Pension Decumulation Paradox

It seems that without fail, every time I mention the topic of “decumulation”, my audience nods approvingly and refers to seeing that program on HGTV and how it benefitted the home-owner with a more profitable sale of their home. In fact, my reference is of a far more critical one and one that the 50 plus crowd is taking on a substantially greater role in life today versus 15-20 years ago.

What should “Decumulation” really mean to us as we move along the age continuum?

  • Many in the noted age group become responsible in some capacity for aging parents, significant others, or close cherished family members
  • Despite the fact that not everyone in Canada is covered by an employee sponsored Pension Plan, a great number of us have been regular contributors to a Defined Contribution Plan/Money Purchase Pension Plan.

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Why are these events related or of significance? When our parents have transitioned into the realm of those much vaunted retirement years, they typically give up the means to continue to add to their asset base.  In theory, one’s accumulated asset base will rely solely on market returns to sustain an anticipated lifestyle. For those who have money in the aforementioned Pension Plan, those employees are faced with a decision, upon exiting their employer, what to do with those accumulated funds. They must remain “locked-in” and for retirement purposes and in most cases will not interpret into an enormous amount of funds but yet an integral component of the retirement plan.

So why the dilemma? Quietly embedded with the financial services industry there exists an “architectural failure”. As assets diminish or are presented in individual buckets, those seeking professional advice are prevented from being offered the entrée of “full services” while also ending up paying a higher fee for what they do end up receiving. It’s not unusual to be whisked away to higher margin businesses like retail mutual funds, wrap accounts and being charged fees on a per account basis. Modesty comes at a cost but more often than not to the supplier. The question that begs is why does an income stream of the advisor/firm end up dictating the behaviour as well as the “best interests” of you the client?

In each of the above cases, the last 15-20 years have seen significant demographic change. Once upon a time ago we sat in our cubicles for 30 years, did our jobs and waited for the party, gold watch and retirement party. Sort of reminds me of the movie “About Schmidt” with Jack Nicholson. However today, with buyouts, mergers and surprise closures, it’s more akin to the scene out of “Stand by Me” where the kids find themselves standing on the train tracks  on the bridge over the ravine while the Steam train comes careening toward them!

No one likes falling on the tracks right? It’s not like the good old days where you could stroll down the hall to H.R, open the door and find a dozen smiling faces there to help guide you out the door. Don’t blame H.R either. So much is “on-line” today plus the plethora of employee regulations that change like the weather, H.R reps have little time to understand what “best options” really exist out there beyond those offered by the folks who have been managing the Pension Plan you have been religiously seeing money disappear to.

So what can you do to better your odds, keep more money in your pocket(s) and those that you are a Power of Attorney, future Executor or trusted family for?

  • Take your time to know your BACON! If you’re like me, you like value for what you pay. Notice how major brands have shrunk Canadian bacon to razor thin slices and packaging to 375 grams per package! They used to be 454 grams! The price is still $6.99 too! So I shopped around and Kirkland (Costco’s brand), sells for $14.99 for a 4 pack and 454 grams each or $3.74 a package (thick too!) Morale –Value through price!
  • AVOID THE PRODUCT – SEEK SOLUTIONS FIRST! Ie. Can family assets be combined for a lesser fee? Smaller pools of capital ($250k) often get channeled into retail offerings when they can be commingled for fee purposes with parents, son’s family, daughter’s family assets and held separately and “in confidence” while realizing lower margins as a group.
  • If your gut suggests a second opinion is warranted, it usually is right. Keep your pen in your pocket.
  • Always inquire as to how the “experts get paid”? At Exponent, the better the job we do, the more our partners will be compensated. Being charged a transparent all inclusive fee against the market value of the assets, our interests naturally align with the individual interests of our clients. An equation that drives noteworthy service standards, performance and the achievement of one’s financial goals. A winning proposition!

If you’re feeling less than prepared or seeking confirmation, please give us a call 613-747-2458 ext. 41, our team is ready to explore smarter ways to integrate success into your imminent journey. You can also contact me using the form below.

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About Graham Mayes, CFP, TEP, MTI

Chief Investment Strategist & Partner

Graham’s role at Exponent includes direct portfolio management, investment analysis, asset oversight, allocation and portfolio engineering. Graham is a member of the CFA Institute and the CFA Society of Ottawa.

Contact Graham Mayes

Exponent Investment Management