blog13jan2008

Hot Off the Web
Jonathan Chevreau in “Fidelity targets boomers with new income replacement portfolios” writes in the Financial Post that Fidelity Canada introduced Fidelity Income Replacement Portfolios (introduced last year in the U.S.) which can complement government and employer pensions. Fidelity feels that these funds would be suitable for those who feel that they would like to spend more early in retirement or would like to defer receipt of their pensions. They offer eleven portfolios with target dates of 2017 to 2037 in two year increments, and offer professional portfolio management, asset allocation and withdrawal strategies and they are designed to exhaust the funds on specific dates. Fidelity feels that they have addressed what they believe are the risks to lifetime income: longevity, inflation, in appropriate asset allocation, excessive early withdrawals and dealing with healthcare expenses. The funds are accessible and while designed to provide regular payout, the monthly payments are not guaranteed, but are a function of the fund’s previous year’s NAV. You can find out more about this by going to Fidelity’s website at  (I perused the product description and the prospectus that it pointed to today but I couldn’t discern the management fees associated with these funds- a critical factor in making a decision to purchase or not these otherwise potentially useful funds to consider!)
In WSJ’s “Automatic 401(k) plans might not save enough”  Eleanor Laise discusses how the new and very progressive (and hopefully will be adopted in Canada as well) auto-enrolment approaches into company retirement plans which, while may increase the percentage of those enrolled, may not lead to adequate retirement savings by enrolled employees. This is because many employers set the level of auto-enrolment too low (e.g. 3% which is the contribution level that the typical employer matches), for fear that if the level is set too high, it will trigger many employees to explicitly opt out from the default. One approach suggested that may enhance the effectiveness of auto-enrolment is to also add an automatic contribution rate increases (sounds like a smart idea).
Tim Cestnick in Globe and Mail’s “Life, death, taxes, profits”  discusses “viatical settlements” which are the sale of an in force life insurance policy of somebody terminally ill or “life settlements” when the insured’s life expectancy is longer than 24 months. In essence this involves the sale of the policy to an investor who then continues paying the premiums on the policy and becomes the beneficiary when the insured dies. While in most Canadian provinces viatical settlements are not permitted, they are allowed in the U.S. There is a push from a number of sources to permit these in Canada as well, and while there still is some debate about how such payments should be taxed, these may become a very tax efficient investment and there are no taxes on life insurance death benefits.
And now, here are a couple of interesting retirement related, though non-financial items:
In “Learning to ask the tough questions of your surgeon” Laura Landro of the WSJ identified questions that you should ask your surgeon. Among the questions BEFORE surgery are: his frequency of performing of and results (success rate and safety record and complications) for this type of surgery, and existing health issues that may affect outcome. Questions suggested for AFTER surgery relate to: surprises during operation, changes in port-operative plans, complications.
In WSJ’s “In retirement, too, money isn’t everything” Jonathan Clements makes the point that it’s not enough to have money for retirement readiness. The other retirement ingredients are: (1) a plan (what will you be doing besides travel and golf?), (2) purpose (volunteering, counselling, coaching writing a book), (3) staying sharp (mental stimulation: part-time work or learning a language or a musical instrument), (4) relationships (social network- moving to a new place reduces opportunity for close relationships with old friends/family), (5) common understanding with spouse as to what retirement will look like, and (6) staying healthy (exercise and healthy eating).
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