All posts by Adrian Mastracci

Can your pension plan pay out for 30 years?

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Piggy bank sculpted in sand on sandy beach“Keep close watch on the financial health of your pension plan. The family retirement depends on it.”

A worthy nugget of information often lands within my purview: one that musters important implications for investors.

A recent US headline read “State pensions are awash in red ink.” The estimated shortfall ballpark was 1 trillion dollars. Ouch! Today various pension plans are underfunded, while others could easily be heading that way. Some pension income benefits may be reduced if the weaker funding levels don’t improve.

Say your family plans to retire around age 60 with a pension and at least one spouse lives to 90. Ask this critical question: “Can your pension pay expected benefits for 30 or more years?”

Anyone who is a member of a pension plan should take note of this unsettling situation: those who are still contributing, along with those now receiving pension benefits.

Pension plans rely on three sources of funding:

  • Employer contributions
  • Employee contributions
  • Investment returns

Ongoing low returns are devastating for many pension plans. Longer life expectancy places additional demands on pension payouts.

Some pension plans may incur problems in paying all the promised benefits. Every pensioner should assume all pensions can undergo changes – even CPP, OAS and Social Security.

Participating in pension plans may mean making some irreversible decisions.
Notable pension events occur when:

  • A choice is presented to join a pension plan, buy back past pension service or retire normally or early.
  • An early retiree is offered the option of staying with the pension plan or transferring the commuted value.
  • Accepting a commuted value shifts responsibility to provide in retirement to the employee’s hands.
  • Switching from defined benefit to defined contribution keeps the employee working longer.

Steady pension income has always been an important part of the retirement puzzle for many families.  Pension reductions can rattle some pillars and assumptions of retirement planning.

Consider what could happen to the retirement plan if the expected pension was reduced, say by 30%. Here are some key matters that arise:

• How would you make up the potential income shortfall?

• How much more investment capital would you require?

• Is there sufficient time to accumulate the additional funding?

Pension administrators typically provide an “annual pension summary.” Upon receiving the summary, every pension member should:

• Check the estimated funding level with the pension department.

• Review the most beneficial pension options to achieve family goals.

• Determine whether it’s more desirable to commence the pension early or later.

• Understand the implications of pension income splitting and $2,000 credit.

No doubt some retirement plans will face difficult choices. Hence, I favour starting this analysis at least five years before retirement. Long-term income goal adjustments may be necessary. There are no simple answers, even for pension plans that are rock solid today.

Be savvy and don’t assume that your pension remains iron clad forever. It may be called upon to deliver benefits for 30 years, perhaps more.

AdrianAdrian Mastracci, MBA,  is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios

Is your investing style to preserve or perform?

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Many investors tell me they want the highest returns for the least risk. However, savvy investors know that to be a myth.

A periodic reassessment of the facts is time well spent for every investor. One where plenty of frankness prevails.

For example, step back and revisit your investor style. Even rethink if it truly fits the financial goals you seek.

My question helps:
“What drives your investing style: “preserve” or “perform” ?

Let’s define these two types:

1.) “Preserve” investors care first about risks they incur. They lean toward capital conservation.

2.) “Perform” investors seek high returns with less concern for risks. They prefer more exciting growth strategies.

Rightly or wrongly, my observation is that the majority are clearly driven and sold by performance. Their exuberance too often chases fleeting past performance, a mugs game at best.

Wise investors know that some portfolio preservation is desirable strategy. However, performance just has far more cachet and always will.

Every family needs to find their acceptable investing balance. That is, between becoming too conservative and throwing caution to the winds.

Establishing your profile

Continue Reading…

Contrarian investing near market tops

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Stock market positive forecast financial concept and contrarian individual financial symbol as a courageous bull running in the opposite direction of a group of bears as an investing trend symbol.“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” — Warren Buffett, the Oracle of Omaha.

Overview: Investing near or at market tops is a skill worth having. Is it time to revisit your approach?

Well, this is a pleasant surprise. Many stock market indices are hovering either at or near the top.

Nearly six weeks ago practically all stocks were getting their wings clipped.
Suddenly, interest in stocks has soared to lofty heights well above the clouds.

The question becomes “how does one invest in stocks now that most people are interested?” Something we have not had to contemplate for about a year.

My view is that contrarian strategy delivers rewards in the long run. Risk is ever present; however, emphasis on quality investments tames the turmoil.

Contrarians know that bulls and bears can swap chairs abruptly with little or no warning.
Contrarians are content with either market direction.

I highlight contrarian investing for both advancing and falling markets: Continue Reading…