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wealth preservation

Heidi Weaver, a certified financial planner with Time & Money Planners in Nepean, Ont.Dave Chan/The Globe and Mail

When Heidi Weaver sits down with many of her clients these days, the financial planner turns to a big chart on the wall and goes into a well-worn spiel.

First, they look at what the markets have done in the past 50 years. Then she runs numbers and predicts how much money the client will have to fund retirement – and she usually has to temper some expectations. After all, it's not always easy to leave the wealth accumulation phase and move into the preservation phase.

"It's unusual because for their whole lives they've been trying to earn more and chase the highest return. But we don't want to chase it any more because we know it's a roller coaster and they can't handle it right now," says Ms. Weaver, who is with Time & Money Planners in Ottawa.

Sometimes, preserving money – rather than going whole hog into the markets and investing in equities and other riskier vehicles – is the way to go. Think retirement, illness, job loss, getting ready to dip into RESPs for school, a change in career or when a marriage breaks down. When lifestyle shifts happen, moving money to safer options can make a whole lot of sense.

Ottawa-based financial planner Bona Savone says she starts talking about wealth preservation with her clients much earlier than she used to. When she started in the business 20 years ago, clients waited until they were practically out the door at work, gold watch in hand, to begin the conversation about shifting wealth into more conservative investments.

Now investors in their mid-50s are feeling antsy about holding on to their savings to fund retirement.

They also face more stress. Unlike their parents, who could depend on predictable income when they retired, today's baby boomer generation is faced with a financial security net full of holes.

"Between your pension, your CPP and Old Age Security, you were fine. Anything above that was a bit of gravy," Ms. Savone says. "But that's not the way it's going to be now. People are going to use most of their assets and there will be little left."

Deciding where to put that money is hardly a no-brainer, either. Even safer investments such as guaranteed investment certificates or certificates of deposit aren't what they used to be because they offer so little return. A 10-per-cent yield on a CD? That was so 1984. Today you're lucky if you earn a tenth of that.

"It's hard right now. If somebody calls me and says, 'What can I put my money in and I'm guaranteed to get 8 per cent?' The answer is, 'Nothing,'" Ms. Weaver admits.

And that's exactly why it's important to stay in the game and maintain equities in your portfolio even if you're ready to retire, says Ms. Savone, who adds that many of her clients think they have to move all the money into something conservative.

"They forget that at retirement, that money may need to last 20 or 30 years. It's really only 5 per cent of your portfolio you'll be taking out each year, so the rest needs to be invested to keep up with inflation," she says.

Rob McEachern, an independent financial adviser in Barrie, Ont., agrees, but still thinks it pays to be cautious. Two of his recent clients lived to be older than 100, and so he tends to plan using 40-year time horizons even for people reaching age 60.

"That's the new reality. People are living longer, but not necessarily healthier," he says.

Now when Mr. McEachern works with clients going through life changes, he puts a time-tested formula to work. First, he ensures his clients have a guaranteed income stream to cover shelter, food, clothing and other daily needs. Anything left over is placed in an emergency fund. Then, only if there is any money remaining, will he think about investing it in something riskier.

Yet no matter how much or little risk a client is willing to make, there's always one good way to get a double-digit return, guaranteed.

"If you have a credit card, you're much better to pay that off than put that money in a GIC," Ms. Weaver says. "From a financial planning perspective, it's the best use of your money at this point."

What the experts say:

  • “As you get closer to needing the money, you have to make adjustments. The five years before and the five years after retirement are the huge critical zones.” – Heidi Weaver, financial planner with Time & Money Planners in Ottawa.
  • “Reduce or eliminate exposure to volatile sectors of the market. There’s nothing worse than drawing income from an asset that is going up and down like a toilet seat.” – Lise Andreana, financial planner in Burlington, Ont., and author of No More Mac ’n’ Cheese: The Real World Guide to Managing Your Money for 20-Somethings
  • “RESPs have a short time horizon, so you need to start moving the money sooner to preserve what you have. Our office likes to use age 12 to start thinking about rebalancing the portfolio.” – Bona Savone, financial planner and elder planning counsellor, Independent Planning Group Inc., in Ottawa