How to withdraw retirement money from investments during a down market

Plus: How do I change from a saver to a spender mentality, and is it worth staying with an adviser if he puts you into high-fee mutual funds?

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By Julie Cazzin with John De Goey

Q: I retired in 2008, just in time for the market to crash. Fortunately, I did not need my investment money right away. But now, 10 years later, I have begun taking money out for living expenses, just in time for the current crash. I sat tight the first time and things gradually got better. I can’t now. What should I do? — Jane

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FP Answers: Jane, the first thing you need to know is that no one can time market moves with anything approaching reliability. You’ve been retired for 15 years already, so my guess is that you’re well into your senior years. One thing I tell people is to resist the industry’s perpetually optimistic narrative. Things do indeed work out over the long run, but many people in your situation no longer have a long time horizon and, therefore, cannot wait.

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Accordingly, the primary option for you is to reduce your lifestyle and spending expectations to account for the new reality. In addition, and relatedly, one of the great risks Canadians face is longevity risk: outliving their nest egg simply because realized life expectancy can be more than was planned for. To address that problem, you may want to buy an annuity or a risk-pooling fund product that pays a regular income for as long as you live.

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There are now products available that can approximately replicate a defined-benefit pension — an income stream that is indexed to inflation and that cannot be outlived. I believe these tontine-type products will gain acceptance going forward to address precisely the concern you’ve raised.

How do I change from a saver to a spender mentality?

Q: For those of us already in retirement and having been savers for most of our lives, how do you prepare yourself to switch to a spender mentality without fear or anxiety? Any tips you have to make this easier to accomplish would be appreciated. — Andre

FP Answers: Andre, I don’t honestly think there’s any way to eliminate fear and anxiety when it comes to retirement. It is natural and has existed for as long as people have been contemplating how and when they will leave the workforce. Change is scary for most of us. The tips are simple.

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First, get a financial plan that includes a cash-flow projection using reasonable assumptions and extending for your expected lifetime in retirement. Second, you may want to complete a psychographic questionnaire or two to get an assessment of your investing personality. You can ask to fill one in with your adviser or do it on your own. They can easily be found online.

The hacks one might use to overcome your anxiety might depend on the vagaries of your pre-dispositions. Some people worry about leaving money to dependents, for example, while others are stressed about paying their own expenses and not being a burden on those dependents while they’re alive.

Getting a better feel for your attitudes and values can help to identify the best way to transition into being a spender for the remainder of your life.

Is it worth staying with an adviser if he puts you into high-fee mutual funds?

Q: My registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) are invested in mutual funds with management expense ratios (MERs) of 1.5 per cent to 2.5 per cent. Should I consider investing in exchange-traded funds (ETFs), which are cheaper? I do have a financial planner who must work with the funds she can access, mostly CI Financial and Bank of Montreal funds. Should I stay with the adviser and use the mutual funds offered? Or go the ETF route, which would likely be cheaper for me? How do I decide? — Diana

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FP Answers: Diana, my first concern is with the person you are working with. Advisers and planners are all supposed to do what is best for their clients and if you think that might not be the case, then that reflects on the person you’re working with.

Recent changes to regulation have allowed mutual fund registrants to offer ETFs, so the concern about your representative not being licensed to recommend ETFs is no longer a valid concern.

In most instances, there are multiple products that allow you to gain access to any given asset class, strategy or niche. Similarly, cost is usually the best single way to screen your options, with lower cost being better.

Sometimes, people oversimplify the dilemma by assuming ETFs will always be cheaper than mutual funds. It is true that lowering cost is a credible objective, but it is not necessarily true that ETFs will be cheaper than funds.

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What matters is cost, not structure. All else being more or less equal, you should choose the cheaper option. Your current adviser ought to be able to accommodate you, but if for some reason that person cannot or will not, you should explore alternative options for advice.

I have several specific questions in my book Standup to the Financial Services Industry that can assist you in finding an adviser that’s right for you.

John De Goey is a portfolio manager at Designed Securities Ltd. (DSL). The views expressed are not necessarily shared by DSL.

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