PODCASTS

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Daryl Diamond
Chief Retirement Income Strategist

Mark Brisley
Managing Director and Head of Dynamic Funds

Mark Brisley: You're listening to On the Money with Dynamic Funds, the podcast series that delivers access, insights, and perspective from some of the industry's most respected active managers and thought leaders. From market commentaries and economic analysis to personal finance, investing, and beyond, On the Money covers it all. Because when it comes to your money, we're on it.

A demographic and economic convergence of factors that will impact the largest and fastest-growing population segment in Canada. Of course, I'm referring to those over the age of 55 and either nearing or in retirement. The number of people nearing retirement in this country has never been higher. According to Statistics Canada, more than one in five people are close to retirement age, that being between the ages of 55 and 64. As a result, the baby boomer generation continues to leave the workforce at unprecedented numbers, and more Canadians are faced with the challenge of building consistent and sustainable cash flow for their desired retirement lifestyle.

A well-thought-out approach to an effective retirement income plan has always been important, but it's no secret now that the road to building a comfortable retirement has become much more difficult in the last few decades. You layer in today's economic environment that includes a number of evolving challenges like extended average life expectancy, higher inflation, and market volatility, and it's understandably concerning for many retirees and pre-retirees. Now, let's be clear, this is not a series about focusing on negative headlines or seismic demographic shifts because quite frankly, that doesn't mean much to the individual investor looking to prepare for the shift from earning income to utilizing their savings to generate income.

Our aim over the next several episodes is to pull back the curtain on the need and opportunity to focus our attention on the structure of investment portfolios that will address critical issues in retirement planning. That includes maximizing cash flow, minimizing taxes, minimizing drawdowns, and maintaining purchasing power. Our guest for this series of discussions is Dynamic Funds' chief retirement income strategist Daryl Diamond. As an experienced retirement planner, best-selling author, and former advisor, Daryl is a well-known authority on retirement income and has spent the better part of his career helping retirees build sustainable income they need to adequately fund their desired retirement lifestyle. Daryl, it's great to have you with us, and thank you for joining us on what I will call a journey of discussions on this important topic.

Daryl Diamond: [laughs] This is a topic, Mark, that deserves a series of discussions. It's so different for people from what we would refer to as the accumulation years. We are about 60% of the way through the birth years of the baby boomer cohort. There are still many people in that pre-retirement and early retirement stage and more to come, certainly, before we start to see a dwindling or a reduction in the number of people retiring on an annual basis.

Mark: It's amazing because it's not just the boomers, it's even the older Generation X is getting close to thinking about what's next for them. What experience have you experienced and do you bring to this role? What's your goal here?

Daryl: My goal is to contribute what I can, having had 35 years of experience in both writing plans for people, implementing plans for people, working with people through their retirement. I see a lot of things today in the media, both in print and in television or radio, where experts, in brackets, are putting forth theories for their view on how it should work for everyone in retirement, and that's fine. There are a lot of different views and a lot of ways things can be done in this withdrawal market or the retirement market, but there are a lot of things I don't agree with.

Not so much that there are simply preferences on my part or a way of looking at things that is contrary to what is being written or what is appearing in other media, but it's just what we've seen, what we witness, what we have experienced over those 35 years, and the ability to put those insights forward, I think is valuable not only for consumers and retirees but also advisors who are working in this space.

Mark: You've dedicated a career to this. Maybe the natural question here is, generally speaking, why in your experience is this time of life so difficult for people to address?

Daryl: It's, first of all, very different from what they've spent 25, 35, 40 years doing, which is preparing for this particular time in their life. For most people, this is a really big shift psychologically. Okay, I've built this capital, these income-producing assets, and now all of a sudden I'm in a position where I have to start taking money out. Psychologically, that's a big corner to turn for people. That's just simply number one on the list. I think you also have to look at the fact that most people only retire once, so it's not like they have previous experience in this area of their life.

Keep in mind too, everybody's situation is different. You can read articles, you can read books, and that's fine. It's a good grounding to get some ideas and points to start thinking about as you piece this together. Every situation, every situation in terms of advice, in terms of process, in terms of steps to take, needs to be addressed on the details and merits of what's in place already. You can't get that as a consumer by going to the internet or reading a book. It has to be tailored to you, your specifics, your objectives, and quite frankly, what assets and benefits you have to create the cash flow you're going to need.

