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Tag: Retired Money

  • Unlocking the Annuity Puzzle: Why Canadians avoid what seems to be the perfect retirement vehicle – MoneySense

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    Financial planner Robb Engen recently tackled this puzzle in his Boomer & Echo blog, “Why Canadians avoid one of retirement’s most misunderstood tools.” Engen notes that experts like Finance professor Moshe Milevsky and retired actuary Fred Vettese believe “converting a portion of your savings into guaranteed lifetime income is one of the smartest and most efficient ways to reduce retirement risk.” Vettese has said the math behind an annuity is “pretty compelling,” especially for those without Defined Benefit pensions.

    Milevsky and Alexandra Macqueen coined a great term applicable to annuities when they titled their book about the subject Pensionize Your Nest Egg, which I reviewed in the Financial Post in 2010 under the title ”A cure for pension envy?”

    Engen observes that a life annuity is “the cleanest version of longevity insurance … You hand over a lump sum to an insurer, and they guarantee you monthly income for life. If you live to 100, the insurer pays you. If stock markets collapse, you still get paid. If you’re 87 and never want to look at a portfolio again, the income keeps flowing.”

    In other words, annuities neutralize the two big risks that haunt retirees: longevity risk (the chance of outliving your money) and sequence-of-returns risk, the danger of suffering a stock-market meltdown early in retirement and inflicting irreversible damage on a portfolio. 

    Despite all the seeming positives about annuities, Engen notes that “almost nobody buys one.” He cites a Vettese estimate that only about 5% of those who could buy an annuity actually do so. Engen suggests there is a behavioural hurdle: fear of losing liquidity and control of the underlying assets. He cites research by the National Institute of Ageing’s Bonnie-Jeanne MacDonald on pooled-risk retirement income, where she wrote that such retirees are  “strongly opposed to voluntary annuities, as they want to keep control over their savings.”

    Compare the best RRSP rates in Canada

    A chance to lock in recent portfolio gains?

    Even so, the new Retirement Club created by former Tangerine advisor Dale Roberts earlier this year (see the blog posted on my own site in June) recently featured a guest speaker who extolled the virtues of annuities: Phil Barker of online annuities firm Life Annuities.com Inc. 

    Barker said many clients tell him they’ve done really well in the markets over the last 20 years and now they’d like to lock in some of those gains. They may be looking for fixed-income strategies, and many were delighted with GIC returns when they were a bit higher than they are now (some in the range of 6-7%). But they are less happy with the new rates on GICs now reaching maturity. Meanwhile, annuities have just come off a 20-year high in November 2023 so the time to consider one has never been better, Barker told the Club in August. 

    With annuities, you can lock in a rate for the rest of your life—so if your timing is good, it may make sense to allocate some funds to them.  

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    Related reading: GICs vs. annuities

    Barker said eight life insurance companies offer annuities in Canada: Desjardins, RBC Life Insurance, BMO Life Insurance, Canada Life, Manulife, Sun Life, Equitable Life and Empire Life. All are covered under Assuris, a third-party organization that guarantees 100% of an annuity up to $5,000 per month. So if one of those companies failed, the annuity would be honored by one of the other firms via Assuris. 

    Barker described an annuity as simply a “personal-funded pension.” To set one up you can take registered or non-registered funds and send the capital to an insurance company. In return, they give you an income stream for as long as you live: this is the traditional life annuity. Unlike annuities in the U.S., you cannot add funds to an existing annuity, Barker told the club, nor can you co-mingle funds from for example RRSPs and non-registered funds. 

    However, you can buy a new annuity each time you need to. There is no medical underwriting for annuities, unlike life insurance. Joint annuities for couples are a great value, he said, but the tax slips are sent to the primary annuitant. Nor is income splitting possible under current CRA rules. 

    When annuities shine

    Annuities shine when you are confident about your health and prospects for living a long time. Having $X,000 a month assured income to live on means your other sources of income that fluctuate with stock markets can be weathered, Barker said. “We’re seeing people getting 6.5% to 8.5% a year for the rest of their lives, depending on their age.” 

    As Dale Roberts commented during Barker’s talk, having enough to live on just from the pension bucket (annuities, pensions, CPP/OAS etc.) frees you up to take some risk in other areas, like stocks and equity ETFs.

