March 30 - Ch 15, Retirement Income Planning

Post-retirement benefit

an additional retirement income benefit that you can earn if you are collecting a CPP retirement income, but you are still working and under 70 years of age

Normal retirement age

the age by which employees are entitled to receive 100% of the pension income for which they are eligible

Pension factor

the combination of age and years of pensionable service that will allow you to retire early with an unreduced pension

Registered Retirement Income Fund

A common alternative where you transfer all of your RRSP assets in the RRIF.

- both are very similar accounts, so all it takes is paperwork to transfer assets

- the main difference is that a certain percentage of the assets within an RRIF must be taken into income year after year and will be taxed

Term annuity

a financial contract that provides a fixed sum of money at regular intervals until a specified year

Life annuity

a financial contract that provides a fixed sum of money at regular intervals for one's lifetime

Registered annuities

annuities that are created using assets from an RRSP

- you are no longer exposed to the risk that your investments may decrease in value

Life income fund

a restricted form of a RRIF

- unlike an RRIF, there is an annual maximum withdrawal limit for a LIF which means that the investment in a LIF cannot be cashed in

Reverse mortgage

a secured loan that allows older Canadians to generate income using the equity in their homes without having to sell this asset

Longevity risk

the risk of outliving your retirement income

purchasing power risk

the risk that your retirement income will not be worth as much in the future as it is today

Sequence of returns risk

the risk that your portfolio experiences negative rates of return just as you begin making retirement income withdrawals

Cognitive impairment risk

the risk that you may not be able to make sound financial planning decisions due to cognitive impairment

Income only strategy

the retiree's retirement income consists only of the dividend income and interest income generated by their investment portfolio

Fixed dollar strategy

the retiree withdraws a fixed dollar amount from their investment portfolio

Constant percent strategy

the retiree withdraws a fixed percentage from the investment portfolio

- the value of the investment portfolio fluctuates, so how much you withdraw also fluctuates

- the challenge is to determine a withdrawal rate that can be sustained over the retirement period

Income bucketing strategy

allocating portions of your investment portfolio to bucket segment categories

- the bucket that has the least volatile assets could be used to provide retirement income in the short-term

Evensky and Katz cash flow reserve strategy

"two-bucket" cash-flow strategy that addresses the retirement risk factors mentioned earlier