1. Managing Money – Post
Retirement
• Jim Dunne BBS QFA FLAI
• IF Financial Advisors
• 086 827 3717 or 065 6845 111
• jim@iffinancial.ie
• For more see www.iffinancial.ie
Sept 2014
10. Inflation trap
The real purchasing
power of your money
declines in a period of
high inflation.
11. 11
Impact of Inflation
2% 4% 6%
Inflation
Time
Year 0
Year 5
Year 10
Year 15
Year 20
€ 10,000 € 10,000 € 10,000
€ 9,039 € 8,154 € 7,339
€ 8,170 € 6,648 € 5,386
€ 7,386 € 5,421 € 3,953
€ 6,676 € 4,420 € 2,901
12. Why am I investing ?
• To provide for my retirement
• To provide for my children
• Non-financial reasons
• Holiday home
• My dream retirement career
14. 14
Post Office
Savings Certs – 5.5 years - cumulative 21%
(3.53%p.a.) – tax free – guaranteed
Savings Bonds – 3 yrs – cumulative 10% (3.23%
p.a.) - tax free – guaranteed
Max €120k or €240k for couple per product
Prize Bonds
15. 10 Year National Solidarity Bond
• 50% gross over 10 years or 4 years @
15% gross or 3.52 pa
• Includes bonus of 40% at maturity
• 1% per annum (subject to DIRT)
• €1,000 over 10 years gives €500 gross or
€475 net – yearly interest is subject to
DIRT
• Net rate is 3.96% per annum
21. Managed funds
• Direct V’s Indirect investment
• Investors pool resources
• Diversification - 500+ funds –
• Professional Management
• Cost effective
• No control
• No Guarantees V’s Capital Guarantee
23. Last minute AVC’s
• Explore Opportunity to see is it possible to make
a last minute Pension Contribution before
retirement
• Advantage is tax relief and option to take money
back as part of the Tax Free Lump Sum.
• Specialised advice is required to maximise this
opportunity
24. Example: A Reduced Pension & Lump Sum
€7,000 p.aSalary
€70,000
€28,000 p.a
€20,000
€80,000
Tax Free
Pension 32 yrsPension 32 yrs Lump SumLump Sum
Tom retires at 56, Salary €70,000
with 32 years Service
(Short 8 yrs pension)
25. Last Minute AVC? Tax Advantages
• Pay €20,000 to a LMAVC before retirement date !
• Allowed Tax Relief at 41% x 20,000 = €8,200
• Gain €20,000 extra in your Tax Free lump Sum at a
cost of only €11,200
• 20,000 paid & 8,200 Tax Relief (20,000 @ 41%)
• €20,000 Cost only €11,200
26. Approved retirement fund
• This is a holding place for certain monies not
withdrawn from your Pension Fund
• Range of investment options available under this
option
• 5% required to be withdrawn yearly
• Withdrawals are assessed for income tax
• Offers alternative to purchasing annuity
• Can transfer to Spouse and Children in a tax
efficient manner
27. Disclaimer
• These slides are intended only as a guide because
rules and regulations are ever changing.
• In regard to individual queries, specific
professional advice should be sought.
The Retirement Planning Council
27 – 29 Lower Pembroke Street
Dublin 2
Tel: 01 6613139
Email: information@rpc.ie
Website: www.rpc.ie
28. IF Financial Advisors
• Jim Dunne BBS QFA FLAI
• 086 827 3717 or 065 6845 111
• jim@iffinancial.ie
• For more see www.iffinancial.ie
• Thank you – Any Questions?
Editor's Notes
General introduction – who an I - who are we
Agenda
Investment options before retirement
After retirement – discuss options
Introduction to presentation
Typical strategy approaching retirement is to move to lower risk product, however there are other factors to take into account such as the impact of high inflation and the need to include some investments correlated with inflation
Best practice is to spread risk by diversification – Same principle can be applied
Timescales can impact on investment decision
There has been significant turmoil in recent years. Purpose of presentation is to look at some of these and apply common sense to market turmoil
Outline the content of the presentation
Objective
The purpose of this section is to introduce both yourself and the course.