    Funding by registered vs. non-registered accounts

    Registered funds transfer to an annuity tax-free; that’s because money is not being deregistered, but rather going from one registered environment into another registered environment. It will be fully taxed when it comes out. The monthly income from the annuity is then fully taxable in the year it is received. 

    If you fund with non-registered money, the taxation is considerably different. For one, if your non-registered account has unrealized capital gains you’ll have to realize them and pay tax on them. Other than that, so-called prescribed annuities are relatively tax-efficient. The capital that is used to fund the annuity is not taxed, only the gain is, Barker says. “Therefore, the taxable portion of the annuity income is a very small amount. Prescribed means that the taxation is the same or level for the entire life of the annuity.”

    The Club has also covered other retirement income products that may resemble annuities in some respects: the Vanguard Retirement Income Fund (VRIF) and the Purpose Longevity Fund, both of which I have small chunks in. Dale adds that the Longevity Fund has the potential to be a “nice complement to annuities,” as it “is designed to increase payments quite nicely in the later years thanks to the mortality credits. Those with very long lives are subsidized by those who pass away much earlier.”

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    Jonathan Chevreau

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  • What is Sun Life’s new decumulation product? – MoneySense

    What is Sun Life’s new decumulation product? – MoneySense

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    A Canadian retiree’s main decision with this Sun Life product is the age they want the funds to last until (the maturity age). They can choose from 85, 90, 95 or 100 (or select a few with a combination of ages); but they can also start drawing down as early as age 50. Sun Life recalculates the client payments annually, at the start of each year, based on the account’s balance. That has the firm looking at the total amount invested, payment frequency, number of years remaining before the selected maturity age, estimated annual rate of return (expected return is 5.5% but a conservative 4.5% rate is used in the calculations) and any annual applicable regulatory minimums and maximums.

    Birenbaum says holders of MyRetirementIncome can arrange transfers to their bank accounts anywhere from biweekly to annually. While the payment amount isn’t guaranteed, they can expect what Sun Life calls a “steady income” to maturity age, so the payment isn’t expected to change much from year to year. If the client’s circumstances change, they can alter the maturity date or payment frequency at any time. While not available inside registered retirement savings plans (RRSPs), most other account types are accommodated, including registered retirement income funds (RRIFs), life income funds (LIFs), tax-free savings accounts (TFSAs) and open (taxable) accounts.

    Compare the best RRSP rates in Canada

    Emphasis on simplicity and flexibility

    In a telephone interview, Eric Monteiro, Sun Life’s senior vice president of group retirement services, said, in MyRetirementIncome’s initial implementation, most investments will be in RRIFs. He expects that many will use it as one portion of a retirement portfolio, although some may use it 100%. Initial feedback from Canadian advisors, consultants and plan sponsors has been positive, he says, especially about its flexibility and consistency. 

    As said above, unlike life annuities, the return is not guaranteed, but Monteiro says “that’s the only question mark.” Sun Life looked at the competitive landscape and decided to focus on simplicity and flexibility, “precisely because these others did not take off as expected.” The all-in fee management expense ratio (MER) is 2.09% for up to $300,000 in assets, but then it falls to 1.58% beyond that. Monteiro says the fee is “in line with other actively managed products.”

    Birenbaum lists the pros to be simplicity and accessibility, with limited input needed from clients, who “simply decide the age to which” they want funds to last. The residual balance isn’t lost at death but passes onto a named beneficiary or estate. Every year, the target withdrawal amount is calculated based on current market value and time to life expectancy, so drawdowns can be as sustainable as possible. This is helpful if the investor becomes unable to competently manage investments in old age and doesn’t have a trusted power of attorney to assist them. 

    As for cons, Birenbaum says that it’s currently available only to existing Sun Life Group Retirement Plan members. “A single fund may not be optimal for such a huge range of client needs, risk tolerance and time horizons.” In her experience, “clients tend to underestimate life expectancy” leaving them exposed to longevity risk. To her, Sun Life’s approach seems overly simplistic: you “can’t replace a comprehensive financial plan in terms of estimating sustainable level of annual draws with this product.” 

