Dale Jackson

Personal Finance Columnist, Payback Time

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If things go right, there comes a point in the life of a retirement investor when a strategy to accumulate wealth shifts to a strategy to preserve it. 

That shift should happen over a period of time and it’s different for everyone depending on how much they have accumulated and how much they will need to live out their lives.
 

INVESTMENT ADVISER VERSUS FINANCIAL ADVISER

Doing it properly most often takes the skill and experience of a professional adviser, and a realistic investor. It’s a tectonic transition from a saving plan to a spending plan that could mean ditching your old investment adviser, who focuses on specific investments, to a financial adviser. 

A financial adviser (also known as wealth adviser) takes a more holistic approach that could include a team of specialists in areas including investing, accounting, legal matters, tax strategies and estate planning. Other specialists could be consulted for clients with cross-border financial interest, as an example. 

It’s important to check their credentials and ensure they match your needs. It’s also important to keep your plan up to date as personal circumstances change.
 

SHIFTING RISK/RETURN INVESTMENT DYNAMICS

In most cases, wealth management is conditional on your investments continuing to grow in value relative to inflation. Shifting the priority from wealth accumulation to wealth management, however, requires a serious reduction in risk. As a result, return targets should also be lowered.

The process of lowering risk should be ongoing as you age and the time to draw your savings nears, but the process is accelerated as capital preservation becomes a priority.

Your portfolio should always remain diversified; but high-flying, speculative investments with the potential for big returns should give way to more conservative investments with lower but more certain returns.  
 

MAKING INCOME A PRIORITY

In addition to a more conservative equity portfolio, wealth management calls for reliable income streams to ensure the cash is there when you need it.

As a general rule, advisers recommend reducing the total portion of equities in a retirement portfolio over time and increasing the fixed income portion of the portfolio to act as a cushion if stock markets plunge.

While government bonds and guaranteed investment certificates (GICs) offer the ultimate in safety, rock bottom yields could make it impossible to hit return targets.

Until interest rates return to higher levels, the only practical substitute for fixed income is income generated from dividend stocks and other income investment products like real estate investment trusts (REITs).

Keep in mind that income payouts from dividend stocks and REITs are at the discretion of the company, and the underlying investments rise and fall at the discretion of the open market. It’s important to take that into consideration when evaluation the risk/return dynamics. 
 

TAX AND ESTATE PLANNING

The shift from putting money into your nest-egg to taking it out has huge tax implications. Registered retirement savings plan (RRSP) contributions and the gains they generate over time, for example, are fully taxed when they are withdrawn.

A good wealth manager will formulate a strategy to withdraw taxable income from a company pension, RRSP, Canada Pension Plan (CPP), or (if you qualify) old age security (OAS), at the lowest possible marginal tax rate and top up any additional funds you may need from non-taxable sources like a tax-free savings account (TFSA).

Wealth managers can also provide tax efficient will and trust services, or business succession plans.
 

WEALTH MANAGEMENT FEES

Wealth advisers can charge a flat fee for services, collect commissions based on investments traded in a portfolio, or both.

Fees are often based on a client’s total assets under management (AUM). The typical fee for a high net-worth client with one million dollars is one per cent, but it is generally lower for clients with more money and higher for those with less.

Any fees mean that much less to enjoy in retirement: so be sure to understand what you are paying