By far the biggest concern for Canadian retirees is running out of money. There is a way that you can eliminate this fear by using some of your savings to buy an annuity and have income for as long as you live.
Retirement is a long time and requires a proper income and 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. Perpetuity - 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.
For the most part, GICs can work on a temporary basis to provide safe income, but what will you do when interest rates come back down and you can't earn much on them any longer? So what's another option?
We think one of the best options is to get an Annuity, which will provide you with a guaranteed monthly income, 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; and these products are available with RRSP, RRIF, and Non-registered funds.
- Can be opened by anyone.
- You are exchanging a lump sum of money for a guaranteed monthly income for as long as you live.
- You can have a 100% survivor benefit so that your spouse will continue to get the same income if you die first.
- Reduce the investment decisions to be made and get away from the market volatility.
- You can use some of your savings to buy an annuity and keep a portion in other investments so you can access it as needed.
There are other ways to create more sustainable, tax-efficient, perpetual, and guaranteed income and you need to know and understand them to ensure you do not outlive your money.
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Retirement Income, Investment & Tax Planning,
Willis Langford BA, MA, CFP
Nancy R Langford CRS
587-755-0159