    In short, there is “a high cost for Sun Life doing a bit of math on behalf of clients… This is a way for Sun Life to retain group RRSP savings when their customers retire … to put small accounts on automatic pilot supported by a call centre, and ultimately, a chatbot. For a retiree with no other investments, it’s a simple way to initiate a retirement income.”

    However, “anyone with a great wealth advisor who provides planning as well as investment management can do better than this product,” Birenbaum says. “For those without advisors, a simple low-cost balanced fund or ETF in a discount brokerage will save the client more than 1% a year in fees in exchange for doing a little annual math.”

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    Jonathan Chevreau

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  • Why a reverse mortgage should be a last resort for Canadian retirees – MoneySense

    Why a reverse mortgage should be a last resort for Canadian retirees – MoneySense

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    “This leaves a total outstanding now of $204,939, with the interest owing being 25% of the balance owing after only five years,” says Ardrey. “As time goes on, this can overtake the entire value of the home. Thankfully, they do note that there is no negative equity, but there is not much left at the end of the day for the home owner or their heirs.” 

    Heath points to the fact that reverse mortgage rates tend to be much higher than traditional sources. “A borrower can expect to pay at least a couple percentage points more than mortgages and lines of credit. But if you read the fine print in your home equity line of credit agreement, the lender typically reserves the right to decrease your limit or even call the outstanding balance.”

    So, homeowners should not count on their HELOC being available when they need it.

    Right now, reverse mortgage variable rates are in the 9.5% range, while 5-year variable mortgage rates are about 6% and 5-year fixed mortgage rates are about 5%. HELOC rates are generally 1% above prime, so they’re currently around 7.95%. “There is definitely a premium paid to take advantage of reverse mortgages,” says Heath.  

    Ardrey raises another concern: how retirement living care can be paid for. “Often a home can be sold when a senior moves into retirement living, allowing them to pay for this care. In this example, the ability to use the home for this purpose would be significantly impaired.”

    He suggests that instead of using a reverse mortgage that could cripple the financial future, retirees need to look honestly at their situation and the lifestyle they can afford. “Though it may not be preferable to sell their home and live somewhere else, it may also be their financial reality. This speaks to the value of planning ahead to avoid being house-rich and cash-poor.”

    What are the alternatives to a reverse mortgage for Canadian retirees?

    Allan Small, senior investment advisor with IA Private Wealth Inc., says reverse mortgages “have not played a part in any of the retirement plans and retirement planning that I have done so far in my career. I think the reverse mortgage idea or concept, for whatever reason, has not caught on.” Also, “those individual investors I see usually have money to invest, or they have already invested. Most downsize their residence and take the equity out that way versus pulling money out of the property while still living in it.” 

    Finance professor and author Moshe Milevsky told me in an email, that when it comes to reverse mortgages—or any other financial strategy or product in the realm of decumulation—“I always ask this question before giving an opinion: Compared to what?” He worries about the associated interest-rate risk, which is “difficult to control, manage or even comprehend at advanced ages with cognitive decline.”  

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    Jonathan Chevreau

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  • How to cope with the RRSP-to-RRIF deadline in your early 70s – MoneySense

    How to cope with the RRSP-to-RRIF deadline in your early 70s – MoneySense

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    Unless taxpayers make a request, there are no withholding taxes on the minimum RRIF withdrawal. This can result in the Canada Revenue Agency (CRA) requesting quarterly tax installments in the future: after filing a tax return where net taxes owing (taxes owing less the taxes deducted at source) exceed $3,000. 

    If this looks to be an annual event, it’s wise to pay the tax installments, as the CRA will charge installment interest on the amounts outstanding or paid late, Ardrey says. “That rate of interest is currently at 10%.” 

    (Of course, if you overpay installments, the CRA will not pay you any interest.)

    Withholding taxes is another consideration. These are not the same as your final tax bill (after you die), Birenbaum says, but instead are “a default percentage the government takes upfront to ensure they get (at least some) tax on RRSP or RRIF withdrawals.” If you’re in your 60s and have ever taken money from your RRSP, you know you pay 10% withholding tax for withdrawals of $5,000 or less, 20% between $5,001 and $15,000, and 30% over $15,000. Amounts are higher in Quebec.

