The financial markets’ start to the year marked in red ink, coupled with an inflation rate not seen in 30 years, is worrying retirees, if we are to believe the emails that readers sent to The Press the day after last Monday’s stock market rout, when North American stock markets fell another 2 to 5 percentage points.
Posted at 5:00 a.m.
“We are living in an unusual moment, agrees Ruben Antoine, portfolio manager at Tulett, Matthews & Associés, in an interview with The Press. In a balanced portfolio, the role of bonds is usually to resist when the stock market starts to fall. However, this time, equities have a negative return, bonds have a negative return – those with a long duration have fallen by 20% – and even cash has a negative return with the inflation that we know. »
To minimize unpleasant financial surprises in retirement, says Fabien Major, financial planner and wealth management advisor at Assante Capital Management, Team Major, “the solution lies in cash-out planning.” “When we make a financial plan, we will tell the person: here is your income and here is your leeway. A person who has no idea of his room for maneuver should quickly review his financial plan,” he advises.
The Press contacted four readers whose retirement plans have been turned upside down by the turn of the markets.
What to do in the event of an unexpected expense?
“If it weren’t for a situation that forces me to spend a good amount of money to help my daughter, the bear markets wouldn’t bother me more than necessary”, tells us Thérèse Nadeau, retired psychologist and seasoned independent investor.
Her daughter has just separated and must buy back the share of the condo belonging to her ex-spouse. Our reader from Saint-Hyacinthe proposes to advance a down payment of $25,000 that she intended to pay by taking her profits from her portfolio, which she has managed with great care for more than 20 years. She views her provincial government pension plan as the “fixed income” portion of her estate.
Rather than materialize the losses in her portfolio, she plans to borrow $25,000 on the mortgage margin, even if it means paying only the interest while waiting for the markets to recover the lost ground. She is also toying with the idea of selling shares of pharmaceuticals Pfizer, which has held up better so far than the market in general. The shares are in his TFSA.
Based on the parcel information at his disposal, the financial planner Fabien Major suggests to Mme Beaulieu to have a disbursement plan prepared based on the two scenarios she is considering before deciding anything, “to minimize the impact on her future retirement income”.
Will his plan hold up?
Danielle Beaulieu, 66, only started receiving her government pension last April. Last year, she decided to transfer her locked-in retirement account from Épargne Placements Québec to the firm of her new financial advisor. He has prepared a plan for disbursing $15,000 a year in his savings for the first years of his retirement. Assuming an annual return of 4%, his savings will run out at age 92. She worries about inflation since neither she nor her spouse receive an indexed retirement pension.
“If her plan was made with a probability analysis that takes into account exceptional events, if the inflation assumptions used were prudent, I am not very worried about her, believes Fabien Major. We should not worry too much about the extraordinary events we are currently experiencing.
PHOTO DAVID BOILY, LA PRESSE ARCHIVES
Fabien Major, Financial Planner and Wealth Management Advisor at Assante Capital Management, Team Major
“The year 2022 is not over, continues the financial planner. We cannot project that we are going to lose 22% every six months on the American markets. It doesn’t work like that. When it goes down quickly, it can go up even faster. »
A country house to renovate
Denturist by profession, Richard J.* retired last year.
“I have a concern about the decline in the stock markets, because being recently retired, our stock market investments to fund our retirement are visibly falling and inflation is also playing against us”, we were told. he writes on Tuesday, the day after the bleeding of the markets.
The 65-year-old man manages the budget for the major renovation of his vacation home in Magog himself, he explains to us in an interview. He wants to receive his five grandchildren while their health is good. His plan was to pay half the bill in cash and finance the other portion from his mortgage line. Unfortunately, the values of his portfolio have been falling since the beginning of the year and the financed portion will cost him more with the rise in mortgage rates. “The rates should not increase by another two percentage points, we have reached the limit quite a bit,” he sighs.
“When you have a choice,” says Mr. Major, insisting that he is speaking generally, knowing neither the financial situation nor the investor profile of Mr. ‘we’re going to pay and the highest rate is the one we’re going to keep for ourselves’.
“After a 20% loss in the markets, he adds, the probability of a return for the next year on his portfolio is probably greater than a mortgage margin of 3, 4 or 4.5%. »
Retirement plans put on hold
“It’s worrying since I am a young retiree,” wrote Sylvie H.*, who worked as an inspector at the Canadian Food Inspection Agency. “To see your investments drop to this point is still a little stressful. Since the majority is already invested in private management in a balanced portfolio. »
On the phone, Sylvie tells us of her dismay. “Since January, it has been going down. However, I have plans for a young retiree: landscaping for my new house, road trip to Florida, replacing the SUV with an electric vehicle. Worried about the global situation, she decided to postpone everything for at least two years.
She lives as a couple. Only one of the two adults is lucky enough to receive a guaranteed regular pension income. She has savings covering two years of extras. She has been dealing with a financial advisor for a year. She estimates her withdrawals at $30,000 to cover recurring expenses and special retirement plans.
PHOTO MARCO CAMPANOZZI, PRESS ARCHIVES
Ruben Antoine, portfolio manager at Tulett, Matthews & Associés, in Montreal
“In the event of special expenses, agrees Ruben Antoine, the choice often comes down to borrowing, which becomes more risky with the rise in interest rates, or materializing its losses by selling its shares. In the current environment, says the portfolio manager, deferring discretionary spending is not a bad choice.
To get out of this dilemma, Mr. Antoine is used to establishing the short-term financial needs of his clients, including extraordinary expenses, and securing the sums in easily accessible guaranteed vehicles.
* The first names are fictitious, but the cases are real.
A disbursement plan, what for?
The payout plan is about maximizing assets set aside for retirement by ensuring savings last as long as needed. A disbursement plan focuses on standard of living at retirement and recurring income. He also plans for special expenses that are sure to arise during retirement. It determines the shortfall and makes up for it with the disbursement of amounts set aside for retirement, seeking to minimize the tax impact. The plan makes conservative assumptions about annual returns and inflation. It provides flexibility and should be reviewed periodically.
Source: Assante Capital Management, Team Major