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Financial Fitness - April 2019

Guaranteed income for life. Sounds great, doesn’t it? But what if you don’t have a pension besides CPP & OAS?

And all pensions are not created equal – there are defined benefit plans and defined contribution plans – if you have a defined benefit plan you have guarantees in place, and usually indexing to inflation. With a defined contribution plan, however, your monthly income can vary depending upon the performance of the overall company plan. At retirement, some companies give you the option of leaving your pension funds with them, or transferring to a financial institution and being able to monitor yourself or with the help of a financial advisor. All situations are unique, and careful consideration must be given to your decision. Remember that guaranteed income for life is quite often very hard to outperform, and with longevity increasing, you can very well ‘get more than your money’s worth’.

Do you know you can create your own income for life by purchasing an annuity with registered or non-registered funds? At the time of conversion of your RRSP to a RRIF (mandatory by the end of the year that you turn 71, or earlier if you wish), you can opt to give your money, or a portion, to a life insurance company. At the beginning, the insurance company will quote you an amount they will guarantee to pay you for the rest of your life. You can also put guarantees in place that will solidify a certain amount to your beneficiaries if you die within a certain number of years, or, you can ensure that the surviving spouse will be guaranteed a certain amount for the rest of their life. Once you buy an annuity you can never access the capital again, but do not underestimate the security of a guaranteed monthly income for the rest of your life, or both of your lives.

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