Tag Archives: guaranteed income

Market Volatility, Retirement Income and the Risk of Time

Recent surveys show that over 60% of pre-retirees feel most comfortable with the knowledge that they’ll never outlive their income.  Do your current investments offer you peace of mind like this?

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 are 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 investment savings in volatile markets that don’t guarantee gains, and may actually lose value by the time they need the money for lifetime income.

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 only slightly above level today as it was 10 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 during retirement.

Obviously the closer you get to retirement the sooner you may wish to reduce  risk and put some guarantees on your savings you’ll use for income. We know that for many people, the simple fact of knowing that you’ll never outlive your 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 will 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 are:

  • Can our lifetime expenses be covered by our current pensions and government retirement benefits?
  • Can we finance our future travel plans and other bucket list items?
  • If we want to convert some of the equity from 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?


Some guaranteed income plans offer additional benefits that suit a variety of 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 and access 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.

Disclosure note: As an independent Certified Financial Planner and an expert on guaranteed-for-life income solutions, I have personally invested in some of these plans 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


Phone: (416) 356-4511
Toll free: (888) 708-3134 Ext. 2

What really happens to your assets when you die?

With a few simple changes you can leave a lot more to your beneficiaries and pay much less in taxes when you die. 

Often the conversations we have with  clients leads to the inevitable question, “What happens to my assets when I die?”

Many people assume that upon death, all of their money will automatically go to their spouse, kids, place of worship and charities.

In our experience, the wills and personal finances of most people are not properly set up to realize these goals.

Often, it only takes a few simple changes to allow your bequest wishes to be much more valuable and effective, while making the handling of estate matters much simpler for your executor.

In this article I’ll explain a few examples of things that normally occur when someone dies that create some common problems and impediments, and how you can easily solve them.

Bluffs in Fog 05:03

Problem 1: You don’t have a will.

As in most places in North America, dying in Ontario without a will essentially means that your assets will flow in pre-set proportions to people and creditors the government deems to be ‘next in line’. If you want your entire estate to go to your spouse and kids, this will happen though maybe not in the proportions you imagine and only provided your debts don’t outweigh your assets. However, when a provincial trustee must step in to administer your estate, they deduct very high fees and probate taxes, which reduces the value of your estate and can also result in all kinds of other unforeseeable problems.  For example, your family home may need to be sold to pay these taxes and fees. Also, your estate is likely to be frozen and inaccessible for at least one year – or even many years depending on the complexity of your case. These common outcomes cause significant financial and emotional hardships on surviving family members who continue to rely on the proceeds of your estate.

If you are living common-law and die without a will, it’s extremely important to know that your rights as a married couple end immediately on your death. Your partner may be put in a position where they may not be able to claim any of your estate.

Solution 1: In almost all cases, directing your wishes through a will is a very inexpensive way to prevent many unwanted outcomes. Even though I am not a lawyer, this is very nearly always the first thing I recommend to my clients.

Problem 2: Heirs and creditors can challenge your will and reduce the size of inheritances and charitable gifts.

Even if you have a will, there are still many circumstances that can reduce the value of your estate, and obstruct your bequest intentions.  There are simple ways to set up your bequests to allow you to be completely sure that your bequest wishes are followed.

Let’s say you have set aside money to go specific beneficiaries including your children, grandchildren and a few charities. You have specified who will get what in your will.

However, probate taxes and fees, legal fees, and funds going to creditors will cut into your inheritances. Because money can do strange things to people, your children may challenge your choice of beneficiaries and even your charitable donations. Also, if you’ve not listed your charities by their formal legal name, charities of a similar name may each lay claim your donation. These common problems can tie up your estate for years.

You can make many simple and free changes that will make your estate much more valuable, and free from any contentious tug-of-wars over your money.

Solution 2: Another way to eliminate any challenges is to give your community-based legacy gifts through charitable Community Foundations. Many offer you the attractive option of making a charitable contribution now and deciding later which causes will get your money, and how much each will receive. You can make as many tax-deductible donations through Foundations such as these as you like, and they will then follow your wishes and efficiently dispense your funds upon your death.

Solution 3: If you are sure you won’t need the money you’ve set aside, consider giving it to your beneficiaries while you’re alive. This will reduce the size of your estate and therefore probate taxes and fees. When your beneficiaries are charities, gifts made while you are alive produce tax credits that you can use to your reduce current taxes – and unused credits can be carried forward for as much as five years. Lower taxes now will allow you to give more to all of your beneficiaries.