    But the rules are different for RRIFs; there are no withholding taxes required on minimum withdrawals. Outside Quebec, withholding taxes are the same for RRSPs, says Birenbaum. For systematic withdrawals, withholding taxes are based not on each individual payment but on the total sum requested in the year that exceeds the minimum mandated withdrawal. 

    You don’t necessarily want to pay the least in withholding taxes, as many may know from making RRSP withdrawals in their 60s. You can always request paying a higher upfront withholding tax on RRIF withdrawals, if you expect to owe more at tax-filing time due to other pension and investment income. You can also set aside some RRIF proceeds in a savings account dedicated to future tax liabilities. 

    Do RRIFs trigger OAS clawbacks?

    Another complication of extra RRIF income is that it can trigger clawbacks of Old Age Security (OAS) benefits. If your total income exceeds $90,997, OAS payments will be clawed back by $0.15 for every dollar over this amount until they reach zero.  

    Income splitting with a RRIF

    Fortunately, there are ways to minimize these tax consequences. If you are one half of a couple, you can benefit from a form of pension income splitting: RRIF income can be split with a spouse on a tax return when appropriate, providing the taxpayer is over 65. An income split of $2,000 can provide a pension tax credit for the spouse, which could be the difference between being impacted by the OAS clawback or not.

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    Jonathan Chevreau

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  • What’s new in the latest edition of Retirement Income for Life? – MoneySense

    What’s new in the latest edition of Retirement Income for Life? – MoneySense

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    1. “Mine is probably the only calculator that assumes one’s spending does not quite keep pace with inflation in our later years.” 
    2. “My calculator is one of the few out there that isn’t sponsored by a bank or investment company. I’m not selling anything other than the best income estimate possible. Also, it is the only calculator to my knowledge that explicitly shows how much better you do if you buy an annuity or defer CPP (Canada Pension Plan).”

    Deferring CPP: Sometimes people shouldn’t wait until age 70

    For me, deferring the CPP ship has already sailed. I took it at 66 when my wife retired, although she waited until 68 to take hers. We had initially planned for her to wait until age 70, but we did it sooner because Vettese’s articles argued for an exception to his usual recommendation to wait until age 70. In 2022 and in 2023, he suggested that those on the cusp of turning 70 might take CPP a year or two early, owing to the high inflation adjustments Ottawa made to CPP and Old Age Security (OAS) in those years. 

    But partial annuitization is very much still a possibility. My wife’s locked-in retirement account (LIRA)—which she opened when working—is likely to turn into a life income fund (LIF) sometime this year or the next. She has no employer pension, and I have only what I have dubbed a “mini” pension and an even smaller “micro” pension from previous employers. 

    How to use annuities in retirement

    So, I’ve always read, with interest, Vettese’s views about annuitizing at least part of RRSPs once they must be wound up at the end of the year one turns 71. At one point he suggested annuitizing 30% of RRSP assets, though the current book lowers that to 20%. (See also this Retired Money column on that very subject, written early in 2018 entitled: RRIF or Annuity? How about both?)

    Incidentally, the third edition of the book also mentions a couple of annuity-like innovations that weren’t available when the first two editions were published. In chapter 16, entitled “Can we do even better?” Vettese described Purpose Investments’ Longevity Pension Fund and Guardian Capital’s Guardpath Modern Tontine Trust. 

    He says that instead of annuities issued by Canadian insurance companies, these two new longevity financial products are offered by investment companies, thus chiefly use stocks and bonds for income. 

    One difference is that, unlike with traditional annuities, the income is not guaranteed. Also, there are no survivor benefits. He concludes the chapter, stating both are “like a less nerdy version of annuities for retirees prepared to take a small amount of risk.”

    But back to PERC

    You can try a stripped-down version for free and with no obligation. In fact, you’ll have to print out the results because of privacy concerns: “The data from PERC is stored, but it’s not attached to anything that could reveal one’s identity,” he told me. 

