Worries of 'Running Out of Money' Keeping You Up at Night?

Retirement Income Planning, Calgary

By far the biggest concern for retirees is running out of money. But, it doesn't have to be.

Retirement is a long time and requires a proper income plan and a proper investment plan. If you take your income too fast you increase the risk of depleting your nest egg and running out of money too soon. This is referred to as "encroachment risk". Your investment rate of return needs to be equal to or greater than your income drawdown from the investment plan. 

Your investment plan needs to address 4 major concerns:

1. Inflation - your money will lose purchasing power every year going forward.

2. Predictability - you have to have a high degree of confidence that your monthly income will be there consistently.

3. Tax-efficient - most retirees make the most mistakes in the area of tax, in that they are paying too much.

4. Perpetual - it needs to be able to provide income for a surviving spouse. 

The best way to reduce the risk of running out of money is to create streams of income that will last forever.

A second risk, that most people miss, is not taking enough risk with their investment portfolio. You don't need to be Warren Buffet to know that GIC's are not paying enough interest to keep pace with inflation, never mind create enough retirement income. Bonds are equally as dismal, especially in a rising interest rate environment that we are now entering. So what's a better option?

We think one of the best options is to get a Cashable Annuity, which will provide you with a guaranteed monthly income benefit, while at the same time preserving your capital and providing access to your money should you ever need it. These can only be purchased through an insurance company via licensed insurance brokers, like Nancy and I, and these products are available with RRSP, RRIF, TFSA, and Non-registered funds. Here are some of the basics of how they work:

  • Can be opened by anyone at least 18 years old
  • Available for a lump sum and monthly contributions
  • Your Death Benefit Guarantee and Income Base Bonus Base are automatically reset every 3 years to capture market gains
  • Some companies add a 5% bonus to your income base for every year you defer taking an income
  • You can have full market participation by up to 80% equities
  • There is a 75% principle guarantee upon maturity or death, which is also reset every 3 years to capture market growth
  • You always have access to your principle, unlike a regular annuity
  • Upon death, the balance of your account is paid to the beneficiary

The only downside is that your income isn't indexed. The way around that is to not put all of your money into one of these contracts, but rather, have other investments that are growing and creating inflation-adjusted income.

There are at least 4 other ways to create more sustainable, tax-efficient, perpetual and guaranteed income. I'll discuss them in greater detail at our next workshop. "Everything You Need To Know About CPP & OAS".

Attend our next workshop - Click here!

Click here to Book Your complimentary meeting.

Retirement Income & Investment Advisor,

Willis Langford BA, MA, CFP

Certified Financial Planner


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