Solution 4: If you have income that is more than you spend, consider making significant ongoing contributions to your favourite charities. The charitable tax credits can significantly help to offset your current taxes.

Solution 5: If there is a chance you may need the money you’ve set aside as you grow older, or you want control over changing your beneficiaries in the future, or you want to completely avoid probate taxes, fees and delays, consider moving your funds from bank savings accounts, mutual funds or money market funds into identical products offered by insurance companies. By doing so, you can directly assign beneficiaries and easily change them at any time, without incurring any costs as you would to change your will. Then when you die, these funds will pass to your beneficiaries outside of your estate. Your beneficiaries will receive the funds within three to four weeks of the insurance company receiving your death certificate.

In addition, some insurance companies will provide a 100% guarantee on your principal so you’ll know for sure that your investments and subsequently your bequests won’t be negatively affected by market fluctuations.

Even better, leaving your bequests in this way removes this money from your estate (just as if you gave it away during your lifetime), which will lower your estate’s probate taxes and fees on remaining assets in your estate. Lower taxes means you will leave even more to your beneficiaries!

East Sooke Prov Park 7

Solution 6: Purchasing a life insurance policy with money that’s already set side for beneficiaries is a simple way to significantly multiply what you’ll bequest to these beneficiaries. You simply use the money that’s set aside to pay your life insurance premiums. In particular, if you want to leave money to charities, it is often to your advantage to pay your policy off in one lump sum or over a few years.

As it is with any insurance product, your bequests will go to your beneficiaries tax free and outside of the estate. They will flow quickly and directly to your beneficiaries, usually within three to four weeks of the insurance company receiving your death certificate. No hold-ups, no taxes, no hassles.

These are some simple options available to you that will allow you to have complete control over what happens when you die. If you’d like to discuss how you can easily create a more valuable estate that reflects your personal circumstances, please feel free to contact me anytime.

Next: Including your favourite charities as your beneficiaries is not only a good thing to do but can help significantly reduce the taxes owing on your estate.

Financing My Retirement Part 5 – Get better outcomes with Annuities and Life Insurance

Continuing with some guaranteed retirement income strategies and making the most out of your nest egg whether you’re selling your home or using other savings for your retirement income.

The goal of this blog is to discuss strategies with guaranteed income solutions that allow you to stay in control, decrease taxes, increase income and leave more to heirs.

In the previous blog we looked at the outcomes of some typical client income strategies and this is a continuation on that theme:

A lot of people feel that their home is the one thing that will be able to provide enough money to support them in their later years.  If you are planning to sell your house to use your nest egg for retirement income,  and/ or are looking for guaranteed safe ways to increase your income, annuities should be the first thing you consider.

Here are a few reasons why.

1. Interest rates are low: Traditional expectations were that interest earned on the value of a home and other saved assets would be enough to live on for life and the principal would pass on to one’s beneficiaries. Unfortunately, for many of us low interest rates don’t provide enough of an income to support a decent retirement.

2. It’s very likely that negative returns in the market can wipe out your retirement income nest egg:  Hoping to avoid a negative outcome in the markets is not a plan and unfortunately the math doesn’t lie. There are many sources you can go to to discover the dangers of negative returns on a stream of income. My favourite source is Dr. Moshe Milevsky Ph.D. Professor of Finance at the Schulich School of Business at York University who, over the years has done excellent research that quantifies the severe and rapid financial devastation that can result from a negative sequence of returns in your retirement years. If you’d like to learn more about  the technical aspects of this topic I’d definitely recommend you check his website. Also, his book Pensionize Your Nest Egg  is an important piece that details some practical methods of ensuring lifetime income.

3. Psychology: The reality is that the majority of people are more afraid of running out of money in their lifetime than of dying so financial planners and most of people who are retiring or expect to retire, need to rely on products and strategies that give lifetime income guarantees.  This is a basic and necessary need that allows everyone to actually sleep at night.

4. Pensions: Traditional defined benefit pensions provide guaranteed income for life but fewer and fewer people have access to pensions of this kind. Defined contribution plans are more common however they are mostly invested in the market so there is significant risk that your retirement nest egg will be wiped out or insufficient.

So what are the available options to replace these risks that can provide us with a personal private pension that’s guaranteed for life?

Option 1 : There are variable annuities which are excellent for savings years and provide a minimum  dollar amount of guaranteed income for life. These we touched on in part 4 of this series.

Option 2: Then there are annuities which also guarantee income for life.