    If you want the full treatment with multiple scenarios, the price for a one-year subscription to a Canadian customized PERC is a reasonable $135 plus tax. You can enter the basics of your financial situation and that of your spouse (which Vettese recommends) and, in less than a half an hour, the PERC generates a summary of your likely future retirement income. You enter pre-tax amounts for pensions and other income and PERC handles the tax side of it automatically. 

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    Jonathan Chevreau

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  • Are GICs worth it for Canadian retirees? – MoneySense

    Are GICs worth it for Canadian retirees? – MoneySense

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    In other words, during the near-zero interest rates that prevailed until recently, investors wanting real inflation-adjusted returns had almost no choice but to embrace stocks. (Read more about TINA and other investing acronyms).  

    GICs have a place in locking in some real-returns, especially if inflation tracks down further. But Raina says investing in bonds offer opportunities to lock in healthy coupon returns, with the prospect of higher capital appreciation opportunities if interest rates fall further, since bonds currently trade at a discount. The risk is the unknown: when interest rates will start falling. Based on what the Bank of Canada (BoC) announced in the fall, Raina feels that could be some time in 2024. (On Dec. 6, the BoC announced it was holding its target for the overnight rate at 5%, with the bank rate at 5.25% and deposit rate at 5%.)

    CFA Anita Bruinsma, of Clarity Personal Finance, is more enthusiastic about GICs for retirees in Canada. “I love GICs right now,” she says. “It’s a great time to use GICs.” For clients who need a portion of their money within the next three years, she says, “GICs are the best place for that money as long as they know they won’t need the money before maturity.”

    Other advisors may argue bond funds could have good returns in the coming years, if rates decline. However, “I would never make a bet either way,” Bruinsma says, “I think retirees looking for a balanced portfolio should still use bond ETFs and not entirely replace the bond component with GICs. However, I do think that allocating a portion of the bond slice to GICs would be a good idea, especially for more nervous/conservative people.” For Bruinsma’s clients with a medium-term time horizon, she recommends laddering GICs so they can be reinvested every year at whatever rates then prevail. 

    GICs vs HISAs

    An alternative is the HISA ETFs. (HISA is the high-interest savings accounts Small referred to above). HISA ETFs are paying a slightly lower yield than GICs and also do not guarantee the yield. “I also like this product but GICs win for the ability to lock in the rate,” says Bruinsma.

    When investing in a GIC may not make sense

    Another consideration is that GICs are relatively illiquid if you lock in your money for three, four or five years or any other term. “If you are uncertain if you will need those funds in the near future, you can look at a high interest savings account ETF like Horizon’s CASH,” says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. “This ETF is currently yielding 5.40% gross—less a 0.11% MER.”

    Apart from inflation, taxation is another reason for not being too overweight in GICs, especially in taxable portfolios. Even though GIC yields are now roughly similar to “bond-equivalent” dividend stocks (typically found in Canadian bank stocks, utilities and telcos), the latter are taxed less than interest income in non-registered accounts because of the dividend tax credit. In Ontario, dividend income is taxed at 39.34% versus 53.53% for interest income at the top rate in Ontario, according to Ardrey. This is why, personally, I still prefer locating GICs in TFSAs and registered retirement plans (RRSPs). 

    When GICs are right for retirees

    Ardrey says GICs can be a valuable diversifier when it’s difficult to find strong returns in both the stock and bond markets. “This is especially true for income investors who would often have more of a focus on dividend stocks.” Using iShares ETFs as market proxies, Ardrey cites the return of XDV as -0.54% YTD and XBB is 1.52% year to date (YTD). “Beside those numbers a 5%-plus return looks very attractive.”

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    Jonathan Chevreau

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  • Inflation a scourge for retirees? Ottawa’s silver lining(s) – MoneySense

    Inflation a scourge for retirees? Ottawa’s silver lining(s) – MoneySense

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    Rising RRSP contribution limits

    Inflation also influences RRSP maximum contribution savings limits. In 2021, the limit was $27,830. For 2024, it is $31,560, which is a difference of 13.4%. Over a similar time period, 2018 to 2021, it rose from $26,230 to $27,830, a difference of 5.7%. 

    “Thus, recent inflation caused the RRSP limit to more than double over a similar time period,” Ardrey concludes. “This of course can increase your tax-deferred savings and also your annual tax deduction for your RRSP contribution.” 

