Retirement is often viewed as the end of one’s financial planning journey, but it’s really the continuation of a process that likely began many decades earlier. The same principles that allowed you to save and invest for retirement also apply when you enter your golden years.
Part I of CMI’s Building a Better Tomorrow Blog Series talked about financial lifecycle planning, with a focus on the Accumulation phase that usually begins when we enter the working world. In Part II, we discussed ways to maximize investment success during our prime and most lucrative working years – a period we referred to as Growth and Preservation. We now conclude our series by recapping the principles of successful retirement planning. This third and final stage is the Distribution phase of our financial journey.
Stage Three: Distribution
- Financial focus: Income and tax planning; risk reduction
- Savings and Investment Focus: Fund retirement, fund travel, maintain pre-retirement standard of living
- Accounts: RRIF, LIF, LIRA
The third and final stage of your financial lifecycle is retirement, which usually begins around age 65. Now is the time to enjoy the financial security you’ve accumulated over the years and to begin drawing from your retirement accounts.
The biggest difference between Stage Three and the other two stages of your financial lifecycle is that, during retirement, your employment income is likely zero or much less than what you earned when you worked full time. Because of this, living comfortably in retirement often means creating a budget and living off a fixed income. Managing expenses and having a reliable source of income are critical.
Many retirees rely on multiple sources of income during retirement, such as a Registered Retirement Income Fund (RRIF), tax-free-savings account (TFSA), annuities, employer pension plans and investments outside of registered plans. These income sources supplement public pensions such as the Canada Pension Plan (CPP) and Old Age Security (OAS), which provide monthly payments as early as age 60 in the case of CPP and 65 for OAS recipients.
As you begin to draw on your retirement savings, your financial focus will likely shift to optimizing income and reducing taxes. For example, Canadians must convert their RRSP into some form of income by the end of their 71st year, which carries tax implications. When you convert your RRSP into an RRIF, withdrawals are fully taxable as income.
Figuring out how much money to take in retirement is only one part of the equation. The other part is continuing to invest in your financial future. After all, being retired doesn’t mean giving up on investing. According to Vanguard, retirees should have the same investing approach they’ve had all along — they must determine their risk tolerance and invest in the right mix of assets that align with their goals. In today’s investment climate, this likely includes a mix of stocks, fixed income and alternative assets that can generate income. For most retirees, this means investing in a portfolio that can continually fund their retirement and travel expenses, as well as maintain their pre-retirement standard of living.
Mortgage Investment in Retirement
Whether you’ve just started investing or are already in your retirement years, portfolio diversification is one of the keys to success. Diversification reduces asset- and market-specific risk so your portfolio isn’t overly exposed to one particular investment category. Mortgage investing is a diversification strategy employed by high-net-worth individuals and sophisticated investors who recognize the importance of having multiple income streams and investing in alternative fixed-income assets. What sets high-net-worth investors apart from everyone else is their ability to seek out opportunities in private markets as opposed to relying solely on publicly traded stocks and bonds.
Mortgage investments are income-generating assets that can help retirees achieve their financial goals. A Mortgage Investment Corporation (MIC) is the most efficient way for Canadians to begin investing in private mortgages. A MIC is a diversified investment portfolio that pools capital from multiple investors for the purpose of lending to borrowers in need of short-term financing, such as to purchase a home, renovate an existing property, or consolidate debt.
A MIC operates both as an investment fund and a corporation that oversees the entire mortgage investment process. As specialized investment entities, MICs are regulated under the Canadian Income Tax Act and are legally mandated to distribute all their earnings to shareholders. MICs generate income by collecting fees and interest from borrowers, which are passed on to shareholders in the form of regular dividend payments.
More retirement planners and retirees are choosing to invest in MICs because they provide the potential for higher returns, compound growth and diversification – and with less risk – compared to traditional fixed-income assets. Historically, MICs have generated annual yields that are considerably higher than government bonds and Guaranteed Investment Certificates (GICs). Unlike volatile public markets such as stocks and bonds, MICs are suitable for defensive-minded investors who prioritize capital preservation in their golden years, without compromising on return potential.
Investing in Retirement with the CMI MIC Prime Mortgage Fund
CMI Financial Group is one of Canada’s largest non-bank financial services providers, with over $2 billion in successful mortgage placements. As Canada’s private mortgage leader, we established CMI MIC Funds to open the private mortgage space to a wider range of investors and help them access the best mortgage investment opportunities from across the country.
Today, CMI’s MIC portfolio spans three distinct funds comprised of high-quality mortgages backed by residential properties in key real estate markets across Canada. CMI’s Prime Mortgage Fund is the most conservative offering and aligns closely with the investment goals of retirees in need of a defensive cash-flow investment vehicle.
The Prime Mortgage Fund has the lowest risk profile among the CMI MIC Funds. It invests primarily in first mortgages with a weighted average maximum loan-to-value ratio of 65%. The fund has achieved its targeted annual returns of 6% to 7% since inception. Like all CMI MIC Funds, Prime Mortgage Fund investors can enrol in a Dividend Reinvestment Plan (DRIP), which allows them to reinvest their regular dividends in additional shares of the fund, rather than receiving distributions in cash. A DRIP provides investors with the opportunity to increase their investment principal and compound their returns over time.
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To learn more about retirement investing with CMI, contact us today for a free consultation.