Sue & Bill's Financial Plan: A journey into retirement

(Originally posted in 2020)

Welcome to our case study and financial plan example. If you want to know what you get by working with Camber, then this is the article for you. Below we take the time to walk you through the financial planning process as we follow Sue and Bill's journey into retirement. Join us as we review how Camber was able to help Sue and Bill solve their financial planning challenges and how our Camber dashboards can help you.

Their Story

‍Sue and Bill are both in their mid-50s, have no children, and have recently retired; which came as a bit of a surprise given that as little as two years ago they were making assumptions about their income continuing unchanged for the next 12 years. Bill has been self-employed for decades in Calgary's real estate sector. Throughout his working life he paid himself a salary, a bonus, some dividends, and invested regularly. In recent years, Sue has gone through some professional changes of her own. She has always worked in the oil and gas industry, until the company she was working for recently sold. Consequently, when she was released, she received a large severance package for her years of service.

Setting Up Their Dashboard

Although Sue and Bill have significant assets and no debt, they have had to start withdrawing from those assets much earlier than they originally thought. Their main concern is maintaining their plans to travel extensively for the first 15 years of retirement. Heading into their review, Bill had already updated his portion of the financial model in the Camber dashboard. Sue, however, still needed to do the same. With all this information properly loaded into their financial model, we were able to show them their new Camber dashboard.

Proper Tax Planning

By taking both family members into account we can properly quantify and capture the tax benefits of pension income splitting, CPP credit sharing, and splitting corporate dividends. Compounded over their lifetime, these joint planning changes amounted to nearly $100,000 extra.

Sue’s lump sum severance also brought with it some tax challenges and a big tax bill. Luckily, we already had a good relationship with their accountant. Together we were able to come up with a plan for Sue’s severance that balanced both her income and short-term taxes.

Will We Run Out of Money?

Given that retirement came 10 years earlier than expected, Bill and Sue’s biggest concern was running out of money.  This is a serious concern for many people. Using our Camber dashboards we were able to calculate different scenarios for Sue and Bill. Our calculations showed that the couple could retire with a strong plan in place.  By reviewing their net worth, we can get a clear year-over-year picture through age 95. This chart makes it easy to see that they reach age 95 and still have over $1 million in assets. Sue’s lump sum severance also brought with it some tax challenges and a big tax bill. Luckily, we already had a good relationship with their accountant. Together we were able to come up with a plan for Sue’s severance that balanced both her income and short-term taxes.

Final Review

Buried in each sentence of this financial plan example are multiple, discrete, and recurring software data entry points. There are also assumptions about investment returns, inflation, spending rates, and much more. We go above and beyond to make you feel confident in your retirement security.  Although we love the details we also try and make it as simple as possible for you to gain a clear understanding.  Through this financial planning example you can see the clear instruction we were able to provide Sue and Bill:

• Yes, you can spend $20,000 per year on vacations.
• Yes, we can send you $7,500 per month; here’s how much to withhold for tax.

Bill and Sue are a few months into retirement and enjoying their life. They understand how much money is coming their way each month and that it is sustainable throughout retirement. We will update their financial details annually, refresh their Camber dashboard, and continue checking and rechecking each year as markets play out and life inevitably changes.

How to Get Your Own Plan

Bill and Sue started their financial planning journey by clicking the button pictured below.  With one click you can launch our short survey and begin setting yourself up for the rest of your life. To learn more about the process continue to follow along as we walk you through our dashboards.

‍Build your dashboard

Let's Get Started

We made onboarding short and fun. Our survey is adaptive in each area of a typical financial questionnaire (assets, liabilities, spending, etc.). This allows you to take a more detailed path where you feel it is important, and shortcuts through areas of less interest or lack of access to the information. The goal of this first step is to set the stage for a very productive first conversation. With real data we can actually look at a mocked up financial model of your life during our first call.

In our experience, the worst part about completing a financial planning questionnaire is figuring out how much you spend. To solve this, we have partnered with the University of Calgary's Data Science Department and a group of data scientists. Together, we have created a tool that can predict spending using Statistics Canada data.

Building Your Financial Model

Once we receive your survey response, we send you an email laying out the next steps in the process. Beginning with an initial draft of your financial model in our planning software, VisionWorks. VisonWorks is a Canadian financial planning software that serves as our compound growth and tax calculator. To make the calculator work, we enter your survey data alongside some assumptions. These assumptions include future investment returns, inflation, borrowing costs, and general tax strategy.

We do not need to formulate our own tax rate assumptions as the software has them built in and updates them regularly.  Tax rates do vary when a few factors are changed. These factors include the type of income you receive, how you maximize tax deferrals, and the order in which you liquidate your accounts. The effects of taxes can be seen in our financial plan example and are one of your biggest expenses. The value in getting them rights is a key to your long-term success.