Key points should include
A personal introduction
An overview of the course
That you are not giving specific advice but are providing relevant facts and information to help the attendees to make an informed decision
Indicate that you will give an insight how various macro economic factors ranging from the global credit crunch to President Obama’s proposed reforms may impact on their own personal day to day finances.
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Objective
To review their finances in order to identify annual surplus or deficit and impact on investment decisions
In retirement income reduces but so does associated costs
Do new budget for new lifestyle, not just tweaking of last year.
Objective
Plan ahead and include major one off items – This will determine the investment timescales that are most appropriate
Key points will include
•How much money do they have / need
•Prepare financial budget. Include one-offs
•Plan for major expenditure weddings etc
•Timing important as it may dictate how long funds can be tied up.
Old slide
Financial review – start with what you have
Talk to your bank – Bank Accounts
Do budget – Decide what you want
Shop around
No hasty decisions – devise a plan
This section advices the attendees on the relative cost of borrowing
Objective
To give an indication of the relative cost of borrowing and to explain the issues to consider when deciding whether or not to restructure their debt
Key points will include
Sunday Times and Irish Times Friday for rates
Check with bank – Rates change regularly
Comparative borrowing rates
Paying off expensive loans e.g. credit cards
Current rates
Don’t use long term borrowing for short term purchases
Old slide
Car Loans – 7.5% - 10.5%
Personal Loans – 7.5% - 10.5%
Credit Cards – 8.5% - 20.42%
Mortgages – 3.65% -5.45%
Tracker no longer available
Objective
Introduction to investments element of talk
Typically people investing primarily to provide for their own retirement move most of their assets into low risk cash or cash equivalent.
However there are 2 factors to consider
You may not just be investing for yourself – You may be investing for your children which changes the timescales of your investments and the level of risk you might be prepared to accept. (See next slide on reasons for investing)
You should watch out for the risk of inflation and the impact it will could have on you. In periods of high inflation consider partial investment in assets that appreciate with inflation. (See slides showing causes and impact of inflation)
Objectives
•To explain the risk of high inflation as a result of current global fiscal policy and the negative impact that could have on cash based investments
Advice participants not to worry about it for the moment but to watch out for future developments
Key points will include
•2 Trillion dollars pumped into the economy since Obama came to office
•Europe following suit to boost the economy
•Increased money supply leads to increased inflation
•European Central Bank usually raises interest rates to control inflation
•Decision on interest rate increase is likely to be triggered by a recovery in Germany or France, not Ireland.
•Impact of increased interest rates on the attendees mortgages
Inflation
•Impact of inflation in reducing your purchasing power in real terms
Leaving all your money in cash or cash equivalents may not be the best option if there is high inflation
Objective
To explain the importance of deciding why you are investing.
Key points will include
Longer term investments may be an option depending on your reasons for investing.
Example of mistake of buying holiday home based on personal preferences as opposed to on ability to rent if you have no intention of using it for personal use
If you are investing for your children then longer term higher risk/return investments are appropriate as the timescales will reduce the effective exposure.
Objective
To give participants an indication of the typical rates available and to advice them where they can source detailed information
Key points will include
•Current rates offered by major banks
•Clarification of the “regular savings” account
•Risk and the Government guarantee
•Sources of up to date information (Newspapers, branches etc). Check Irish Times Fri or Sun Times Sunday
•DIRT
Leaflets available at all outlets
Regular saving do not accept lump sum
Old slides
Low Risk/Low Return
Post Office
Banks and Building Societies
Credit Unions
•Post office saving certs (No DIRT)
Savings Certs – 5.5 years - cumulative 21% (3.53%p.a.) – tax free – guaranteed
Savings Bonds – 3 yrs – cumulative 10% (3.23% p.a.) - tax free – guaranteed
Max €120k or €240k for couple per product
After 3 years in saving cert you only get approx 8% - its not pro rata,
Prize bonds
4 times a year € 1m
8 times a year 0.5m
Every Friday 1* 20k
5*1k
10*250
2600*75
Talk about the fact that it is a long term investment and inflation could erode it over time
Point out the tiered nature of the bonus which starts at end of year 5 at 10%
Dirt on the annual return but not on the final bonus
Maximum investment is €250,000 per individual
Can access the funds with 7 days notice
This section explains the concept of risk and return and that the impact that has on their investments
Key points
•What risk is
•Personal risk preferences
•Relationship between risk and return
•Benefits of diversification
•Percentage of each asset class based on risk preferences
•Importance of timescales in investment decision
•Migration to lower risk nearing maturity
Expected return V’s Risk
Toss a coin for €1m?
