Is creating your own income that’s guaranteed for the rest of your life important?
If you expect to use some of your investment savings to finance your retirement or other longer term needs, would you feel better if your savings are 100% guaranteed to provide you with income for life? Do your current investments offer that option?
With interest rates stubbornly stuck at historic lows, many savers and investors find themselves caught in a Catch-22 situation with investment choices that on the one hand offer either poor results, or on the other hand offer uncertain results.
For safety and short term needs many people leave money in bank accounts, and invest in GICs and term-deposits. Savings in these types of savings is safe, but growing at a rate that is barely keeping up with inflation. In many cases savings may not be growing fast enough to meet their longer – term financial goals.
Others place hope for better growth on their investments in volatile markets that don’t guarantee gains, and may actually lose value by the time they need the money. Many people hedge their bets and do both.
It’s not that market risk or volatile markets are necessarily bad. In fact, higher risk tends to bring higher rewards with some investments. In fact it is technically correct that over time, securities markets outperform many other investment savings choices. But these rewards are typically gained over long and uncertain periods of time. As an example, the Toronto Stock Exchange is at about the same level today as it was 8 years ago.
So time is a very important factor, particularly for savings that are earmarked to provide you with an income the you’ll need to use at a specific time such as at or during retirement.
Obviously the closer you get to retirement the sooner you may wish to reduce some risk and put guarantees on your savings you’ll use for income. For many people, the simple fact of knowing that they’ll never outlive their savings is a far more important part of the investment process than hoping for out-sized gains in the markets or running the risks of having to hope for markets to ‘come back’ and make some money eventually.
Thankfully there are a variety of guaranteed investments – no matter the size of your nest egg – that take the risk of time out of your future financial plans.
To discover whether these guaranteed investment options meet your unique circumstances, good questions to ask a certified financial planner or advisor are:
- Can our lifetime expenses be covered by our current pensions and government retirement benefits?
- How do we finance our future travel plans and other bucket list items?
- If we want to convert some of the equity from the sale of the family home or from other nest eggs into a guaranteed-for-life income stream, what are the best available options?
- Can we afford to support our dependents?
- How will we cover our long-term care needs?
- After we’re gone, will we have enough to cover the needs of our survivors, bequests and the charitable legacies that we wish to leave behind?
Here’s a very basic example of a guaranteed income solution.
Many of us feel most comfortable when we know that at a minimum we’ll always have an income for life that will pay rent, taxes, heat, light, power and keep food on the table. Often in these cases there’s an easy-to-implement solution, which is to convert the properly calculated amount of nest-egg savings into the equivalent of a 100% guaranteed-for-life personal income plan that will cover these needs.
Some guaranteed income plans may also offer you additional benefits to suit your circumstances such as:
- Guaranteed future income growth during savings years.
- Plans that allow you to participate in the upside of the markets while also guaranteeing an income for life.
- Guaranteed income payments that won’t go down over your lifetime.
- Minimum guarantees. What you put in is what you can take out, even if the market value goes lower than your initial deposits.
- Control over your investments.
- Joint accounts, for the purpose of guaranteed income continuation for a surviving spouse.
- Avoid probate taxes and maintain control over savings. Note: in most Canadian provinces, it is unnecessary to set up joint accounts on guaranteed investments if your wish is to avoid probate taxes and dramatically ease the distribution of the residual values to your beneficiaries.
- Transfer of residual proceeds to your beneficiaries can be delivered as incremental payments over time and/or as lump sums, as you see fit.
As an independent Certified Financial Planner and an expert on guaranteed-for-life income solutions, I have personally invested them since they are a perfect fit for my circumstances.
If you’d like to learn more about taking the risk of time out of your investment savings, I invite you to contact me to help you discover if guaranteed investments are the right fit for you today.
Jack Bergmans CFP
Certified Financial Planner/ Founding Partner
Life Insurance & Estate Consultant