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BMO First Canadian Bank To Offer Personalized Retirement Pension Solution


WEBWIRE

Responds to calls for private sector pension innovation

* BMO Lifetime Cash Flow provides guaranteed steady cash flow for life
* Helps address concerns about outliving retirement savings
* A tax efficient bank deposit solution that is fully protected against market volatility

TORONTO - BMO today announced the launch of BMO Lifetime Cash Flow, an industry-first product that provides Canadians aged 55 and over with guaranteed cash flow for life. The new product is an attractive addition to the suite of deposit products that comprise the BMO LifeStage Retirement Income Portfolios.

With Canadians living longer, retirement can easily last 25 to 30 years, leading many to worry about the possibility of outliving their retirement savings. The BMO Lifetime Cash Flow product helps address this concern by introducing a guaranteed lifetime cash flow component that provides continuous payments for the remainder of the product holder’s life -- while protecting against market volatility.

“With access to employer sponsored pension plans becoming less common, there is a real need for Canadians to re-think where their retirement income will come from,” said Caroline Dabu, VP, Head of Retirement Market Group, BMO Financial Group. “Having an income plan in place is essential to ensuring a comfortable retirement that’s free of worry. BMO Lifetime Cash Flow allows Canadians to include a safety net as part of their plan, ensuring a secure and stable cash flow for the rest of their lives.”

A recent BMO survey conducted by Harris Decima found that 90 per cent of Canadians believe it is important to have a guaranteed source of income during retirement, with half of respondents expressing concern over having enough money to get them through retirement. BMO recommends that every Canadian have at least one source of retirement income that is guaranteed, and which ideally makes up at least 30 per cent of their overall cash flow.

“Having enough income in retirement is now more important than ever before,” adds Ms. Dabu. “At BMO we are committed to understanding our customers’ full and unique retirement needs and ensuring we develop innovative solutions to meet them.”

How BMO Lifetime Cash Flow Works:

* BMO Lifetime Cash Flow is a bank deposit backed by the strength and stability of BMO and is fully protected against market volatility.
* With as little as $5,000 Canadians can start to build a “personal pension” for themselves.
* The initial deposit provides exposure to a portfolio of BMO Mutual Funds and is rebalanced annually to a progressively more conservative mix of funds over time.
* After ten years the product holder receives guaranteed cash payments equal to six per cent per year that are payable monthly based on the initial deposit. This return of capital continues for the next 15 years.
* The deposit holder then continues to receive six per cent interest income (based on the amount of the initial deposit) paid by the Bank of Montreal on an annual basis, regardless of market conditions; this continues for the rest of the individual’s life or as long as they hold the product.
* The remaining portfolio value will be transferred to the estate upon death, providing the client with the opportunity to leave a legacy.
* For more information on BMO Lifetime Cash Flow, please visit www.bmo.com/smartinvesting

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The summary contained herein is issued for information purposes only to provide an overview of BMO Lifetime Cash Flow Deposit Notes and does not constitute investment advice or an offer to sell or a solicitation to purchase. BMO Lifetime Cash Flow Deposit Notes provide the holder with steady payments and the possibility of an additional return when they mature. The BMO Lifetime Cash Flow Deposit Notes are not insured by the Canada Deposit Insurance Corporation or any other entity. An investment in BMO Lifetime Cash Flow Deposit Notes is subject to certain risks, which investors should consider. Investors should read the Master Information Statement and Supplement carefully as well as consult with his or her tax advisor before investing and discuss their suitability with their branch investment professional.

BMO Lifetime Cash Flow Fact Sheet & Sample Client Scenarios

What is the BMO Lifetime Cash Flow product?

* The BMO Lifetime Cash Flow product is a bank deposit backed by the strength and stability of BMO. It is a new addition to the BMO LifeStage Retirement Income Portfolios and offers a guaranteed lifetime component that provides continuous payments to the product holder for the remainder of his/her life.
* Designed for Canadians aged 55 and up, the product acts as a “personalized pension” that provides steady, reliable cash flow on a monthly basis and is fully protected from market volatility.
* Product holders will never outlive their money; the product creates a safety net for retirement and provides a secure and stable cash flow for the rest of their lives.
* The BMO Lifetime Cash Flow product provides tax deferral - the product holder will not pay tax on it for the first 25 years.

How does it work?

