The Problem:

Our retirement funds, especially those found in RRSP/RIFF’s or similar tax-sheltered accounts are subject to Market Volatility Risk, Longevity Risk, Estate Preservation demands or desires, and last but not least, Unsustainable Payout Risk.

How do these risks impact the viability of your Registered Savings Assets?

The vast majority of retirement income strategies assume the need to preserve your capital for as long as possible. Why? Simply, no one knows when you will die and thus for how long the income will be required. Contradicting this requirement or need to preserve capital, the Government dictates an ever-increasing percentage of your Retirement Savings be paid out to you in the form of income. This forces the retiree to either assume increased risk (volatility) to achieve these returns, or, be satisfied with inadequate returns in a capital preservation strategy (lower volatility), watching their capital slowly and then more rapidly decline…along with the income from these Registered Assets.

In simple terms: When you withdraw money on a systematic basis, for every market decline your losses are amplified by these systematic withdrawals, and the recovery in your portfolio is muted by these ongoing systematic withdrawals. You are in an assets downward spiral which increases in speed the older you get.

How comfortable is this?

What if you could manage these Retirement Assets in such a way as to maximize your Lifetime income with little or no regard for either the Longevity Risk or The Estate Preservation Demands? What if you could protect your spouse’s interest in these assets and reduce the future tax burden for them? What if you could insure, that should you live a long post retirement life, you would still have access to assets that are tax-sheltered and could be given to you tax free at a future date?

Corporately Owned Life Insurance.

As a business owner (assuming the small business tax rate) you can purchase Permanent Insurance at the discounted Small Business Tax rate. Further you can accumulate money in this policy on a tax-sheltered basis. In so doing you mitigate against your business losing its small business status by having too much passive income. Most importantly, you create a tax-beneficial asset inside your corporation (or Holdco) that will payout tax-free upon your death. The proceeds from this policy are paid into the Capital Dividend Account (CDA) which allows for Life Insurance proceeds to be paid out tax-free to shareholders of the Corporation (or Holdco).

An Alternative Strategy:

Assuming that your spouse is the successor shareholder of your Corporation and/or Holdco, you could purchase Permanent Insurance using these cheaper corporate tax dollars. Next in Retirement you could manage your retirement assets for maximum income with little or no regard for longevity. Upon your death there may be little, or no money left in your retirement accounts. Instead, your spouse would receive, via the CDA account, the proceeds of your insurance policy. The purchased insurance policy value could be tied into the total value of your Retirement Assets, or some net after tax value deemed sufficient for your spouses needs. They would then use these proceeds of the insurance policy to arrange for a replacement income with all or a sufficient portion of this payout for their income needs. Further they could distribute the rest to your children, charitable interests, or other allocations that you deem important.

What if your capital drawdown strategy proves to either be too aggressive relative to your longevity? As the insurance policy values grow tax-sheltered there are strategies available that can give you tax-free access (see insured Funding Arrangements) that will augment your retirement income while still preserving the net tax-free insurance payout values for your spouse upon your death. Remember, as you age you need less capital to achieve the same net after-tax income.

This approach mitigates against Market Volatility, Longevity Risk, Estate Preservation Needs, and Income Sustainability.

Still Curious?