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my money * * and how to make it grow

my money * * and how to make it grow. Preparing for Retirement University of Northern British Columbia. 1. Things to consider…. Residence. Individual activities. Health. Hobbies. Financial Aspect. Social life. Activities as a couple. Psychological aspect. 3. Agenda. Your plan

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my money * * and how to make it grow

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  1. my money**and how to make it grow Preparing for Retirement University of Northern British Columbia 1

  2. Things to consider… Residence Individual activities Health Hobbies Financial Aspect Social life Activities as a couple Psychological aspect 3

  3. Agenda • Your plan • Savings Phase • Retirement Income Phase 4

  4. Preparing for Retirement Your Plan 5

  5. Your Plan at a glance Defined Contribution Pension Plan (DCPP) Employee contributions You contribute 3% of monthly earnings up to YMPE and 5% above YMPE(YMPE for 2010 $47,200) Additional voluntary contributions are accepted Employer contributions UNBC contributes 8% of earnings up to YMPE and 10% over YMPE (up to revenue Canada limits) Eligibility: Immediate for regular employees who work more than 18 hours/week Participation: Compulsory Vesting and Locking in: 2 years of continuous service Transfers: Transfers in from other financial institutions are accepted 6

  6. Meet Robert • 10 years from retirement • 14 years of service with UNBC • Annual salary $50,000 • Contributes required amount to the DCPP • He is a conservative investor • He wants to ensure he is saving enough for retirement • Wants to grow his money and manage risk Savings Phase Retirement Income Phase 7

  7. Savings Phase Preparing for Retirement 8

  8. Plan Like Robert 9

  9. Robert’s assets 10

  10. Robert’s lifestyle in retirement 11

  11. Robert’s action plan 12

  12. Action Plan 13

  13. Action Plan 14

  14. Advantages of making additional voluntary contributions (AVCs) Gross Rate of Return 5.75 % Fund Management Fees: 0.75 % Annual Revenue: $50 000 $561,775 $388,387 You contribute 3.11%* Your employer contributes 8.11%* You contribute 3.11%* You contribute AVC of 5% Your employer contributes 8.11%* *based on plan formula and $50,000 income 15

  15. 3.11% Employee 5% Employee AVC 8.11% Employer 3.11% Employee 8.11% Employer Gross Pay $1,923 $1,923 Your contribution ( $60 ) ( $156 ) Employer contribution $156 $156 Less Taxes ($409) ( $405) Tax Savings ( $20) ( $54) Pay after taxes $1,424 $1,362 Cost after tax per day $7.28 $2.85 Effects of contributing to the maximum on your net salary Annual Salary $50,000 16

  16. Your Retirement Financial Challenges THE MARKET ROLLER COASTER OUTLIVING YOUR SAVINGS YOUR MONEY LOSING VALUE 17

  17. The market roller coaster $50,000 $40,000 $ 34,583 $ 28,893 $30,000 $ 19,632 $20,000 $ 17,120 $ 13,291 $10,000 $0 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Consumer Price Index DEX 91 - Days T - Bill Index DEX Universe Bond Index 18 S&P/TSX Composite Index S&P 500 TR (Bank of Canada) CAD Source: Morningstar.ca

  18. Outliving your savings 65 91 95 Retirement 50% chance one spouse will live to age 91 25% chance one spouse will live to age 95 Source: Canadian Institute of Actuaries – 1994 Uninsured Pensioner Mortality Table Projected to 2020. 19

  19. Your money losing value 1980 Today Cost of Groceries+ $21 $50 Cost of a car $6,715 $18,490* Cost of a house $110,292 $303,700** + Inflation impact of the cost of groceries is measured by the CPI sub-index for food purchased from stores; inflation impact on the cost of a car and house is based on the aggregate CPI. Data source: Statistics Canada * Canadian MSRP for a 2010 Honda Civic Sedan DX with air conditioning ** Average price for a detached bungalow in Canada, as at September 30, 2009 20

  20. Meet Robert • 10 years from retirement • 14 years of services with UNBC • Annual salary $50,000 • Contributes the required amount to the DCPP • He is a conservative investor • He wants to ensure he is saving enough for retirement • Wants to grow his money and manage risk • Adds my money for life coverage Savings Phase Retirement Income Phase 21

  21. Financial Challenges RETIREMENT INCOME PHASE SAVINGS PHASE • The market roller coaster • Outliving your savings • Your money losing value • The market roller coaster • Outliving your savings • Your money losing value • Financial Challenges in the Savings Phase and the Retirement Income Phase 22

  22. my money for life RETIREMENT INCOME PHASE SAVINGS PHASE He gets a stable and predictable income for life Robert’s savings protected from market volatility my money for life 23

  23. Insuring Robert’s registered retirement savings REER 50 000 $ RRCD 100 000 $ DCPP $100 000 • DCPP without coverage • DCPP with my money for life • Robert decides to add my money for life on his entire DCPP balance DCPP $100,000 24

  24. REER 50 000 $ RRCD 100 000 $ + CONTRIBUTIONS $5604 – WITHDRAWALS $0 = NEW BENEFIT BASE $105,604 Benefit Base • The Benefit Base is the starting point used to calculate Robert’s annual income guarantee • Robert allocates $100,000 of his retirement savings to my money for life • He contributes $467 to DCPP per month for a total of $5604 annually • At the end of the first year his Benefit Base is $105,604. BENEFIT BASE $100,000 Assumptions Does does not reflect market increases 25