    OAS clawback threshold also rises

    Among the goodies that will appeal to Canadian retirees is the rising threshold where they may encounter clawbacks of OAS benefits. Many retired couples in Canada pay close attention to this at the end of every calendar year. 

    The goal is for each member to maximize retirement income from all sources (pensions, investments, etc.) but to stay slightly below the point where Ottawa starts clawing back OAS benefits. 

    After all, OAS payments are for many a welcomed $690-a-month payment (that’s before tax) or $8,300 a year, and it’s inflation-indexed to boot. In 2020, the threshold at which OAS benefits began to get clawed back was $79,054, according to Hector, but that number has risen every year: to $86,912 in 2023 and a projected $90,997 in 2024. 

    So, senior couples with similar incomes in Canada should be able to earn almost $182,000 between them before even starting to see their OAS benefits get clawed back. And if that does happen, that’s what many would describe as a “nice problem to have.” 

    Is CPP inflation hedging a reason to take CPP a bit early?

    Fortunately, CPP benefits are not clawed back at any level, although of course they are still taxable. Here too, inflation indexing comes to the rescue for retirees and semi-retirees. In fact, for the second year in a row semi-retired actuary Fred Vettese argued that Canadian near-retirees hoping to maximize CPP payouts by waiting to age 70 might instead take it a year or two early to take advantage of inflation adjustments that kick in each January. 

    Vettese suggested that in late 2022—and more recently in this article—that those thinking of starting CPP in 2024 should start it before the new year. He responded in an email to me: “I determined it definitely made sense to start it in late 2023 instead. Doing so is worth an extra few thousand dollars.”

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    Jonathan Chevreau

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  • Infinite banking in Canada: Should you borrow from your life insurance policy? – MoneySense

    Infinite banking in Canada: Should you borrow from your life insurance policy? – MoneySense

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    Now, after a fair bit of research and a few interviews with experts on infinite banking, I feel I know enough to pass on the basics—plus what you should think about before signing up. 

    What is infinite banking?

    According to a useful primer from independent insurance firm PolicyAdvisor, “Infinite banking is a concept that suggests you can use your whole life insurance policy to ‘be your own bank.’” It was created in the 1980s by American economist R. Nelson Nash, who introduced the idea in his book Becoming Your Own Banker. He launched the “Infinite Banking Concept” (IBC) in the U.S. in 2000, and eventually it migrated to Canada.

    An article on infinite banking that appeared both on Money.ca and in the Financial Post early in 2022 bore a simplistic headline that said, in part, “how to keep your money and spend it too.” The writer—Clayton Jarvis, then a MoneyWise mortgage reporter—framed the concept by declaring that the problem with the average Canadian’s capital is that it’s usually doing just one job at a time: it’s spent, lent or invested. 

    “But what if you were able to put your money to a specific purpose and continue using it to generate income? That’s the idea behind infinite banking (IB),” Jarvis wrote. He compared IB to a reverse mortgage: “In both cases, you still possess the appreciating asset being borrowed against—your policy or your home—and you have the freedom to pay back the loan at your leisure[.]” But Jarvis also evinced some skepticism when he added: “those who have sipped rather than chugged the IB Kool-Aid say it’s a strategy that may be too complex to be marketed on a mass scale.”

    Borrowing from your life insurance policy

    If you’re not familiar with the finer details of insurance, infinite banking does seem a bit arcane. Rather than put your money in a traditional bank—which until the last year or so paid next to nothing in interest on accounts—you would invest in a whole life or universal life insurance product, both of which provide some “cash value” from the investment portion of their policies. Then, if you want to borrow money, instead of making hefty interest payments to a bank, you would borrow against your life insurance policy. 

    As PolicyAdvisor explains, “Because you’re only borrowing from your policy, the insurance company is still investing your entire cash value component. So, your cash value still grows even though you’ve borrowed a portion of it.” 

    Those new to infinite banking should watch a YouTube primer made by Philip Setter, CEO of Calgary-based insurance broker Affinity Life. In it, he readily concedes that much of the marketing hype portrays infinite banking as some kind of “massive secret of the wealthy,” which essentially amounts to buying a whole life insurance policy and borrowing against it. Setter has sold many leveraged insurance products himself, but to his credit, in the video he calls out some of the conspiracy-mongering that seems to be attached to infinite banking, including the primary message from some promoters that traditional banks and governments are out to rip off the average consumer. 