Last but not least, we don't know from our point of view as an advisor or your point of view as a consumer, when the time for retirement arrives, how long people are going to stay healthy, and how long they're going to live. Man, that makes retirement income planning really difficult. There's a conflict of objectives that any retiree has. I mean conflict in quotes, and it impacts, as many things do, decisions people will make, the advice that an advisor will give when we get into this point where people are actually withdrawing from the capital they've put away.

The conflict is simply this. If you talked to people, especially at the outset of the point in time when they're actually retiring, making that transition from the accumulation years to the income years, they'll normally tell you, "These are the two things that are on my mind the most. First of all, we are at the beginning of our retirement, our health is good, and there are a lot of things that we want to make sure we do, they are priorities before our health starts to change, or we're no longer motivated to be doing the types of things that involve travel and physical activity.

We want to spend money now while we have our health and we can go, but the conflicting objective is the second of these two. That is, we don't want to run out of money, we don't want to outlive our income." These two conflicting pressures or synergies are basically pulling against each other. We don't know how long people are going to live. It's much like if you were in track and field as a runner, and the coach comes up to you and says, "Mark, one of our runners has been injured, we need you to fill in and run a race." You turn to the coach and say, "What kind of race is it?

Is it a 100-yard dash? Is it 5,000 meters? Is it a marathon?" Coach says to you, "I'm not sure why you're asking." You say, "It's very simple. If it's a 100-yard dash, I'll know how I have to pace myself. If it's a marathon, I'll know how I have to pace myself." There's great differences between those two races obviously. The coach turns back to you and says, "We don't know how long the race is." You don't know, in retirement, how long you're going to have to make best use of the capital you put away and still not be in a situation where you live longer than your income is being paid out.

Mark: One of the things I've heard you talk about, Daryl, is the fact that for most retirees in Canada and the developed world for that matter, you're dealing with a number of income sources in retirement compared to just primarily the one that you have while you're working. You spent a lot of time in your published works talking about the need to organize this income effectively. Is that the foundation for someone who's entering into the income years?

Daryl: Let's start with the basic point that you made, and that is that people are moving from a scenario where they have primarily one source of income during their employment years, and now all of a sudden it could be four, five, six different sources of income per person. If you're dealing with a couple, now we've got 10 to 12 in the household. It's very simply things like CPP, OAS, registered accounts such as RRSPs or locked-in accounts or pension accounts, non-registered accounts, TFSAs, and all of these income sources, the thing that makes it a challenge and comes back to why this is so difficult, have both specific rules that apply.

Some are more flexible sources of income than others, and different taxation treatment. The complication is further enhanced by how do we set this income up so that it's taxed efficiently at the outset and that involves using certain sources and deferring other sources of income, but being very conscious of how the decisions we make today will affect how income is going to be paid out 5 years from now, 15 years from now. The impact to the survivor in terms of how income looks for them down the road, and ultimately, how the residual income-producing assets are best transitioned to the estate.

You can see that this is a need for a long roadmap or blueprint as we like to call it because you want things to work out as efficiently as you can. You said effectively, I'll interchange those two words. Here's why that's so substantial. It comes back to one of those two objectives that retirees have. The more tax efficient we can be on creating the after-tax cash flow that a person or a couple wants in their retirement years. The more efficient we can be there, the less strained it is in terms of what we have to ask an income-producing asset to do.

In other words, we don't have to take as much out of a particular asset to create a dollar to spend if we're doing this efficiently. That leads to two very positive end results, which are capital preservation and income sustainability, again, coming back and addressing that second desire of people when they're launching off into this retirement journey.

Mark: The emphasis for so many when we think about retirement is the accumulation of assets. As you've been talking about the transition to now utilizing the asset for income purposes is the key. I think a lot of our listeners will read here, and even in our own past, we've used the term decumulation, so that e-accumulation to decumulation phase. You're no longer a fan of that term and actually have stopped using it. Why is that?

