Billionaires Bill Gates and Warren Buffett have initiated a successful campaign called the Giving Pledge (givingpledge.org) to convince the super wealthy to ultimately give at least half their net worth to charitable causes. As of March 2013, 105 billionaires have signed on. Very Impressive.
On a more humble scale, most of us are in the process of filing our 2013 taxes and, as part of that annual ordeal, completing the T1 Charitable Donations Schedule, or paper-clipped our past year’s donation receipts for our tax preparer to deal with. If you are like most Canadians, those receipts probably reflect a potpourri of philanthropy: the campaign of a co-worker’s child, the knock-on-the-door solicitations, the emails from previously-supported charities, and perhaps monthly commitments paid directly from your bank account or credit card.
During the financial crisis, many clients jettisoned their well-balanced portfolios in favour of fixed investments that, while secure, cannot possibly meet inflationary pressure. Whether clients make choices that are too conservative or too aggressive, poor investment decisions made between the ages of 60 to 65 can negatively affect their standard of living for several decades.
Today most advisors are familiar with the three main threats to retirement income: longevity, inflation and market risk. Traditional retirement income solutions have included, fixed income options like guaranteed income certificates, bonds, life annuities and dividend paying stocks. While all can play a part of a solution, each has limitations. Recent prevailing low interest rates negatively affect the ability of GICs to keep pace with inflation. For similar reasons, yields available from life annuities are also lower, and while secure, annuities do not usually provide for an estate. Dividend-paying stocks can provide a tax-efficient income and potentially an estate but do not shield investors from market volatility.