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Should you have a savings plan that's similar to having your own Defined Benefit Pension Plan?

As the Canadian postal workers union  (CUPE)  continues to negotiate with Canada Post over their contract and in particular t he issue of ph...

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
Linked In

Wednesday, 12 July 2017

Have you set aside money in your Will to go to your favourite charities?

Even if you're still just thinking about it that's fantastic!  But if you could guarantee that your charities receive a much larger gift using this same money – and remove potential headaches for your executors – would you consider doing that instead?
Giving through your Will – a public document that all can see – can present challenges that you might not have thought of. 
For example, is there any chance that any of your beneficiaries may resent your charitable gifts because they feel that they deserve a bigger inheritance – especially if they have acted as your caregiver? It’s quite common that scenarios like this result in beneficiaries contesting philanthropic gifts made through a Will. 
Such challenges can result in significant delays in settling your estate. This adds significant legal costs that reduce the size of the estate for all of your beneficiaries, including your charities. This can decrease the size of charitable tax receipts that you may be counting on to reduce estate taxes in order to leave more to all your beneficiaries.
Also, the anger and disagreements that often surround contested Wills often permanently fractures families.

Here are three simple and cost-free ways that ensure your charitable wishes remain intact.
1. Give to your favourite charities while you are alive.  Time-honoured estate planning strategies often involve reducing the potential size of your estate. If you can afford to give now, your estate will be smaller so will its taxes, fees and many potential headaches for your executor.
2. Or if you are less than 80 years old, it’s often wise to use money you’ve set aside for your charities to buy a life insurance policy, naming your charities as its beneficiaries.
Life insurance allows anyone, even people of modest means, to give more.  In many cases, if you have normal health issues such as high blood pressure or cholesterol and they are effectively managed with medication, you are likely eligible to buy life insurance.  Finding out if you are insurable is actually a simple process.
When you choose a life insurance policy that grows in value over time you’ll get four important benefits without spending any more money:
i) You can withdraw the growing cash value inside your policy anytime, just in case you need money sometime down the road.
ii) The size of your charitable gifts increases over time so your charities can have a bigger impact on the causes close to your heart.
iii) Tax receipts to your estate also increase in value, helping to offset your potential estate income and capital gains taxes.

iv) Growth in the value of life insurance policies is tax-free so you’ll give more, without spending more.
Because life insurance policies are private, and usually can’t be contested*, you won’t lose control over your charitable intentions. Even better, because your death benefit will go to your charitable beneficiaries outside of your Will, your charities will get your gifts much faster and with very little effort on the part of your executor.

3. If you don’t qualify for life insurance, consider transferring your intended gifts into investments with an insurance company.  Such investments – including money market funds, GICs, segregated funds (the mutual funds of the insurance world) and annuities of any kind – are not considered part of your estate, which also makes your executor’s job easier. All your charities will receive the proceeds privately, quickly and unreduced by estate fees and probate taxes.

Now isn’t that something worth thinking about?

Note: To learn more about whether life insurance estate strategies are the right fit for your circumstances, you must consult with a licensed insurance professional. When using insurance strategies to multiply your generosity to charities, it’s ideal to consult an advisor who is well versed in maximizing the power of your charitable giving, while also reducing potential taxes and other challenges that your estate might incur.

Jack Bergmans, CFP
Best-selling author of
Ripple Effect: Growing your business through insurance and philanthropy  &
Multiplying Generosity: Creatively using insurance to increase legacy gifts
* Some exceptions

Friday, 9 December 2016

Maybe your RRSP contributions should be made before the end of the year?

In our practice we speak with many Canadians who have saved and/or are saving for retirement who have the common desire to have a rock solid core retirement income that's guaranteed to keep them in the lifestyle they prefer for life. Defined Benefit Plans once provided that guaranteed income but not many of us have those kinds of plans anymore.

Today we need solid lasting guaranteed investments that will provide for our own retirement income. Guaranteed income for life plans offered through insurance companies just might be that perfect fit!