Daryl: Decumulation is a term that I see quite a bit. I'm not one to jump up and try to correct someone if they use it, but my preference is not to actually engage that term in discussions. The reason for that is simply this. If we're talking about accumulation, it brings to mind a visual for someone in the conversation of a building; a buildup of, an increase of, an accumulation of capital that subsequently will be used to generate the income that people need to create thereafter tax cash flow. When decumulation is used, to me, it suggests an image in the mind of the person in the conversation where they're seeing that come down in value.

The capital value of an asset come down in value over time. While that is a possibility, what we don't want to do is imply that we're drawing this capital down to a point where it's going to deplete to zero. We don't want that to be in the mindset of the retiree. Again, it's one of the concerns people have. They don't want to outlive their income. Decumulation to me suggests that it's inevitable that the capital balance of an income-producing asset will decline year after year, and then subsequently exhaust. That's not been our experience with the clients we've worked with over 35 years, not been our experience at all.

We're just trying to make those in retirement somewhat more comfortable with this idea of the sustainability of that capital in delivering that income as opposed to, this is going to deplete, and we just have to figure out what year it's going to happen. We want to take that image of depletion through the word, decumulation, out of their thought process.

Mark: As I said at the top of the episode today, the headlines are largely negative. It's almost to the level of fear-mongering given what we're going through in terms of the economic environment. We all know about inflation, and we all know about rising rates. We all know that it's a volatile time in the markets, but what, in reality, are the key concerns for retirees with the backdrop of the current economic situation that we find ourselves in, in a market situation? Because you've been through this before as an advisor.

Daryl: To your point, there seem to always be some issues, some challenges that present themselves while people are going through a retirement phase. It can last. When you think about it, it could last up to 30, 35, 40 years, this retirement phase, depending on the resources that people have at their disposal and their health, and the age at which they retire. There's always things we're facing. I guess, right now, in July of 2023, as we're talking about this, inflation has reared its ugly head in a manner that most people haven't seen for decades. Yet, a year and a half ago, this wasn't even on anyone's radar. This was a non-event.

Russia hadn't invaded the Ukraine. It didn't cost us $1.60 a liter to put gas in our car. Part of inflation but just part of global events as well. These things do arise. Two points on this. First of all, it's why we always talk about needing to have a plan to follow to address these things when they happen. No, we can't position this in at the start of a planning process and say, "Two and a half years from now, we're going to have 8% inflation." It doesn't work that way, but the idea of the plan is it allows us to navigate, and that's the operative word, navigate these issues and challenges as they arise, and to have a tailored plan as the basis for the foundation for how you're going to draw income from the assets and benefits you've accrued.

When the time comes that things like inflation, a market upset, a default on foreign debt, whatever the case might be, whatever is spooking the markets, so to speak, arises, you have got at least a foundation for a blueprint that lets you determine what the most appropriate detour is to take to deal with those challenges. If you don't have a plan, if you don't have a blueprint in place, it makes it far more difficult to assess what the best course of action is when something like this arises. Those are what we call the heat-of-the-moment types of things that arise because they'll come, they'll fade off.

They'll come back somewhere down the line, they'll fade off again. It's very different from some of the longer-term considerations, the two longer-term considerations primarily being people in retirement dealing with health-related issues and the concern about running out of money. There's ways to address those short-term and more major concerns through the planning exercise, plan it, align the investments, execute the plan, navigate where necessary.

Mark: Let me throw a challenge back at you here because I'm sure we have listeners that are maybe not high net worth and not ultra-high net worth, right? We have people from all different financial circumstances, and they may say, "Yes, but inflation is real, and my purchasing power has gone down." When you say navigate, just to be clear, I guess that also would refer, if I'm not mistaken, to the extent that you can adjust, pivot, not necessarily deviate from the plan, but you have that flexibility, correct, to change course if necessary?

Daryl: Absolutely. When you talk about features of particular investments or sources of income, the one that gets put to the bottom of the list, and yet is so important, especially as people are moving out of the age curve, is that of flexibility. Do I have flexibility with this particular asset? For example, Canada Pension. Great benefit to people on retirement. It is just that.

It's a pension. Really, the only issue of flexibility is when you commence it. With other sources of income, you have the ability to turn the cap on, off, lower the flow, depending on what's happening at any particular point in time. Yes, maybe we are in a situation right now where retirees are going to basically cope with the current pressures of rising inflation one of three ways, Mark. It's simply this. They can spend less, they can withdraw more, or they can do some combination of both, but it's not necessarily, from our experience, going to be over the rest of the course of their retirement.

