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CHAD HIPOLITO/The Globe and Mail.

After several years of managing her own investments successfully, Judith is wondering if it is time to turn over her portfolio to a professional. She is single, 68 and living in Victoria.

Judith has a defined benefit pension that pays her $2,940 a month, partly indexed to inflation. She also gets Canada Pension Plan and Old Age Security benefits that add up to about $1,650 a month for a total of about $55,000 a year.

Judith thinks she's in good shape financially, but she would like a second opinion. As the years go by, she is growing more risk-averse and "not as in tune with my investing," she writes. She admits to "being delinquent" about rebalancing the asset allocation in her portfolio.

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Judith wonders, too, whether she has enough money to take a big trip every second year and still be able to afford to move to a good-quality assisted-living residence when she gets older or even a good nursing home if she eventually needs to.

We asked Warren MacKenzie, head of financial planning at Optimize Wealth Management in Toronto, to look at Judith's situation. Mr. MacKenzie holds the chartered professional accountant (CPA) designation.

What the expert says

Judith's pension and government benefits are enough to meet her current lifestyle needs so she does not need to draw anything from her savings, Mr. MacKenzie says.

Looking at the question logically, Judith thinks that she is probably going to be okay. But she doesn't have the confidence to fully enjoy spending $10,000 every other year travelling. That's because her emotional side takes over and she has the nagging fear that some day in the future she's going to regret spending this money, Mr. MacKenzie says.

"To be able to truly enjoy her trips, she needs a financial plan, one that she understands, and which clearly shows how much she can spend annually without the danger of running out of money or having to settle for a second-rate retirement home."

After running the numbers, Mr. MacKenzie says that as long as Judith earns a rate of return equal to inflation plus two percentage points each year (on average), she will be able to achieve all her financial goals, including a travel budget of $10,000 every other year. So if inflation is running at 2 per cent a year, she'd need a 4-per-cent return net of fees.

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"However, while she has enough capital to achieve all her goals if she manages her money wisely, she may not have enough if she makes a few big investment mistakes," the planner says.

"To avoid the possibility that a market crash will result in her needing to choose a second-rate retirement home, it is important that she takes no more risk than is necessary to achieve her goals," he says. "It is also important that she follow a disciplined rebalancing investment process." Judith admits that she has not been rebalancing her portfolio as often as she should.

As well, she is concerned that there may be a significant stock market pullback in the next year or two. Her allocation to equities is currently about 75 per cent, so she wonders if she should reduce this exposure.

"Even though she has a defined-benefit pension plan, the perfect asset mix for Judith would be a 'goals-based' one where the asset mix is determined based on the rate of return that is necessary for her to achieve her goals," the planner says.

Judith is wondering if it is time to stop managing her capital herself and turn it over to a professional, and if so, who should she choose, Mr. MacKenzie says. "Because she has no close family member to act on her behalf, one of the most important considerations is that she works with a person or firm that holds itself to the fiduciary standard of care," he says. Such advisers are obliged to act in the best interests of their clients and within the constraints of an investment policy statement.

Fiduciaries would include licensed portfolio managers, investment counsellors and robo-advisers. "For most do-it-yourself investors, if they don't have a family member to act on their behalf when they grow older, it is not a question of 'should they work with a fiduciary,' but rather 'when should they start to work with a fiduciary,'" he adds.

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"To enjoy her retirement, Judith also has to use her money wisely," the planner says. She needs to be clear on her goals. Her financial plan should show how much of her capital is essential, or required to achieve her goals, and how much is surplus, or money that could be spent or given away. (She has been giving a substantial sum to charity, drawn from her investments, but is planning to cut back from about $10,000 a year for the past five years to $5,000 this year.)

Based on the above assumptions and her moderate lifestyle, Judith should have more than $1-million in future dollars at 90, the planner says. "To get the most happiness in this life, Judith should plan to spend more and/or give away some of the capital she has accumulated."

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The person: Judith, 68

The problem: Is she set financially? Is it time to hand over management of her portfolio to a professional?

The plan: She can meet and surpass her goals but it would be better to look for a professional money manager who holds to the fiduciary standard, such as an investment counsellor or robo-adviser.

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The payoff: Peace of mind

Monthly net pension and benefit income: $4,585

Assets: Bank accounts $25,000; non-registered investments $281,750; RRSP $236,000; residence $450,000; estimated present value of defined benefit pension plan $550,000. Total: $1.5-million

Monthly outlays: Property tax $165; home insurance $80; utilities $180; garden $100; transportation $255; groceries $325; clothing $85; gifts $50; travel $500; dining, drinks, entertainment $280; personal care $25; pets $150; sports, hobbies, clubs $80; other personal $220; dentists, drugstore health insurance $115; phone, TV $165; TFSA $460. Total: $3,235

Liabilities: None

Want a free financial facelift? E-mail finfacelift@gmail.com Some details may be changed to protect the privacy of the persons profiled.

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