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.
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 are automatically reset every 1 year to capture market gains
- You can have full market participation by up to 80% equities
- 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 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.
Click here to learn more about our Flat-fee & All-inclusive planning services.
Retirement Income, Investment & Tax Planning,
Willis Langford BA, MA, CFP
Nancy R Langford CRS
587-755-0159
