A Paycheque Portfolio™ approach is changing the retirement conversation

Dynamic Funds Chief Retirement Income Strategist Daryl Diamond explains how a Paycheque Portfolio™ approach can deliver steady income and peace of mind for retirees

A Paycheque Portfolio™ approach is changing the retirement conversation

A key concern for Canadians approaching retirement is whether they will be able to ensure a comfortable lifestyle without depleting their savings and running out of income.

It’s an issue that Daryl Diamond has been addressing for decades. As one of Canada’s leading retirement income strategists and author of the bestseller “Your Retirement Income Blueprint,” Diamond has spent most of his career helping retirees achieve a sustainable and comfortable income throughout their retirement.

As Chief Retirement Income Strategist at Dynamic Funds, Diamond believes Canadians need to change how they think about retirement. Instead of focusing on how much they have saved, Diamond says people need to be thinking about how much income those savings will generate.

During a recent Q&A with Wealth Professional, Diamond explained how a Paycheque Portfolio™ approach can help advisors and their clients generate steady income – through bull and bear markets alike.

You’ve been helping clients build sustainable income for more than three decades. Can you talk about some of the challenges facing investors today?

There's challenges today, some major, some minor, but there's always challenges. Inflation that had been relatively subdued for decades has suddenly impacted the cost of everything from food and utilities to rent and travel. Having to pay $1.70 for a liter of gas has definitely put a strain on retirees’ budgets.

And that really feeds into the bigger overall issue, which is longevity risk, or fear of running out of money. There’s definitely that conflict in retirement. On the one hand, it’s, ‘Hey, I just retired. We've got our health; we've got a whole list of things we want to do.’ On the other hand, there is always that fear of running out of money.

The psychological impact of running out of income is pretty devastating.  You don't want to go through 20 years of retirement white-knuckling it the whole way.

How do we change the mindset or the conversation around retirement?

A few things. I think we really need to get away from the focus on that elusive “magic number” that Canadians need to retire comfortably. We see countless articles in the media, quoting everywhere from $500,000 to nearly $3 million. The reality is that every retirement journey is unique and there’s no “one-size-fits all” approach.

How do you build a viable retirement plan when so many variables, like quality of health and life span, are unknown? In my experience, there really isn’t a “magic number.” It’s not a realistic approach. We need to stop focusing of on account values.

What should Canadians be focusing on?

We need to focus on income – consistent, sustainable cash flow.

With a Paycheque Portfolio approach, we get clients to start thinking about the income that can be consistently delivered from the investments that they have, from the capital that they've accumulated.

And what we found was very useful about that is it gave people a higher level of comfort. They’re not white-knuckling it every time there’s a market downturn. Why? Because they know that they can depend on receiving that consistent income.

Account values will definitely fluctuate. However, the key is having a strategy that allowed us to continue to deliver the cash flow people need but not be selling the investments that are generating that income, especially at a point in time where the investments are down in value. With the Paycheque Portfolio approach, our motto is spend income, not capital. 

It's a similar approach to owning an apartment building. The value of the building will go up and down, but for someone looking for an income, the building’s current value isn’t what’s most important. They want the consistent rents from the building without ever having to sell the property.

For clients who are retired or just about to retire, volatility can be a nasty thing to have to deal with. The Paycheque Portfolio approach addresses those fears by ensuring any income continues to be delivered consistently.

There seems to be a clear benefit for clients in using a Paycheque Portfolio approach to retirement. Are there any benefits for advisors?

The strategy for advisors is a godsend in terms of servicing -- not only when markets are down, but when markets are down for a protracted period of time. It's not a matter of “set it and forget it” by any means, but the shift of focus away from the current value of assets reduces much of the activity around buying and selling of those assets. Remember, that the point of the strategy is that we’re not selling those income-generating assets.

Clients like the approach because it's simple, straightforward, and they can easily understand how it works. And for advisors it takes away a lot of the stress when markets fall off because they don’t have to suddenly be a lifeguard in a pool where everyone thinks they’re drowning.

Our message to clients was, ‘Look, we're putting this strategy in place now so that when the markets drop and your account values drops - and that will happen - we don't have to look at each other and wonder what we're going to do. We've already done it.’

For more information on the Paycheque Portfolio approach, please read Dynamic’s Paycheque Portfolio™ Approach: Retirement Income the Right Way.

Find out more at dynamic.ca/RIC or contact your Dynamic Sales representative.

Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed or insured by the Canada Deposit Insurance Corporation or any other government deposit insurer, their values change frequently and past performance may not be repeated. Views expressed regarding a particular company, security, industry or market sector are the views of the writer and should not be considered an indication of trading intent of any investment funds managed by 1832 Asset Management L.P. These views should not be considered investment advice nor should they be considered a recommendation to buy or sell. These views are subject to change at any time based upon markets and other conditions, and we disclaim any responsibility to update such views.

Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.

© Copyright 2023 1832 Asset Management L.P. All rights reserved.