A few of the key features of personal guaranteed income plans such as variable annuity plans (also known as GMWB's) are:
a) investors always have access to their savings in case they need their money.
b) plans are portable when people change jobs or can be changed to something else if better options become available sometime in the future.
c) some guaranteed income plans offer an additional 5% annual income bonus during savings years. - eg. RRSP contributions (and RRSP/RRIF switches) into guaranteed income plans that are made before the end of any year would receive the entire 5% annual income bonus.
d) lifetime retirement income might not be indexed to inflation.
e) investment choices fit the risk profile of many types of investors, but not everyone.

Who are guaranteed income plans intended for?

We find that clients who integrate guaranteed for life income solutions into their financial plans tend to do so for a few of common reasons. These often include such things as:

a) peace of mind that comes from having a lifetime core of guaranteed retirement income that will enhance CPP and Old Age Security (OAS) payments.
b) to enhance existing Defined Benefit plans in order to improve guaranteed anticipated lifetime income needs.
c) avoid outliving investment income. Usually this is done by converting personal  RRSP's,  RRIF's and Defined Contribution plans to guaranteed income plans but it is also done through non registered savings.
d) reducing or eliminating market risk in savings years leading up to and during retirement. These are known as the retirement risk zone years when savings that will be needed for retirement income should be fully protected.
e) annual RRIF income can drop like a stone whenever there are down markets but guaranteed income plans eliminate that risk by providing a nice smooth retirement income stream.

Please contact me anytime if you have any questions. Maybe your RRSP contributions should be made before the end of the year?

Jack Bergmans


Wednesday, 27 July 2016

Should you have a savings plan that's similar to having your own Defined Benefit Pension Plan?

As the Canadian postal workers union (CUPE) continues to negotiate with Canada Post over their contract and in particular the issue of phasing out of Defined Benefit (DB) plans in favour of Defined Contribution (DC) plans as was recently discussed on the CBC, I've been wondering why we're not hearing any discussions about guaranteed retirement income solutions that are already a huge market for many Canadians without DB pensions and have been available through a variety of Canadian insurance providers right across the country for many years.

In our practice we speak with many Canadians who have saved and/or are saving for retirement and find that most people have the common desire to have at minimum, a rock solid core retirement income that's guaranteed to keep them in the lifestyle they prefer. I would suspect that the postal workers union and their members probably have the same goals in mind.

From the outside looking in, the main problem in this dispute appears to be that even though DB plans are often the best guaranteed retirement income solutions available for employees the financial risks of DB plans are considered too high for most of today's corporate managers to take on. So the compromise of a simple DC plan offers similar ongoing financial support for workers but eliminates the corporate capital requirements required by pension regulation and future retirement income risks of employees away from the corporation.

A few of the key differences between DB plans and some of the available guaranteed income plans such as with variable annuity plans also known as GMWB's are:
a) savers maintain access to their savings in the event they need the money.
b) plans can be portable when people change jobs.
c) some plans offer lifetime income that is based on deposits plus 4-5% during your savings years (or market value which ever is higher).
d) lifetime retirement income might not be indexed to inflation.
e) savers can choose from a wide variety of investments.

Guaranteed income for life solutions that combine some of the DC plan attributes with some of the DB plan attributes such as these are often a good compromise that suits a majority of retirement income needs.

That's because in our experience we find that clients who integrate guaranteed income solutions into their financial plans tend to do so for a variety of common reasons. These often include such things as:

a) peace of mind comes from having a core part of retirement income that's provided for life that's above and beyond meagre CPP and Old Age Security (OAS) payments.
b) as a passive supplemental guaranteed income above small or insufficient existing DB plans in order to guarantee anticipated lifetime income needs.
c) create as close to a DB plan equivalent with RRSP's, RRIF's and DC plans as possible so the requirement for taking on additional investment risks are reduced or eliminated in savings years and most importantly, during retirement risk zone years.
d) smooth out or eliminate the negative effects on incomes that are often caused by volatile markets or savings that would otherwise be exhausted when needed during retirement years.

It's also important to note that the various guaranteed for life income solutions currently available are implemented to suit the specific needs of groups, couples and individuals on a case by case basis.

Tuesday, 21 June 2016

Should you consider getting life insurance before the rules change on Jan 1 2017?

Life insurance is commonly thought of as a simple estate planning tool. Yet it can also make a very powerful investment tool due to its favourable tax treatment.

Deposits and cash growth in life insurance policies are generally tax-free within certain limits, as are death benefits, which makes life policies used as investments very valuable.

