blog28oct2007

Hot Off the Web
In “Minimizing the pain of withdrawal”  the Financial Post’s Chevreau writes about the complicated (usually means expensive) new products becoming available in Canada like Income Plus (Manu Life), a variable annuity with downside protection and participation in the stock market returns; also TSWP (Fidelity), TFLEX (AIM Trimark) and Series T (Franklin), aimed at getting regular income from a non-registered equity portfolio in a tax efficient manner. RRSP at age 71, usually are turned into RRIFs (preferably) or annuities. (When you hear annuity, keep in mind that you are trading off a higher income for zero residual value for your estate). But some planners think a significant but decreasing allocation to equities coupled with an increasing withdrawal rate with increasing age (reduced horizon) is a better solution. (For example a 4%, 5%, 6% and 7% withdrawal rate at age 60, 70, 80 and 90 with equity allocations of 55%, 45%, 35% and 25% may be a workable solution for some).
Richard Croft in Financial Post’s “Withdrawal course needs planning”  also talks about withdrawal strategy. After stating that generally tax advantaged investments (stocks) should be kept outside, and not tax friendly investment (bonds) inside, of RRSPs he moves on to his view of five approaches: bonds, preferred shares, income trusts, common shares with growing dividends, and covered call writing (for additional income) on “good-quality-blue-chip” stocks; a 20% weighting in each of these strategies will provide a 6% income stream.
“More people are freezing credit reports”  as they worry about identity theft. WSJ’s Jane Kim reports that most US states now permit individuals to block access to their credit records; unfreezing typically can take about three days and there is a fee. The disadvantage is that if you need a new mortgage or credit card, or you change jobs you will need to explicitly unfreeze your record. For some that will be a small price to pay to be able to stop worrying from being victimized.
In Financial Times’ “Words of wisdom don’t come cheap”  James Altucher shares some wisdom learned in his investment career: “I only worry about what’s in my pocket. I don’t worry about what’s in your pocket” and the “20-6-3-1 rule” whereby if you contact 20, 6 respond, 3 you visit and deal closes with 1!
Jonathan Chevreau in “Retirees need 80% of their working income” reports the debate on whether retirees need 80% of their preretirement income, or they can make do with 50%. The argument rages around the fact that when you retire you will likely have disposed of your mortgage, as well as your children’s education expenses and you no longer are saving you can make do with 50% of pre-retirement income; those are all true but still the issue is not pre-retirement income, but pre-retirement spending (life-style) and ideally you would like to maintain that at 100% or for some even more than that since now they have leisure time for more travel or a second home.
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