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Three phases of retirement: Investor profiles

How your investment decisions can change as you progress through retirement

These stories profile typical members in their go-go, slow-go and no-go retirement years and some of the thinking that has gone into their own investment decisions.**

Although these are not actual cases, they highlight some of the investment considerations to ponder during each retirement stage and should give you “food for thought” as you think about your own situation.

Investors generally tend to reduce risk by decreasing the percentage of their retirement savings invested in equities (stocks) as they age for two reasons:

  • older investors have less time to make up market losses;
  • retirees need steadier returns to provide regular retirement income.
The flowchart below provides recommended steps that will help you take advantage of the resources available from the Plan to make informed investment decisions tailored to your personal retirement goals.

Chloe, 61: Balanced investor

After working for over 38 years in the credit union system and helping members prepare for retirement, 61-year-old Chloe is now embarking on her own retirement journey and is adjusting her investment portfolio accordingly.

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“As a financial advisor, I’m comfortable managing my own investments,” Chloe says. “I’ve always had a rather high willingness to take on risk, but now that I’ve decided to retire, I know I need to take a step back and review whether some lower risk investment options are prudent as my investment horizon grows shorter over time.”

After reviewing information about the Plan’s in-house retirement income options on the CSS website, Chloe figures she will convert her pension funds into Variable Benefit (VB) payments.

By taking VB payments through the CSS Pension Plan, Chloe can withdraw retirement income from her investments and therefore stay invested in a combination of the Plan’s investment funds, giving her the flexibility to move a portion of her pension funds into a lower-risk investment option if she chose to, while enjoying the fee advantage accessible through CSS.

“Having the option to stay invested in the markets is important to me right now, because it gives me the opportunity to accumulate growth during my first few years of retirement when I’m likely to spend the most money,” Chloe says. “To celebrate my retirement, I’ll be taking my family to Florida this winter, and my husband and I will likely continue travelling in the years that follow as long as our health co-operates.”

Since Chloe already holds several other investments in stock and bond mutual funds outside the Plan, she is not entirely dependent on her CSS Pension for her retirement and understands that VB payments may not provide her with a retirement income for life.

Given her career helping credit union members plan for their retirements, Chloe has a very good understanding of her own tolerance for investment risk and has given considerable thought to her own retirement plans. “After considering my comfort with investment risk, the fact that I have investments outside the Plan, and that I plan to remain invested by taking VB payments in early retirement, I have decided to invest my CSS funds 100% in the Balanced Fund for the time being. I will re-visit this decision periodically as I deplete my funds outside the Plan,” Chloe says.

Mitch, 76: Moderate investor

For the past 13 years, Mitch and his wife June have been enjoying their retirement as snowbirds, spending the winters in Texas and
travelling back to Alberta each spring to spend time with their family.

Mitch accumulated a strong balance in the CSS Pension Plan after contributing for over 30 years while working at the co-op. He and June also regularly maintained three years’ worth of retirement income in guaranteed investments outside the Plan to help offset risk after they retired. Coupled with June’s LIF and their CPP payments, the pair was able to travel comfortably throughout their early retirement years.

“Now that we’re hitting our mid-seventies, we’ve travelled, seen what we’ve wanted to see and are ready to slow down,” Mitch says. “We’d love to have more quality time to spend with our family and are ready to downsize from owning two properties to just one.”

Mitch has been invested 100% in the Balanced Fund since he joined the Plan in 1974 and took the Variable Benefit (VB) payment option when he retired in 2006, allowing him to remain invested in the markets.

He understands that VB payments are not guaranteed for life, and that the Balanced Fund is prone to losses from time to time since it has a higher exposure to equities (stocks) and is therefore geared toward members with a long-term investment horizon.

“I had really never given much thought to other investment options within the Plan. However, given the recent market downturn, I’m realizing I have less time to recover from losses than when I was younger,” he says.

Mitch and June decided to meet with a CSS Pension Plan Consultant to review their options and make adjustments to their retirement plan.

“When we looked at our entire situation, our Pension Plan Consultant pointed out that we still have a spending reserve of about two years’ worth of retirement income sitting in guaranteed investments outside the CSS Pension Plan,” he said. “Plus, I figure we’ll spend less now that we won’t be going down south each winter, and we should get a nice bonus after we sell our winter home in Texas.

“Because I don’t currently need to establish a spending reserve with my CSS funds, and I plan to remain invested for another few years, my biggest concern is whether I should keep my CSS funds 100% invested in the Balanced Fund,” Mitch wondered.
Since Mitch is not completely reliant on his CSS funds, and because he and June plan to spend less during their “slow-go” years, the Pension Plan Consultant suggested that he fits a moderate risk investor profile. The suggested CSS investment mix for this profile is 75% Balanced Fund and 25% Bond Fund.

Mitch agreed that this mix is appropriate, because keeping a portion of his funds in the Bond Fund will help reduce his risk of short-term losses. Mitch will re-visit his investment situation in a couple of years once he’s depleted most of his funds outside the Plan.

Rose, 89: Conservative investor​

“It seems like yesterday that I was working at the credit union,” says 89-year-old Rose. “I can’t believe I’ve been retired for 25 years now. I’ve done so much in that time – travelled to Europe with my husband John, started the art club in town, and made lots of memories with my kids, grandkids and great grandson, Liam.”

Rose has been a member of the CSS Pension Plan since 1970 when she first started working as a teller at the credit union. Over the years, she worked in various roles and eventually retired as the HR manager in 1994.

At retirement, Rose decided to take a monthly pension with the CSS Pension Plan. The monthly pension allowed her to “exit the markets” and provided her with a guaranteed income for life. Along with John’s pension, CPP and OAS payments, the couple has lived comfortably in their retirement years.

“I was happy taking a monthly pension with CSS. Of course, this was before CSS offered the option to withdraw retirement income from investments through Variable Benefit (VB) payments,” she said. “Back in 1994, my financial advisor explained that I had the option to transfer my pension funds to a PRRIF**, which is similar to the VB payments CSS offers today, but I wasn’t interested in managing my investments after retirement.”

After reviewing her options with her financial advisor at the credit union, Rose decided that she appreciated the security the CSS monthly pension offered, knowing that her regular monthly pension payment would be based on the amount of her accumulated pension funds. Even though she worked in the financial services sector for many years, her appetite for risk declined after she retired.

Rose’s monthly pension is paid from the CSS Pensions Fund, which is invested in high-quality, long-term bonds.

“Back then, bond yields were higher. In a nutshell, the higher the bond yield, the higher the monthly pension amount,” Rose recalls. “So that was certainly a factor in my decision-making. I also understood, based on the information provided to me at a CSS retirement workshop, that when you buy a pension, the current yield paid on long-term bonds is ‘locked-in for life.’”

With the security offered by Rose’s monthly pension, in addition to the couple’s other sources of income, Rose and John also decided to downsize to a condo when they were in their late seventies. This gave them additional financial flexibility as opposed to keeping their acreage that required more time, income and work to maintain, and became more difficult to manage as they aged.

The couple is now looking to move to an assisted living facility in the next year or two, as John’s health has been fading.

“The money is there if we do decide to move into a home, and we can hopefully leave our family with some inheritance too,” Rose says. “Looking back over the years, I feel we made the right financial decisions for our goals and circumstances by seeking help from advisors and the resources offered by the credit union and CSS.”

Not quite like you? Find more featured investor profiles here

**These profiles are provided for information purposes only. We recommend you seek advice from a qualified financial advisor or CSS Pension Plan Consultant before making investment decisions.

Article from the spring 2019 issue of TimeWise