Old slide
Risk
Of losing your money
Erosion of value due to inflation
Inappropriate investment strategy
Provider risk
Risk is Personal
Can you afford to lose your money?
Can you cope with volatility in markets?
Can you afford to wait for markets to recover?
If NO then you have a low risk threshold!
This section explains the different investment classes and how it impacts on their investment decisions
Objectives
•To explain the different investment types
•To explain the relationship between risk and return
•To illustrate how property and shares have performed historically
•To give guidance on the fundamental factors that impact on both property prices and share prices and to consider how this will impact on the attendees existing investment
•To advice on the merits of a diversified approach to investment
•To explain the direct and indirect investment options
The purpose of this section is to explain the fundamental drivers of share values
Key points will include
If you do decide to invest in equity
Diversify
Invest for an appropriate timescale
Don’t assume that historical price of individual share is necessarily a guide to its future price
Long term return on equity (Per Dow Jones) out performs other asset classes
Current value below “exponential growth line” (Per Dow Jones)
Key market moves over the recent past and the relevance to fundamental values
80’s/90’s Reganite/Thactherite era
Dot com boom
Dot com crash
2003 to 2006 Exceptional continued perceived growth of markets – Boom or sustainable?
2006 to date – Dramatic decline –
Today – Reached fundamental value or still in decline – Revised exponential line?
Old slides
Shares in the ownership of companies quoted on recognised stock exchanges
Comes with an entitlement to vote at company AGM
High growth potential
Volatile
Two ways of growing your money:- Dividend income or Share price appreciation
Overseas property
Cost factor, may be a better investment
Rental income may be taxable in both countries subject to double taxation relief
Capital gains tax will erode gains
Clarify position on death - make local will
Good professional advice from overseas recommended
Can be high risk
The purpose of this section is to explain the fundamental drivers of property values
Key points will include
•Impact of Demand, affordability and sentiment
•Historical trends relative to key value drivers
•Long term relationship with general inflation
•Latest relevant ERSI economic forecasts
•Reference to overseas property – German model V Emerging Countries
Old slides
Residential Property/Commercial Property
Two ways of growing your money
Rental income
Capital appreciation
Tax efficient - Interest relief for sums borrowed
Important to allow for ALL costs in comparing with other investments
Objective
To explain managed funds
Many small investors pool resources to create large fund
Available through Banks & Insurance Companies
Cost Effective – (discuss typical charges here)
500+ funds – exposure to all assets (invest in government bonds to gold)
Taxed on gains at 23%
5 year + time frame
But…. – no decision on investment make up
Returns not guaranteed
Questions to ask
Underlying investment – Property ? Shares ? Diversification
Assumptions on capital appreciation?
Check fees/commission/profit share % and threshold
Historical performance not necessarily a guide in that high risk/leverage may have performed exceptionally well or badly depending on the period in question.
Look at fundamentals and apply common sense.
Conclusion qualifying presentation by saying they have to make their own decision and that we are simply providing the facts.
Old slides
How to choose an investment
Take advice
Do not base decision solely on past performance
Have a spread of investments
Avoid excessive charges
Consumer Protection
Financial Regulator – IFSRA
www.itsyourmoney.ie 1890-200-469
Publications
Guide to Savings & Investment
Choices in Retirement
List of Authorised Investment Advisors
Surveys, e.g. on Insurance costs, current account costs
Authorised advisor – Duties
Duty of care to act in your best interest
Must obtain all relevant information from you and assess your needs
Must recommend most appropriate product to meet those needs whether or not an agency held with the provider
Must be competent to advise you
General introduction – who an I - who are we
Agenda
Investment options before retirement
After retirement – discuss options
