233050
It-s-Your-Life

Income for life?

In almost every conversation I have with clients these days, the topic swings to interest rates. What direction they’re going, how long will they stay where they are and how can one generate better rates of return while keeping their money safe and free from volatility. 

The conversation with borrowers is very different than the one with savers. Borrowers have been graced with almost 10 years of historically low interest rates, freeing them to borrow with little pain, while the savers struggle to generate reasonable returns in more conservative fixed income vehicles like GICs and government bonds.

While most analysts believe that interest rates will rise at some point in the future, the timing and extent of those increases remains subject to lively debate. As global markets become more inter-dependent, decisions to raise or lower interest rates involve broader consideration than just our own domestic economies. For better or worse sovereign countries must weigh the global impacts of their rate changes as well as the domestic ones.

When planning for retirement, investors generally shift a greater portion of their investments into more conservative, secure vehicles. The focus becomes more about protecting what they have and how best to generate a reasonable living from the proceeds. The problem, as we discussed earlier, is that most traditional fixed income investment options such as GICs or bonds don’t necessarily offer the returns one requires in retirement, and few investment options offer the preservation of capital that fixed income investments typically provide.

The question is, then, are there other options that will provide a reasonable rate of income while preserving one’s precious capital? The short answer is yes, the longer answer is not for everybody.

The Insured Annuity strategy provides income that is usually guaranteed for one’s life, and upon death, pays a benefit to the named beneficiaries directly without probate or taxation. This strategy can preserve estate values, minimize taxes, and most importantly, guarantee a lifetime income stream, with equivalent returns often much higher than other fixed income options. 

It involves combining two life insurance products to create a single vehicle that will insure the tax free capital to the beneficiaries upon death, and a tax-advantaged income stream to the holder during life. This strategy is best suited to those between the ages of 60 and 85, who are in relatively good health, and have a cash flow gap between their living expenses and their income in retirement. While the life insurance policy generally requires a medical evaluation, the annuity itself doesn’t; if leaving capital to beneficiaries is not a concern, one can investigate the purchase of the annuity only.

As always, speak with your professional advisor to determine if this strategy might work for you.

 

Questions or comments?  [email protected] 

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



More It's Your Life articles



232757
About the Author

Jeff Stathopulos, CIM, CFP, Portfolio Manager

Jeff is an advisor and partner with The Navigation Team at Scotia Wealth Management.

He lives in Kelowna with his wife Tanya, their two university bound daughters and their canine kids.

You can contact Jeff by email at [email protected]

Website:  www.yourlifeyourplan.ca

The Navigation Team

Scotia Wealth Management

This column is for information purposes only. It is recommended that individuals consult with their financial advisor before acting on any information contained in this article. The opinions stated are those of the author and not necessarily those of Scotia Capital Inc. or The Bank of Nova Scotia. ScotiaMcLeod is a division of Scotia Capital Inc., Member Canadian Investor Protection Fund.



230801
The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories



232135


232160