Retirement Week 1 (Sept.8/26)

What are the 4 major retirement risks?

• Investment risk — not be worth as much as expected.

• inflation risk

• longevity risk

• taxation risk — taxes/tax changes reduce spendable income.

What is longevity risk?

The risk of living longer than expected and running out of retirement savings.

What is inflation risk?

The risk that inflation reduces the purchasing power of retirement income.

What is the difference between nominal and real dollars?

• Nominal dollars are not adjusted for inflation.

• Real dollars are adjusted for inflation and show today's purchasing power.

What is the difference between a nominal and real rate of return?

• Nominal return is the stated return including inflation.

• Real return is the return after adjusting for inflation.

What is indexed vs. non-indexed income?

• Indexed income increases with inflation.

• Non-indexed income stays fixed, so its purchasing power decreases over time.

Indexed income → what is the discount rate?

Indexed income → Real discount rate.

Non-indexed income → what is the discount rate?

Non-indexed income → Nominal discount rate.

What is bracket creep?

• Inflation increases nominal income enough that more income is taxed at higher rates

• even though real purchasing power may not have increased

What is the difference between registered and non-registered investments?

• Registered: (RRSP, RRIF, TFSA) Tax is generally not included in the same way during the accumulation/growth period.

• Non-registered: Tax may be paid annually as investment income is earned.

What is a life annuity, and what risk does it address?

A life annuity provides income for life and helps reduce longevity risk.

What is the difference between a life annuity and lump sum?

• A life annuity provides income for life but less flexibility.

• A lump sum provides more flexibility, but the client must make the money last.

What is TVM?

• Time Value of Money

• money today is worth more than the same amount later because today's money can earn a return.

What is an ordinary annuity vs. annuity due?

• Ordinary annuity = payments at the end of each period.

• Annuity due = payments at the beginning of each period.

Beginning vs. end → which annuity?

• Beginning → Annuity Due.

• End → Ordinary Annuity.

What is Step 1 of the retirement planning process?

Gather financial information.

What is Step 2 of the retirement planning process?

Prepare financial statements.

What is Step 3 of the retirement planning process?

Quantify goals.

What is Step 4 of the retirement planning process?

Prepare budgets and estimate retirement spending.

What is Step 5 of the retirement planning process?

Calculate required retirement savings.

What is Step 6 of the retirement planning process?

Monitor and make changes.

What belongs in a Statement of Cash Flows?

Money coming in and going out

What is the accumulation period, and why does starting early matter?

• The accumulation period is the time spent building retirement savings.

• Starting early gives more time for compounding and growth.

What factors determine the amount of retirement savings required?

• Retirement lifestyle

• retirement age

• length of retirement

• inflation

• rate of return

• existing savings

• pension income

• government benefits

• taxes