take the pension income option rather than commute the value

Retirement Planning
On an annual basis, we update a Family Wealth Plan for our clients that includes a net worth statement, a cash-flow analysis, a retirement projection and an estate analysis. This roadmap charts their progress towards their goals and allows us to test new assumptions or scenarios against the overall plan. For Jerry and Elaine, we spent a lot of time showing how their various income streams and investment accounts would fit together to provide a $250,000 annual after-tax income.

The psychological impact of no longer having a regular paycheque and relying on their investment portfolio for income is not to be overlooked. A detailed cash-flow analysis and retirement projection, complete with conservative assumptions, alleviated the couple’s stress as it showcased a high probability of meeting their retirement income goals with a very low chance of ever running out of money. As we moved forward with Jerry and Elaine, we continually encouraged them to spend more money, demonstrating that their plan will support additional annual withdrawals.

Tax Planning
Due to Jerry being the breadwinner of the family, the majority of their investable assets are in his name only. We saw an opportunity to save significant tax dollars through a spousal loan strategy, where Jerry loaned Elaine $2,000,000 at a prescribed rate of 1.00%. Elaine then invested the monies and earned dividends, interest, and capital gains that are taxed at a much lower rate than Jerry would incur. As we do with many clients, we recommended that Jerry and Elaine sign a CRA Access Form which allows us to access and analyze tax returns, RRSP and TFSA contribution amounts and tax slips. During tax season, we put together a tax reporting package and sent it directly to their accountant so they had all the information needed to file an accurate return. In addition, we reviewed their tax situation annually to determine whether we should take advantage of any tax-loss selling in their investment accounts or perhaps withdraw funds from a taxable account like an RRSP. We work with all of our clients on their tax planning strategies as an efficient way to enhance their bottom line without taking on additional market risk.

Investment Planning
When we looked at Jerry and Elaine’s overall portfolio, we saw they were invested 90% in equities and 10% in fixed income. We noticed two significant risks – 20% of their portfolio was invested in one company and the majority of their equity exposure was in Canadian stocks. We recommended they invest no more than 5% of their portfolio in one company, increase their global exposure relative to domestic stocks, and increase the amount of fixed income investments to offer additional downside protection.

Our recommended portfolio for Jerry and Elaine was a pension-style asset mix of 65% equity and 35% fixed income, with 65% of their equity exposure in Global companies and 35% in Canadian companies. For the fixed income portion of their portfolio, we recommended a 15% allocation to Domestic Bonds, a 10% allocation to Preferred Shares and 10% to alternative fixed income hedge funds. We hire independent, third-party managers to manage a specific tranche of each client’s portfolio – and we hire these same managers to invest our own personal accounts.

Ongoing Stewardship
Jerry and Elaine’s expectations were greatly exceeded as we worked together to create a holistic, personalized wealth plan that addressed their unique needs and goals. Creating the plan is an integral first step in our process, but is only the beginning of our partnership – we meet quarterly to ensure all of our recommendations are implemented, updated, reviewed and revised on a regular basis as our clients make progress towards their goals and beyond.