    Infinite banking seems to be geared to wealthy people who are prepared to commit to the long term with the leveraged strategy, and who can also benefit from the resulting tax breaks (more on this below). It’s not for the average person who is squeamish about leverage (borrowing to invest) and/or is not prepared to wait for years or decades for the strategy to bear fruit. As Setter warns in his video: “Once you commit to this, there’s no going back.” If you collapse a policy too soon, it’s 100% taxable: “It only is tax-free if you wait until you die … you commit to it until the very end.” 

    Get personalized quotes from Canada’s top life insurance providers.All for free with ratehub.ca. Let’s get started.*This will open a new tab. Just close the tab to return to MoneySense.

    How are insurance advisors paid for selling infinite banking products?

    Asked how advisors are paid, Setter said they receive a lump-sum commission based on the premium amount of the policy. I also asked this of Asher Tward, financial head of estate planning at TriDelta Private Wealth. In an email, Tward said it’s “the same as with any insurance policy—mostly upfront commission based on premiums paid (higher if there is more initial funding). Fundamentally, this is a life insurance sale. If one undertakes an external or collateralized loan versus a policy loan, they may be compensated on the loan as well.”

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    Jonathan Chevreau

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  • How to plan for retirement for Canadians: A review of Four Steps to a Worry-Free Retirement course – MoneySense

    How to plan for retirement for Canadians: A review of Four Steps to a Worry-Free Retirement course – MoneySense

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    At $499, the course does represent a major investment, but the outlay could be considered a bargain if it helps some DIY retirees escape the clutches of conflicting securities salespersons who actually do care more about their own retirement than that of their clients.

    Consider some of the impressive testimonials. Long-time consumer advocate and former Toronto Star personal finance columnist Ellen Roseman asked Prevost “Where have you been all this time?! … Most of us need guidance on taking money out of our savings without depleting our resources once we leave work—and I suspect this interactive multimedia approach to learning will be far more interesting and memorable than simply reading a book. Kyle has done his research and provides plain-spoken views about what’s good and what’s bad in the process of making our retirement income last as long as we do.”

    Fee-only financial planner and financial columnist Jason Heath (of Objective Financial Partners) says “Kyle’s course is a great resource for someone preparing for retirement or already retired … His background as a teacher definitely comes across in the course. Too many financial industry people do a poor job of conveying financial topics in a way that makes sense. The approach of the course is meant to teach and empower, and it definitely does just that.”

    My review of Worry-Free Retirement

    So, let’s take a closer look at the course, which I dipped into in a few weeks in order to write this review. It comprises 16 units, each starting with a short audio-visual overview, followed by more in-depth backgrounders, videos and links to other content. I’d suggest focusing on a single unit per session, as there’s plenty to digest. 

    The first unit takes you through how much money you’ll probably need to retire in Canada. Subsequent units are devoted to the major government programs like the Canada Pension Plan (CPP) and Old Age Security (OAS), and employer-sponsored pension plans, including both defined benefit and defined contribution plans. Later the course also tackles that perennial retirement chestnut, the 4% safe withdrawal rule (to which Prevost isn’t married but sees as a good starting point for guest-imating retirement income). 

    I’m particularly partial to unit six, titled “Working for a Playcheck,” as that term was coined by Michael Drak and myself in our jointly authored 2014 book, Victory Lap Retirement. Units seven and eight go into some depth in investing: what to invest in and how to buy and sell securities. 

    Units nine and 10 go into depth on registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs), then handles the whole topic of decumulation and the crucial transition (at the end of the year you turn 71) from RRSPs to RRIFs. No doubt, I will personally revisit that module at the end of next year! 

    Unit 11 examines how you can create your own pension through annuities. Units 12 and 13 look at mortgages: whether one should retire with one (spoiler: one shouldn’t) and deciding between downsizing and reverse mortgages or home equity line of credits (HELOCs). 

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    Jonathan Chevreau

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