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Increase Retirement Income and Reduce Risk

Did you know that a Life Insurance policy can be a safe place to hold cash, growing tax sheltered and available for access to you in an emergency? Further, it is an asset not directly correlated to stock market performance. Insurance Policy Cash Values do not fluctuate in value. Consequently, as a safe repository for emergency or deferred savings, Insurance Policies can be a strategic asset. Further, we all know the value of instant tax-free cash deposited into your Estate upon death.

Knowing these features of life insurance, can enable you to abandon estate preservation as a side goal for your retirement savings. Instead, you can manage your money for enhanced income production. Employing a range of enhanced income products and strategies can improve your retirement lifestyle.

Perhaps an annuity can be employed to increase both the amount of and security of your retirement income. There is 0 risk in guaranteed annuity income.

Life Insurance as a repository for tax-sheltered cash savings can also provide tax-free income in retirement. Properly, crafted the cash values in an insurance policy can be withdrawn tax-free and still preserve substantial amounts of the Estate Value. This can be especially helpful enhancing retirement income

Perhaps most compelling of all, we can effectively establish an insurance strategy and completely free up the cash used to buy this policy for your continued use…along with tax savings benefits, immediately.
In essence this is about the multiplication of assets, reduction of risk and an increase in income.

Retirement Income: The Problem 

RRSPs and Locked-in Retirement Accounts may constitute much of our cash savings for retirement income. The tax benefits of accumulating these savings have been well documented. Further, Financial Planning Strategies all illustrate the benefits of consistent savings. While in the savings years volatility is your friend. Many financial planning strategies suggest, drawing down your non-registered savings in the early years of retirement and delay using your RRSP and Locked-in money until age 71, as your best income maximizing approach. 

There are several problems with this straight-jacketed approach. 

  1. Our money ends up being held in restrictive accounts that have tax and future income issues if you need to withdraw a lump sum.
  2. The government sets the payout percentages irrespective of your needs or portfolio health.
  3. These pre-set payout percentages increase as you age, effectively increasing the investment risk and ultimately decreasing your income as you age.
  4. Financial Planning assumes a capital preservation approach as no one knows exactly when we will die, so no one knows how long the money will be needed. 

Financial Planners know this. However, the attraction of tax-sheltered savings overrules almost all other strategies. Above all others there is one overwhelming problem with this restrictive savings strategy.

5. As you withdraw money, volatility becomes your worst problem. As money for income is withdrawn, your investment gains are reduced, and your losses are increased by each dollar withdrawn. Simply, if your investments grow by 6% and you withdraw 5%, you gain 1%. If your investments fall by 10% and you withdraw 5%, your investments decline by 15%.  We can play with sequence, but why quibble. The following year your investments are 15% below the previous year. This reduced capital could produce 15% less income than last year. To recover your losses and provide you with the same income as the previous year, your investments need to return 23.54%. If we provide income first, the portfolio needs a 25% return…but who’s quibbling. 

Remember, every year the government requires that you take out a higher percentage of your registered savings. This compounds the problem!  

And if you are a risk adverse person, who wants nothing to do with stock markets, your GIC interest rates are grossly inadequate to match the much higher Government required payouts. Your investment will erode faster than you can imagine, And Your Income Will Decline. What does this do for your sense of security and well-being as you age? 

How can Life Insurance help?

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Let him who would enjoy a good future waste none of his present.”

Roger Babson

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