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Thursday, 8 February 2018

Volatile Markets, Retirement Income and the Risk of Time

Is an income that’s guaranteed for the rest of your life important for you?

Studies show that over 60% of pre-retirees are most comfortable if their RRSPs and other savings would be 100% guaranteed to provide an income for life, regardless of market conditions.  

With interest rates bouncing around at historic lows for years on end, many savers and investors find themselves caught in a Catch-22 situation with investment choices that on the one hand offer either poor results, or on the other hand offer uncertain results. 

For safety and short term needs many people leave money in bank accounts, GICs and term-deposits. Savings of this kind are generally safe, but are growing at a rate that is barely keeping up with inflation. In many cases these savings may not be growing fast enough to meet longer term financial goals. 

Many people hope for growth on their investments in volatile markets that don’t guarantee gains. That leaves open the risk that savings may actually lose value at the time when they need income. Many people hedge their bets and do both, resulting in compromised results.

It’s not that market risk or volatile markets are necessarily bad. In fact, higher risk tends to bring higher rewards with some investments. It is also technically correct that over time, securities markets outperform many other investment savings choices. But these rewards are typically gained over uncertain periods of time.

As an example, the TSX is currently lower than it was in Aug 2014 and has almost come down to the highs (before the crash) that we saw in 2008!

So time can be a critical factor for savings that you've earmarked to provide you with a current or future income.  

Thankfully there are a variety of guaranteed investments – no matter the size of your nest egg – that take the risk of time out of your future financial plans.

To discover whether these guaranteed investment options meet your unique circumstances, some good questions to discuss can include:
  •            Can our lifetime expenses be covered by our current pensions, savings         and government retirement benefits?
  •      Can we finance our future travel plans and other bucket list items?
  •          If we want to convert some of the equity from the sale of the family               home or from other nest eggs into a guaranteed-for-life income stream,        what are the best available options and do they suit our needs?
  •        Can we take care of our dependants?
  •        How will we cover our long-term care costs?
  •        After we’re gone, will we have enough to cover the needs of our                 survivors, bequests and the charitable legacies that we wish to leave behind?

Knowing that we'll never run out of money for the rest of our lives is very helpful for most of us who like to sleep well at night. Control and access to our investment savings in case of emergencies are also important considerations.                                                                               

Of the many solutions available today, some guaranteed income plans may also offer you additional benefits to suit your circumstances such as:
  •       Guaranteed growth of future income during savings years.
  •       Plans that allow you to participate in the upside of the markets while also     guaranteeing an income for life.
  •       Guaranteed minimum income payments for life!
  •       Minimum guarantees. What you put in is what you can take out, even if         the market value goes lower than your initial deposits.
  •       Control and access over your investments. Just in case.
  •       Joint accounts, for the purpose of guaranteed income continuation for a surviving spouse.
  •       Avoid probate taxes and maintain control over savings. Note: If your wish is to avoid probate delays and probate taxes - in most Canadian provinces, it is unnecessary to set up joint accounts with these types of guaranteed investments.
  •       Transfer of residual proceeds to your beneficiaries can be delivered as incremental payments over time and/or as lump sums, as you see fit.

Please note: As an independent Certified Financial Planner and expert on guaranteed-for-life income solutions, I have personally invested in some of these solutions since they are also a perfect fit for my circumstances.

If you’d like to learn more about taking the risk of time out of your investment savings, I invite you to contact me today to help you discover if guaranteed investments are the right fit for you.

Jack Bergmans CFP
Certified Financial Planner/ Founding Partner 
Life Insurance & Estate Consultant
Phone: (416) 356-4511 Toll free: (888) 708-3134 Ext. 2
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