Gertrude has money problems even though she shouldn't, at least to the outside observer.
The widow in her late 70s has more than $1.3 million in investable assets.
"On paper, it looks like it's a lot of money, but in reality it sure isn't," she says.
Her financial adviser told her the money will last until age 90.
Even though she has about $800,000 in a retirement income fund (RIF), she says its size is deceiving.
"You pay so much tax on it, you might as well cut it in half right off the bat."
Gertrude's gross income is about $146,000 a year. She should have a lot of money to set aside into savings for the future.
But after paying taxes and providing her disabled daughter with about $30,000 to $40,000, her net income for her own living expenses is about $40,000 annually.
She says she is considering buying a $200,000 annuity to guarantee a payment for life, but she's not certain it's the right choice. She is also concerned about a $100,000 universal life insurance policy that will help mitigate estate taxes.
She had been paying an annual premium of about $1,500 for the last decade, but she recently received notice from her insurer that the annual premium will increase to $7,800. The alternative is cashing out the policy for about $10,000.
Gertrude wants advice -- aside from the guidance she has already received from her adviser with a leading Canadian investment firm -- because she suspects the advice she's been getting stinks.
"They always tell me that I'm doing good," she says, adding she lost $20,000 in the stock market in May.
"But I'm not so confident."
Certified financial planner MaryAnn Kokan-Nyhof at MGI Financial says Gertrude has good reason to be confused.
"When you get to the root of the problem, she doesn't understand what she has in her investments and, frankly, I don't get her portfolio either," says the Winnipeg-based adviser.
"It's really complicated, far too complicated for someone in her 70s seeking simplicity."
The complex nature of her investments would be fine if the portfolio was meeting her needs, but it obviously isn't if she is worried about running out of money. And the fact is that she will burn through her investments based on the way income is generated from her non-registered and RIF accounts.
"She could and should simplify her investments so she can get a basic four to six per cent distribution from them," Kokan-Nyhof says.
That's investment income of between about $52,000 and $78,000 a year -- without touching the capital. The way Gertrude receives investment income at the moment, however, is wearing down capital faster than it should.
"From what I can see in her non-registered portfolio, they're selling individual stocks and bonds each time she needs her monthly income," she says. "When a person has money invested to produce monthly income, they should be able to generate enough money from the investments to make the monthly distribution without selling positions."
The same thing appears to be happening in her RIF. Stock and bond positions are being sold to make the monthly payments. She has no cash reserve inside the account to provide that income on a monthly basis.
"There are better and more beneficial planning strategies out there."
A better option would be having at least six months to two years of cash or near-cash investments such as short-term bonds so she's not forced to sell stock and bond positions at a loss.
From what Kokan-Nyhof can tell, that is not happening and instead stocks and bonds are being sold to generate a monthly income.
It may well be some investments are being sold at a profit. But it's hard to tell just by looking at her statements -- if not impossible.
Kokan-Nyhof also questions the suitability of many of Gertrude's investments.
"A number of these positions tend to be in high-risk sectors," she says.
And there are just too many moving parts. Gertrude has several dozen investments in her portfolio. That's too many for her. She should reduce her portfolio to a handful of individual stocks, bonds and funds.
Furthermore, she should get another set of expert eyes to pore over her finances. She needs a highly specialized adviser, one who is a certified financial planner, a licensed insurance salesperson and a stock broker. This type of expert could likely help her build a less complex portfolio, answer her life insurance issues and provide guidance regarding an annuity.
In fact, Kokan-Nyhof says Gertrude likely can get income security without buying an annuity.
A $200,000 annuity, for example, would pay about $1,112 monthly or $13,344 annually.
"But she could buy an income-producing investment for $200,000 with a six per cent distribution instead that would pay $1,000 a month without tying up the capital like an annuity would."
With regard to the $100,000 life policy contract, she needs help reviewing the contract because it doesn't make sense.
"It sounds like they actually sold her a term and if they did, why would they sell a woman in her mid-60s a term policy?" she says.
Still, Gertrude's situation certainly isn't dire. She has more than enough money to last the rest of her life. It only needs to be invested for that goal, and from what Kokan-Nyhof can tell, it's not.
"What she really needs is a complete financial plan -- one that includes the estate planning component -- and addresses all her needs."
Annual: $146,702 ($9,225 net a month)
Car loan: $18,000 at 2.25 per cent with two and a half years remaining
Income property: $60,000
TFSA: $10,000 in savings
Non-registered portfolio: $456,779
ñü NET WORTH: $1,747,348