Volatile Markets, Retirement Income and the Risk of Time

Is a retirement 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.  

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. 

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 market rewards are gained at random times that don't match income requirements.


For those who will be taking income from savings  - an erratic or poor sequence of returns  5+ years before and or during early retirement years in particular can be financially devastating.

Longevity risk is another factor.  People are living longer which means savings need to be able to last longer and longer periods of time.

So time can be a critical factor when protecting savings that are earmarked to draw down as income.  

Thankfully there are a variety of guaranteed investments that take the risk of time out of your future financial plans.

To discover whether these guaranteed investment options meet your unique circumstances, some common questions to discuss might include:

•           Can lifetime expenses be covered by your current pensions, savings and government                  retirement benefits?
•       If the market drops 20% (or any number you'd wish to explore) during income years how          long will savings be expected to last?
•          Will there enough money to take care of dependants?
•       How do future travel plans and other bucket list items fit in?
•          If we eventually need to convert a nest egg into a guaranteed-for-life income stream, what          are the best available options and do they suit our needs?
•         Are long-term care costs factored into this equation?
•        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 for many.                                                                               

Of the contractually guaranteed for life income solutions available today, some plans may also offer additional benefits to suit various 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.
•       Income payments that are guaranteed for life!
•       Other guarantees. For RRSPs and RRIFs in particular, your initial investment is the                   guaranteed minimum you'll be able to withdraw over time,  even if the market value  drops       below your initial deposits.
•       Control and access over your investments anytime. Just in case. 
•     Loss of control options that will pay a higher contractually guaranteed for life income are          also available when suitable.
•       Joint accounts, for the purpose of guaranteed income continuation for a surviving spouse.
•       Avoid probate. Note: If your wish is for your estate to avoid probate delays, taxes and fees - 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 over time and/or as lump sums, as you see fit.

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

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.

Jack Bergmans CFP

Certified Financial Planner/ Founding Partner 

Life Insurance & Estate Consultant

Bequest Insurance

jack@bequestinsurance.ca

Phone: (416) 356-4511 

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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


Jack