Are you close to retirement and trying to determine how to turn your RRSP assets into a retirement income?
Did you always want a guaranteed retirement income but never worked for a company with a defined benefit pension?
Is your exposure to the fluctuations of the investment marketplace causing you to worry?
If so, you are certainly not alone and there is a potential solution waiting for you!
In North America there is a huge philosophical switch taking place amongst the Baby Boomer Generation as they move from a lifetime of asset accumulation towards a retirement focused on accessing, withdrawing and distributing those hard earned asset.
For their entire working careers, the Baby Boomers have more successfully than any generation before created assets that they will need to efficiently transfer to their offspring, or the community, or to others. But just as importantly this group of upcoming retirees are facing the challenge of turning hard earned investments and RRSP’s into monthly incomes that will sustain them for their lifetime.
No longer will their focus be on growing a savings pot to fund retirement, but rather working with their planners to develop a sustainable asset withdrawal program that will provide for them for the remainder of their life.
For those fortunate enough to have a Defined Benefit Pension Plan, they have the comfort of knowing that they will receive a guaranteed income stream for life. However according to the Canadian Institute of Actuaries only 17% of private sector workers in Canada are covered by a Defined Benefit pension. What this means is that the majority of the population have no guaranteed retirement income. Instead most Canadians nearing retirement age must turn their accumulated assets into a lifetime income and are faced with two significant risks – the performance of their investments and their own longevity.
Fortunately there are solutions – one of which is relatively new and provides some guarantees. Imagine if you could take a portion of your RRSP assets (which are likely either exposed to the marketplace or mired in low interest returns) and put them into a vehicle that promises you a guaranteed income stream for life and for every year you defer that income stream you grow your pension credit by 5%, and even better if the market performs well the base pension level can be reset every three years and all the while you can access your capital if necessary.
Suddenly two of your bigger concerns – exposure to an unpredictable market and longevity – have been eliminated.
This solution is called a Guaranteed Lifetime Withdrawal Benefit (GLWB) which marries the guarantees that insurance companies provide, with the investment expertise that mutual fund companies offer. These new segregated funds can help Canadians achieve the financial security they are looking for through a guaranteed income for life.
The flexibility and access to capital of the GLWB makes them different from annuities, while the guaranteed income stream makes them different from most investments.
Many clients are beginning to explore this solution for a portion of their investment portfolio as they reach the stage when they are one market cycle (7-8 years) away from retirement and most concerned with the possibility of asset erosion through the marketplace.
While these plans are not the perfect solution for all Baby Boomers, they are definitely worth exploring and determining whether a potential fit for your portfolio.