Review Your Base Plan

When your model is ready, we will send you an email to schedule an introductory call. For your convenience, you can pick a day and time that fits your schedule. This call allows us to introduce ourselves, share our screen, and expand on key details of your financial model.

Before this meeting we create a short list of "asks" we think can enhance the accuracy of your model. We also highly value getting to know you, and take notes throughout the process. Most of the critical details within a plan come from understanding where you stand and what is on your mind.

Stress Testing Your Plan

After our review call, we update your financial model. At Camber, we put our heads together to come up with a base plan and long-term asset allocation for your investments. Similar to the financial plan example scenarios we calculated for Sue and Bill, we stress test your plan to answer some of the following questions:

• What if you increase your spending by $40,000/year?
• How will your plan be effected if investment returns are lower over the next 10 years?
• What happens if the stock market crashes by 30%?

Alongside these scenarios, we run custom tests based on the questions or comments that came up during our conversation. These scenarios could include:

• What does early retirement look like?
• Can I afford high medical costs later in life?
• How much could I afford to spend on a cabin?
• Could we start traveling in first class?

This type of stress testing is really just a series of "what-if" scenarios. Once you have an accurate base plan in place, these scenarios are used to answer real-time "what-if" questions. We do not want you losing sleep wondering about some specific financial issue. Instead, we want you to reach out and let us test your questions in a virtual environment; thus giving you the peace of mind in knowing the answer.

Dashboard Functionality

With your base plan and stress testing completed, the next step is to start building your Camber dashboard. These dashboards are designed to help illustrate the most important aspects of your financial life. Visuals tend to be easier to understand than words. Our dashboards allow us to gain a deeper understanding of your plan by exploring the data buried in the visuals using embedded drill down features. Below are some examples of the visuals from our dashboards. As each client’s dashboard visuals look unique, yours will also be different.

Cash Flow

We take a deep dive into how you create cash (i.e. different income sources) and where you use it (i.e. lifestyle, tax, savings); this allows us to make sure every important detail has been included in your projections.  Interested what your CPP payment will be each year in retirement?  "Cash Flow" provides an insight into the most detailed aspects of your financial future.

Investments

In today’s "always on" media cycle there is a never-ending barrage of investment advice competing for your attention. To help you cut through the noise, we have developed a screen that can answer a key question: Am I investing my money according to research based best practices? We conduct our analysis based on academic evidence and our investment principles are centered on the time tested rules for intelligent investing.

1. Diversification

• Company Diversification: Diversifying away from individual companies allows investors to see a lower dispersion of outcomes and increases the reliability of achieving a more desired investment outcome.  Too often we see portfolios concentrated in relatively few holdings.
• Global Diversification: Canada makes up ~3% of world markets.  Having a high percentage of your investments in Canada is taking on considerable concentration risk.  Like many investors located in small markets, having an over concentration in your domestic market, is common.

2. Probability

• Professional money managers who attempt to outperform the stock market by picking winning stocks or jumping in and out of the market have a low success rate. According to the 2019 SPIVA scorecard the success rate of professional Canadian Fund Managers at beating the market was only 8%.

3. Cost

• Cost and performance are directly related. As an investor, you only get to keep the returns after you have paid your fees and expenses. As you lower your fees your net investment return increases.

‍4. Tax

• Taxes matter! Two portfolios with the same investment return can have drastically different after-tax returns.  A portfolio with high turnover is going to increase the amount of tax you pay and decrease the investment return you achieve.

Your Control

At Camber, we believe in taking advantage of the simple wins that come along with financial organization and good behaviour. For example, by measuring your use of registered accounts (RRSP, TFSA, RESP), we can track your efficiency.  We help you visualize your savings goals and keep you accountable to them. The Camber dashboard helps us walk you through the analysis of your financial life. At different times, we focus on different areas and prioritize that focus based on your needs. One meeting might answer investment questions, or help you manage savings, while the next one outlines the most tax efficient way to set up your retirement income. Every meeting is unique and strategically designed to address your specific concerns.

Conclusion

We are proud of how we use our dashboards to support our clients. Whether it is by regularly answering questions, preparing short screen capture video clips, or in face-to-face meetings, our dashboards provide valuable insights. As opposed to the traditional method of delivering advice that relies on intuition, instinct, and old-fashioned gut feel, Camber is changing the way in which financial advice is being delivered in Canada. We think the current model is archaic and ultimately harmful to individual Canadians. At Camber we are proud to modernize financial planning by applying a data driven lens and systematic implementation to everything we do.  

Thank you for joining us on Bill and Sue’s adventure through the Camber dashboards and this financial plan example; we hope that the next story we tell is yours.