How to Retire Well... A True Story

September 2016

 

We are often asked about our investment performance. People want to know if we "beat the market". But investing is only a means to an end to achieve goals like funding retirement, so I think it is more important how clients have done in meeting their financial objectives. I measure my success by the number of satisfied clients. The story of one family's actual results may be more informative than trying to put a number on performance relative to some market index.

Don and Marlene (not their real names) are in their late 60's and have been fully retired for the last six years. Don was an accountant while Marlene was a nurse. When Don's practice was acquired in 2004, he received a large cash settlement and decided it was time for a new investment approach to manage this additional wealth. He was referred to me by a mutual business associate. Don, a prudent financial professional, also conducted an interview process with other brokers and investment counsellors, but decided to join us after considering our full service offering and investment approach, as well as his business associate's recommendation.

Don and Marlene transferred their RRSPs and a joint non-registered account totalling approximately $2.4 million. Don continued to do some consulting for a few years and Marlene continued nursing for a time. Meanwhile, they started monthly withdrawals of $8,000 as Don no longer had a regular salary. Don was used to being careful with money and prepared his own budget and financial plan which he monitored closely, along with the family's investment accounts. Like myself, or anyone operating a business, Don was focused on cash flow.

Several years later, Don and Marlene decided they could fully retire and take $10,000 per month to fund their lifestyle expenses, plus occasional withdrawals for special items like income taxes. Eventually they sold their house in the Toronto suburbs and built a family home on a lake in cottage country. Meanwhile, they kept the ski chalet where the family had enjoyed winters for many years. Their lifestyle was not ostentatious, but they have been able to maintain these two properties offering seasonal resort-style accommodation for themselves, their children, and grandchildren. Life for them revolves around outdoor activities and quality time with family and friends. Don and Marlene are happy….they have retired well.

But how have they done in terms of investing? Consider that Don and Marlene have been through the federal government's elimination of income trusts in the fall of 2006, the market crash and financial crisis of 2008, the commodities bear market since 2011, and the sell-off in oil and gas that began in late 2014. But they do not worry about their portfolio performance or individual securities day-to-day. They have given us discretionary management of their accounts so they can focus on the more important business of enjoying their retirement.

That is because Don and Marlene have more money today than the $2.4 million they started out with 12 years ago. Yet, over that time, they have made net withdrawals of more than $2.3 million. Further, the regular monthly income generated by their portfolios usually exceeds their spending budget. That means they do not have to sell any of their investments in order to pay the bills. And they should have a healthy estate to leave to their children and grandchildren. Of course, what has happened over the years since 2004 is no indication of what markets may do in the future and not every family will have the same asset allocation and investment objectives as this couple. Their past performance should not be taken as any indication of the future results you might achieve. But I offer this not so much as an example of investment returns but rather as an illustration of the importance of preparing for retirement and working with a suitable advisor to achieve your goals.

Don and Marlene are satisfied clients because they have achieved the objectives of their retirement plan – they have funded a wonderful retirement and are not worried about outliving their capital. So I can say our performance has been good based on this outcome after 12 years of working together. But you have to give credit to Don and Marlene themselves. They worked hard and saved for retirement. They planned and budgeted, then stuck to their plan and lived within their means without overspending. And they found a financial advisor they could trust to understand their needs and share their vision for life in retirement. They worked with that advisor and stuck with their investment strategy even in difficult markets like 2008. Well done, Don and Marlene, well done.

 

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