Certified financial planner Alexandra Macqueen joins the podcast to discuss the distinction between financial economics and financial planning, retirement sustainability quotient (RSQ), financial legacy value (FLV), annuities, GIC ladder, copycat annuities, and considerations for deferring CPP.
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Economics Versus Planning
Financial economics uses quantitative models to allocate resources under uncertainty while financial planning relies on folklore and rules of thumb.
Alexandra Macqueen urges combining rational finance with behavioral realities when advising clients.
insights INSIGHT
Product Allocation For Retirement Risks
Product allocation addresses retirement-specific risks by adding products beyond traditional asset allocation.
Alexandra Macqueen says pensionization uses product choices to hedge longevity and withdrawal risks.
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Retirement Sustainability Quotient (RSQ)
The Retirement Sustainability Quotient (RSQ) measures how much of retirement income is guaranteed and sustainable over lifetime.
A high RSQ can coexist with low wealth if most income is guaranteed like CPP and OAS.
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Welcome to another episode of the Rational Reminder Podcast! We have a fantastic guest joining us today to talk about annuities, or in more general terms, pensionization. Alexandra Macqueen is certified financial planner, who is also a financial author, editor, York University educator, consultant, and speaker. Alexandra co-wrote a book with Dr. Moshe Milevsky called Pensionize Your Nest Egg:How to Use Product Allocation to Create a Guaranteed Income for Life, an incredible resource on our topic today. In this episode, Alexandra talks about the important distinction between financial economics and financial planning, the former being much more rational and quantitative than the latter, which is largely based on folklores and rules of thumb. We discuss the concepts of retirement sustainability quotient (RSQ) and financial legacy value (FLV) and the impact they have on each other, before diving into explaining what annuities are and how they are meant to function. She also advises on the use of the GIC ladder, copycat annuities, and considerations for deferring your CPP. Don’t miss out on this insightful conversation!
Key Points from This Episode:
The distinction between financial economics and financial planning. [0:02:38.8]
Product allocation and how it relates to pensionization. [0:04:15.8]
The retirement sustainability quotient (RSQ) and what it measures. [0:06:46.3]
How the RSQ affects your financial legacy value (FLV). [0:07:45.7]
The idea of eliminating the probability of ruin from your portfolio. [0:09:39.6]
What exactly is an annuity and how does it work? [0:10:15.3]
The type of person and age group that annuities appeal to. [0:13:53.2]
Why allocating to an annuity can allow you to spend more on your overall capital. [0:16:20.0]
The problem with the folklore rules around appropriate withdrawal rates. [0:19:47.8]
Suggestions for annuities for wealthy people under 50. [0:23:08.3]
Why a GIC ladder is not a guaranteed stream of income. [0:26:04.9]
Defining copycat annuities and their accompanying issues. [0:30:57.6]
CPP and the impact of deferring it at retirement. [0:33:52.4]
The Rational Reminder Podcast