Retirement income planning is a complicated, personal process. Many baby boomers set to retire in the upcoming years may be concerned about what their retirement income will look like. Saving into your RRSP and through an employee retirement plan offers some assistance and peace of mind. For many, maintaining their lifestyle may be impossible through such retirement income streams.  While many depend on their employers for additional retirement income options, we would like to offer alternative investment retirement options that will help to maintain your existing lifestyle upon retirement.

These kinds of investments are not RRSP eligible but may be attractive to those who have maximized their RRSP contributions and are looking for alternatives to shelter part of their investments from tax.

Alternative Retirement Income Options for Canadians

retirement income options you haven't considered

Deferred Annuity as a Retirement Income Option

Deferred annuity is different from the typical annuity such that you buy it with a lump sum payment years before you begin withdrawing from it. The advantage of this is that as you invest a lump-sum amount into a deferred annuity, the invested capital has a chance to grow, tax-free, before being exhausted by your income stream.

Participating Life Insurance as a Retirement Income Option

Not many are aware of permanent insurance as a potential source of retirement income.  You may have heard of the concepts “Universal Life” and “Whole Life”.  Both are permanent insurance solutions with specific characteristics and benefits.  There are many articles dedicated to explaining each permanent life solution but in our case, it is important to know that permanent insurance works both as an insurance product as well as a unique asset class offering benefits that no other type of asset can, specifically: 

  • Owning versus renting your life insurance coverage
  • Immediate estate enhancement 
  • Permanent insurance coverage (as opposed to 10, 20, etc., years)
  • Life insurance benefit growth
  • Guaranteed premiums 
  • Guaranteed Cash Values (CSV)
  • CSV grows on a vested and tax-advantaged basis   
  • The proceeds of the policy (death benefit) are tax free
  • In the case of Participating Permanent Insurance, once dividends are declared by the insurance company, these are vested and are not subject to market risk  
  • Access to CSV through policy loans without triggering tax consequences
  • Flexibility as to how to use the cash value

Tax Advantages of Alternative Retirement Income Options

Both permanent insurance and deferred annuities have tax benefits associated with them. In the case of deferred annuities, if it’s purchased with non-registered funds, the interest is equally spread out over the length of the annuity which can help with tax reduction. In the case of PAR life insurance, the cash value growth is tax-free (as long as cash value remains in the policy) and the life insurance benefit passes tax-free to the beneficiary.

Even if you’re not too close to retirement, it’s of benefit to learn about the options available that will help you today and pay out in the future. Make sure you’re aligning your changing needs, goals and future objectives, particularly with insurance. You’re younger and more insurance now!

As with any other instrument part of your financial security plan, the suitability of this type of insurance should be discussed in detail with your advisor or feel free to contact us, we can help.

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