It is a situation already where we've come down from 8% a year and three months ago, annual inflation rate, to basically around 4% and moving lower. It is a question when I use the term navigate, it's something that we have to look at not knowing necessarily when it's going to abate or cease, but take the steps and monitor the progress of how we're coping with that through what we call navigating, or just making a change to the scenario. Always with the intent to getting back, if you will, to where we were prior to this event arising.

Mark: Now, this is a financial podcast, as everyone knows, and we're going to focus on the specifics of retirement with respect to income and portfolio construction, but as a former advisor yourself, when someone engages with a financial professional to talk about the overall retirement plan and financial plan, should they also expect, though, to be talking about the other things you've brought up, like longevity and health, and wellness in the overall lifestyle experience? Is that a reasonable expectation?

Daryl: I think it's a requirement. There is nothing that you can accurately do or solve for efficiently as the advisor unless you know all of those points of detail regarding let's say, what might appear on the surface of you knowing financial issues. As a simple example, if you know someone, let's say their spouse has a family history of shorter life expectancy, or maybe their health isn't well, that's a different planning approach that you need to be aware of as the advisor in order to tailor the plan to the specifics of the situation. In that same context, Mark, it's why, when we look at the steps of what we call a blueprint, it's a six-step planning process.

We're getting that into that in more detail on future podcasts, but really, the first three of the six steps require us as advisors to be getting the details from the client. Where are you at? Are you five years away from retirement? Have you been retired for five years? Are you handing in your notice at the end of the week? Where are you in the big scheme of things? You need to secondly know as the retiree, whether it's an individual or couple, what it is you want to do in your retirement because that's where the cashflow determination comes in, which is basically the third step; taking into account other aspects of importance in determining how much after-tax monthly income flow do we need at the outset.

All of the things that we've talked about, the lifestyle issues, all of these points are essential to be discussed, so that you're getting this plan tailored as a consumer, and so that as the advisor you're helping the retiree in the best way possible.

Mark: This has been really insightful and a great setup for our future episodes that are going to focus on the six-step plan to designing and building secure retirement, and also to the key issues that pre-retirees and retirees are facing. Just to set the stage for what we're going to continue to discuss, what are a couple of the key messages that you would like our listeners to take forward?

Daryl: First of all, that, irrespective of the net worth someone may have in terms of their income-producing assets, it really makes so much sense for people to get this mapped out. There are just so many twist, turns, it's so different from the accumulation years. You want to get it right from the outset. That means it needs to be planned out, that investments need to be aligned with the plan so that it can be executed over time. Hopefully, also, Mark, find someone to help you. This is an area of financial planning that most people have no experience in, in terms of consumers.

To get assistance from someone who has been to this movie a number of times, it can be so helpful. Of all the times that people need tailored financial advice in their life, I cannot think of a more important one than at the outset of starting to transition from accumulation to cash flow.

Mark: I was thinking about a common in your best-selling book that you wrote, Your Retirement Income Blueprint. You stated that the advice that was being given in your outline to the six steps to a successful retirement income structure was not about doing it yourself. It was about doing it properly and doing it better. Your comments about dealing with a qualified financial professional certainly resonate, especially in the economic and market conditions that we're facing now. I want to thank you for the time that you took to spend with us today, and we really look forward to diving deeper into each of these steps, as well as some of the key concerns that you outlined for us on today's discussion.

Daryl: So excited to be part of this podcast series, and will look forward to getting on with the future sessions very soon.

Mark: I hope everyone found this particular episode valuable. We are going to be diving in over future episodes to the ins and outs of the six-step process as well as some of the finer details of key concerns that Daryl addressed today. We hope you'll all have the chance to join us. In the meantime, if anyone would like more information on what we discussed today, please feel free to visit us at dynamic.ca where you can look at our Insights section at our Retirement Income Center, which covers off a lot of the details of today's discussion. Thank you once again for joining us at On The Money.

You've been listening to another edition of On The Money with Dynamic Funds. For more information on Dynamic and our complete lineup of actively managed funds, contact your financial advisor or visit our website at dynamic.ca. Thanks for joining us.

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