  25. Benefit Base Resets Assumes the following annual sequence of returns: Year 1: -15%; Year 2: 6%; Year 3: 8%; Year 4: 9%; Year 5: 11% ….repeat. 27

  26. my statement • my money for life is reported separately from your uninsured savings on your statements • Semi-annual statement can be viewed online • Annual statement mailed directly to your home 27

  27. Investment options You must have 40% of your money invested in Fixed Income Investment. Minimum 40% Up to 60% *Not eligible for my money for life 28

  28. Investment choice and fees You must have 40% of your money invested in Fixed Income Investment. 29

  29. Action Plan • Review page 2 and 3 of your annual expense worksheet to help you determine your needs. • Complete the Retirement Planner online or consult a financial advisor • Review periodically your investment strategy 30

  30. Preparing for Retirement Retirement Income Phase 31

  31. Government Retirement Programs Government Programs • Canada Pension Plan • Old Age Security • Guaranteed Income Supplement • Allowance For more information • CPP/OAS/GIS/Allowance - 800-277-9914 or www.servicecanada.gc.ca 32

  32. Canada Pension Plan (CPP) - Overview • Designed to replace 25%of the earnings on which you contributed over your working life • Retirement pension paid to people who are at least 60 years of age • Conditions apply in order to draw an early pension • Pension is reduced if taken before age 65 and increased if taken after age 65 • Need to apply (6 months in advance) 33

  33. CPP - Eligibility to apply from ages 60 to 64 Stop working • Not working by the end of the month before the pension begins and during the month that it begins OR Have low earnings • Earn less than the current maximum retirement pension amount in the month prior to starting to collect and during the month that it begins 34

  34. Old Age Security (OAS) - Overview • Payable to anyone who has lived in Canada for a minimum of 10 years between the age of 18 and 65 • Maximum pension paid if you lived in Canada for more than 40 years between the age of 18 and 65 • Eligible at age 65 (must apply) • Clawback provisions exist based on your other income 35

  35. OAS – Clawback income threshold • If your net income is above $66,733 there is an OAS clawback (repayment) to part or all of your OAS payments • Full OAS is eliminated when your net income is $108,090 or above 36

  36. How much might I get from the government? $934.17/mth ($11,210/yr) $518.51/mth ($6,222/yr) $518.51/mth ($6,222/yr) $560.50/mth ($6,726/yr) $505.11/mth ($6,061/yr) $489.12/mth ($5,869/yr) 37

  37. Preparing for Retirement Retirement Income options 38

  38. Retirement income options for DC pension plans Life Income Fund (LIF) Annuity 39

  39. Annuities - Overview • Series of future payments in exchange for a lumpsum today • Irrevocable once purchased • Sensitive to interest rates at time of purchase • Once your beneficiary passes on, payments will cease under most circumstances • Does not require active management • Is not affected by financial markets 40

  40. What’s $100K worth? Joint life annuity – Male aged 65 with Female spouse aged 65 Guaranteed 60% 100% Joint life annuity – Female aged 65 with Male spouse aged 65 Guaranteed 60% 100% These rates are shown for illustration purposes. They are subject to change without notice and current as of the time of writing. 41

  41. What’s $100K worth? Guaranteed Male, aged 65 Female, aged 65 These rates are shown for illustration purposes. They are subject to change without notice and current as of the time of writing. Payments are coded in gross dollars. taxes still apply. Annuity calculations are proprietary and this Information will not be divulged 42

  42. Retirement income options for DC pension plans Life Income Fund (LIF) Annuity 43

  43. Life Income Fund (LIF) - Overview • Money in a LIF continues to grow tax deferred as long as there is money in the plan • Money can be invested in various options (e.g. mutual funds, stocks, bonds, GICs) • Begin to draw a retirement income from the account (page 4) • Annual minimum amount applies (from Income Tax Act) • Annual maximum amount applies (from Pension Acts) • Minimum withdrawal required – at age 65 it is 4% of the market value on January 1st • Maximum withdrawal restriction is the greater of: • The previous year’s investment earnings; or • The maximum established by a government formula – at age 65 – 7.20% 44

  44. Life Income Fund (LIF) - Features • A beneficiary can be designated • Upon death, the balance of your account is transferred to your beneficiary on a locked in basis • An annuity can be purchased at any time Call the Customer Solutions Centre at 1- 866-224-3906to understand your options 45

  45. Retirement income options for RRSPs Registered Retirement Income Fund (RRIF) Annuity 46

  46. Registered Retirement Income Fund (RRIF)- Overview • Money in a RRIF continues to grow tax deferred as long as there is money in the plan • Money can be invested in various options (eg. mutual funds, stocks, bonds, GICs) • Begin to draw a retirement income from the account • Annual minimum amount applies (from Income Tax Act) • Annual maximum does not apply! 47

  47. Registered Retirement Income Fund (RRIF)- Features • Can close anytime and take cash (less tax) • A beneficiary can be designated • An annuity can be purchased at any time Call the Customer Solutions Centre at 866-224-3906 to understand your options 48

  48. ANNUITY LIF/RRIF RETIREMENT INCOME Guaranteed for life Guaranteed for life Not guaranteed for life INVESTMENT CHOICE None Yes Yes None None Yes MARKET AND INFLATION RISK Varies Market value Market Value DEATH BENEFIT Comparing retirement income products 49

  49. RETIREMENT INCOME PHASE SAVINGS PHASE He gets a stable and predictable income for life Robert’s savings protected from market volatility my money for life my money for life 50

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