Thanks to good nutrition and medical advances, Canadians are living longer than ever before. But will our savings last as long as we do?
Today, many of us can expect to live into our 80s, 90s, and some us even into our 100s. . .
When you add up today’s long life spans, economic uncertainty and the prospect of inflation, the need for sound financial planning is more important than ever. Meeting with a financial advisor can help you quantify your longevity risk and choose investments that will guarantee you a steady stream of income to meet your ongoing needs. He or she can also recommend certain guaranteed products that have features designed to meet special needs.
Four guaranteed investment products your financial advisor may mention are:
1. Payout annuities
These are a popular home for RRSP funds when you reach that magic 71st birthday and must convert your registered savings into income products by the end of the year. Payout annuities offer a number of benefits:
- A registered income that can increase each year to help offset inflation
- A preferential tax treatment for non-registered funds
- A guaranteed income – ideal for covering day-to-day expenses
- A choice of receiving payments over a set period or for life
2. Insurance GICs
These are also known as accumulation annuities, and are offered only by life insurance companies. While similar in concept to GICs issued by banks, insurance GICs offer different guarantees and benefits, such as allowing you to designate a beneficiary and giving you several estate planning advantages. Your investment is protected by Assuris, a coverage issued by life insurance companies.
3. Registered retirement income funds (RRIFs)
These are another popular destination for RRSPs. RRIFs are flexible and let you choose the type of guaranteed investments you prefer such as guaranteed investment certificates (GICs), mutual funds and segregated funds, among others.
4. Segregated funds
Segregated funds are similar to mutual funds in that they pool many people’s money and invest it in stocks, bonds and other securities with the goal of growing the value of the entire pool. The difference lies in the benefits they offer when the contract matures or on your death, such as guaranteeing a percentage of your contributions minus a proportional reduction for withdrawals. They also allow you to choose a guaranteed income.
All these guaranteed products are multi-faceted, so please see a financial advisor for details. And while your investments are the cornerstone of your financial security, here are 4 more ways to stretch your savings:
- Identify ways to adjust your lifestyle to your income, such as cutting back on non-essential expenditures.
- Consider selling your high-maintenance house and buying a condo.
- Work part-time or consult post-retirement to earn enough income to pay your day-to-day expenses and keep your savings invested.
- Explore ways to share expenses with your family or friends.
Whether you are nearing retirement or already retired, planning ahead can help ensure a sound financial future.