* The initial deposit (a minimum of $5,000) provides exposure to a portfolio of BMO Mutual Funds and is rebalanced annually to a progressively more conservative mix of funds over time in order to balance risk.
* For the first 10 years, the money is fully invested on a tax deferred basis.
* After ten years the product holder receives guaranteed cash payments equal to 6 per cent per year that are payable monthly based on the initial deposit. This return of capital continues for the next 15 years.
* The product holder then continues to receive six per cent interest income (which is taxable and is based on the amount of the initial deposit) on an annual basis, regardless of market conditions; this continues for the rest of the individual’s life or as long as he/she holds the product.
* The remaining portfolio value will be transferred to the estate upon death (much like a security)—providing the client with the opportunity to leave a legacy.

BMO Lifetime Cash Flow
Sample Client Scenarios
Client Scenario One
Investor:

* Jim is 55 years old, does not have a company pension, and plans to retire in 10 years. He is single and lives comfortably within his means.
* Jim is a conservative investor and is concerned about having market exposure so close to his retirement.

Financials:

* Jim has $250,000 in non-registered savings/investments and $300,000 in guaranteed investments in his registered retirement savings plan (RRSP).
* In ten years, Jim’s monthly retirement fixed expenses will be approximately $3,000/month, half of which would come from the Canada Pension Plan (CPP) and Old Age Security (OAS) payments from the government. This will leave Jim with a shortfall of $1,500/month.

Plan:

* Jim’s Financial Planner proposes that the shortfall of $1,500 be generated by allocating $100,000 from his $250,000 in non-registered savings/investments to a BMO LSRI Lifetime Cash Flow Portfolio, and the conversion of the RRSP into a registered retirement income fund (RRIF).
* That leaves Jim with $150,000 in non-registered savings/investments, which is invested conservatively to provide for any unexpected expenses or discretionary needs.

Results:

* At 65, Jim starts receiving the following monthly cash flow:
- CPP/OAS: $1,500/month
- BMO Lifetime Cash Flow: $500/month
- Minimum RRIF Withdrawl: $1,000/month
This provides Jim with his desired monthly income of $3,000/month.
* Upon death, the entire deposit amount from the BMO Lifetime Cash Flow Portfolio is cashed out and terminated by the bank.
* Jim is able to leave a legacy to his heirs since his estate will receive the remaining portfolio value (from his initial deposit of $100,000) including any equity growth the initial deposit has accrued.


Client Scenario Two
Investor:

* Ray (60) and Abby (55) are married.
* Abby is an artist who hasn’t contributed to CPP and does not have a pension plan.

Financials:

* Ray is the main earner and has a defined benefit pension plan which will contribute $2,100/month when he retires in 10 years’ time at age 70.
* Ray and Abby are the sole beneficiaries to each other’s estate. They have also accumulated just over $400,000 in non-registered savings.
* Their primary concern is knowing what cash flow they can count on; they do not want to count on their investments for everyday living expenses.

Plan:

* Their financial planner determines that their fixed income needs will be approximately $4,200/month when Ray retires.
* On a monthly basis, Ray’s CPP and OAS income will be $1,000, his pension $2,100. Abby is entitled to $400/month from OAS payments.
* To fund their shortfall of $700/month, they have decided to invest $140,000 of their savings into the BMO Lifetime Cash Flow Portfolio under Abby’s name.
* The remainder of their money ($260,000) will be invested to provide income and growth opportunities to meet any discretionary needs and unexpected expenses in the future.

Results:

* Because Lifetime Cash Flow provides exposure to the growth potential of a client’s portfolio at maturity (after 25 years), their initial $140,000 deposit has netted a total market value of $160,000 (after paying out a total of $126,000).
* When Ray is 86, he becomes ill and requires regular home care. They need to withdraw $20,000 from their investments to cover the expenses over the next few months.
* Because Lifetime Cash Flow is intended to be a long term cash flow solution it should be the last investment Ray and Abby look to draw from in order to meet their emergency needs.
* Why? BMO Lifetime Cash Flow is like a personalized pension. It helps provide Abby with the peace of mind she can meet her long-term income needs. In the event Ray dies first (statistically, women outlive men), Abby can count on the guaranteed monthly cash flow generated by their BMO Lifetime Cash Flow Portfolio when Ray’s CPP/OAS payments end and payments from his pension are reduced.
On the advice of their financial planner, Ray and Abby decided to leave Abby’s BMO Lifetime Cash Flow Portfolio intact and funded their emergency cash flow need with other assets in their portfolio.



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