On January 1, 2017 the part of the Canadian Income Tax Act governing life insurance policies will be amended to more accurately reflect changes in mortality rates (people are now living longer). It will also place additional limits on life insurance deposit amounts considered tax exempt.

If you decide to take advantage of life insurance for investment purposes and estate planning before these tax changes take place, your life policies will be grandfathered and provide you with the ability to invest more money tax-free than life policies purchased in 2017 and beyond.
There are many situations whereby you should consider investing in life policies before December 31, 2016. A couple of key situations include:

If you've already set aside specific funds to go to beneficiaries such as your spouse, grandkids, kids, community causes and charities, Bequest Insurance’s Generosity Multiplier™ can mobilize those funds to guarantee that your beneficiaries receive even more than you hoped, at no additional cost to you.

Rates of return on our Generosity Multiplier™ are based on age, and since none of us are getting any younger and tax changes are coming on January 1st, this could be the perfect time to contact Bequest Insurance to learn more about how you can reduce your taxes and leave more to meet your personal or business needs!

Monday, 21 March 2016

Should you consider buying prescribed annuities now to avoid 2017 tax increases?

Living longer than people in previous generations is great but more and more people are now worried about the possibility of outliving their savings. 

Because of this, guaranteed-for-life income solutions are becoming a vital investment component for many Canadians. 

Within the available choices of guaranteed-income solutions, prescribed annuities provide much higher annual take-home income than you'll get from other typical guaranteed savings choices due to both their structure and the overlay of significant tax benefits. For example*:

A 60 year old in the 40% tax bracket using $100,000 in savings to provide income for life :

Scenario 1: 2% GIC is purchased
Gross Income: $2,000
Taxable amount: $2,000
Net Annual Income: $1,200

Scenario 2: 5% Prescribed Annuity purchased

Gross Income: $5,000
Taxable amount: $1,054  (if purchased in 2016)
Net Annual Income: $4,578 

*Please note that this example is for illustration purposes only.

Your annual taxable amount is set for life when you purchase prescribed annuities.  If this same 5% prescribed annuity is purchased in 2017 the taxable amount is expected to increase from $1,054 to $1,450. 

It is also important to consider how various retirement income streams might lower or even eliminate your income tested government benefits such as your Old Age Security pension (OAS). For the 2016 taxation year OAS clawbacks begin when your total annual taxable amount (not your total income) exceeds $72,809.  OAS benefits are completely eliminated when your net income (including your OAS income benefit) is just over $118,000.

Prescribed annuities provide the benefits of higher incomes and low taxable amounts. This often a win-win-win for people looking for higher incomes, lower income taxes and getting the most from their income tested government pension plans.

You may now be asking yourself these questions:
  • How do prescribed annuities or other guaranteed-for-life income options work?
  • How is prescribed annuity income guaranteed and for how long?
  • What is the value of my prescribed annuities to my estate, spouse and other beneficiaries when I die
  • Are annuities suitable for me? Would they be suitable for my dependants?
  • Are there guaranteed for life income annuities that allow me to access my capital just in case I need it? 
  • Should I get prescribed annuities now to avoid tax increases coming in 2017? 

As always, please feel free to contact us anytime. We make every effort to answer these and any other questions you might have within one business day.

Best Regards


Thursday, 14 January 2016

This is often a good time of year to review your financial needs.

The deadline for 2015 RRSP contributions this year is Monday Feb 29 2016.

RRSP contributions reduce your income tax owing at the income tax rate that you pay.
What that means is that if you're in the 30% tax bracket and you contribute $100, your real cost is only $70.

Money held within your RRSP's and RRIF's etc. grow tax free but are taxable at your income tax rate at the time you make withdrawals.

The maximum RRSP contribution limit for 2015 is $24,930 (based on your income in 2014), plus any unused deduction room you have left over from previous years. Your 2014 notice of assessment should have these figures for you.

This is often a good time of year to review your financial needs, ask a few pointed questions about how your plans will meet your future goals and also share any changes in your circumstances with your financial advisor.

We all know that hope is not a plan so if you're self funding your pension and RRSP's or wish to provide yourself with an increased retirement income, have you considered investing in worry free savings that will provide you with a guaranteed income for life, regardless of the markets and no matter how long you live?