Stewart, 64, of Port Alberni, B.C.: Virtually all advisers say that in retirement you should split your investments between equity-based and fixed-income vehicles. My question is: if you are retired and have a company pension that more than covers your needs, does it really matter if you go 100-per-cent equities?
Ms. Birenbaum has worked in financial services for over 25 years within the Credit Union, full-service brokerage and independent Financial Planning industries
Rona Birenbaum is a certified financial planner who founded Toronto-based Caring For Clients in 2000.
Stewart, you’re correct that one size doesn’t fit all. Asset allocation should be driven by:
· investment objective (growth, income, safety, blend);
· rate of return required to meet the objective;
· time horizon (For retirees there are two: how soon will withdrawals be needed; how long will you live);
· other sources of retirement income (pensions, real estate divestiture, inheritance);
· tax considerations;
· investor risk tolerance.
If you have a high risk tolerance and your objective is to grow the portfolio to maximize your estate over the long term for beneficiaries, then an all-equity or equity-fund portfolio can make sense.
Before recommending an all-equity fund asset mix, our firm would prove this premise through a financial projection analysis that considers what could go wrong. As an example, if either of the following occurred during an equity bear market, the results could be problematic:
· reduction in your pension benefits due to corporate hardship (e.g. Nortel);
· significant off-budget requirement, such as the need for extraordinary medical expenses.
Note also: Financial regulators are now taking a protective approach in relation to seniors and asset allocation (IIROC and MFDA consider anyone over age 60 to be a senior). Protecting seniors is a priority in their oversight and complaint review activities.
As an adviser, I would have to:
· make a very clear case why an all-equity fund allocation is appropriate for someone over 60, even in your generous pension-income circumstance;
· clearly document the full financial planning case and your desire for and understanding of a 100-per-cent equity-fund allocation;
· require you to sign off on all aspects of the strategy.
This would be for the benefit of the compliance officers of my investment dealership, but also to protect me should you have a change of heart in the event of a stock market crash. Regulators start from the position that seniors are vulnerable and unsophisticated – advisers must tread very carefully with their advice.