A general overview of annuities and many of the benefits can be found here.  In general, annuities provide you with the best, tax friendly way of generating an enhanced income for life that is available today. Your annuity income is determined by a number of factors including your age and the prevailing interest rates. In general, the older you are, the higher the income you can expect. Your after-tax income from an annuity will generally be much higher than what you get from a typical GIC or other guaranteed savings and in fact, because most of the income from an annuity is tax-free, income tested benefits such as Old Age Security or the Guaranteed Income Supplement are less likely to be impacted, if at all!

A separate point but very important outcome for many people regarding annuities is:  that almost everyone buys annuities with guarantee periods so that when you pass away, all of the residual value  is guaranteed to go to your beneficiaries.

Here’s an annuity example: (Please note that these rates are like fresh bread, so they go stale very quickly. Contacting a licensed insurance broker will get you up- to-date information when you need it).

A sample annuity:  In March 2015, a 65 year old male can receive an income of $15,194.86*  for $250,000 every year, guaranteed for life. The taxable portion of this income would be a mere $1,712.87.

* (Please note that these rates are like fresh bread, becoming stale very quickly, so contacting a licensed insurance broker will get you up to date numbers when you need them).

Our same 65 year old may also wish that his capital stay intact so that on his passing everything goes to his beneficiaries. Buying a $250,000 GIC or term deposit today is certainly a valid option that is often used in these cases however, it will get him a fully taxable income of only $6,150 per year. The high taxation and low income may not be the best solution.

Combining an Annuity with life insurance: To replenish his capital if he were to buy an annuity, (also known as an estate preservation strategy), our 65 year old would have a higher annual income if he we to do the following, using the same money.

The first is to purchase a life insurance policy for the amount he wishes to replenish. The benefit will go to his beneficiaries tax free, fast and outside of the estate so there are also no probate taxes, fees or delays. He then buys an annuity to pay for the life insurance premium payments.  Interestingly, today $250,000 of life insurance would cost him $7,122.50/ year in premiums which is more than offset by the $15,194.86 income we saw above that he can get from a $250,000 annuity.

By combining the two ideas, the annuity payments will give him an income (which is the difference between the cost of the premiums and the income from the annuity). In this example, after paying the life insurance premiums our 65 year old gets an  income of $8,072.36 per $250,000.  This income is still higher than he would get using the same money for a GIC or term deposit but more importantly because most of it is tax free he has much more money in his pocket each year. He also dramatically lowers the risk of a clawback from any income tested government benefits he may be receiving such as OAS or the GIS.

Of course, when our 65 year old  passes away his beneficiaries will get the full value of his estate because of the insurance policy.  And, it’s an easy process for his executor, can remain private and confidential, probate taxes and fees are eliminated, and his beneficiaries receive the proceeds very quickly.

This strategy works in many situations and I like it because it can be adapted to include joint first or last to die options, be specific to your individual income needs, and can include an extremely wide variety of outcomes such as privacy issues, an uneven splitting of the proceeds that you may like to see happen etc.

Of course everyone’s needs and situations differ.  To learn more about what investment strategies best suit your circumstances please speak with your advisor.

And as always, if you have questions or would like to learn more please feel free to drop me a line anytime.

Financing My Retirement Part 4 – Guaranteed Income and Typical Concerns in Leaving a Legacy

Financing my retirement – Part four

Transitioning from retirement to retirement home.

Solving some typical client concerns, needs and issues with some guaranteed solutions that allow you to stay in control, decrease taxes, increase income and leave more to heirs.

In part three we looked at some of the considerations that are important to discuss when you are developing your retirement plan.

This blog will help you solve some typical financial concerns and estate planning needs, like:

  1. How do I investment my money in a risk-free way that offers me income guaranteed to last a lifetime?
  2. I don’t have enough savings to fund my retirement years. Is there a way to invest what I have that will increase my income without putting my money risk?
  3. Is there a way to both live off my existing assets and leave behind as much as possible for my beneficiaries and charities?
  4. How do I invest my money in a way that increases my net income and reduces my taxes?
  5. I am collecting Old Age Security. How do I invest my money in a way that doesn’t generate income that will generate a reduction of my OAS payments?
  6. After I pass away, how do I make sure my assets flow directly and quickly to my spouse/partner (including married and common-law spouses and partners in opposite or same sex relationships)?

Most people looking for a safe and secure way to invest their money go to their bank or trust company and buy GICs. However, if you worry about having enough savings to live out your retirement years, or worry about leaving money to heirs and charities, often GICs aren’t the best solution. Here’s why:

  1. GIC interest rates are very low and generate little income, even if you have a large amount invested in them.
  2. When you die, your GIC will be inaccessible to your beneficiaries for a long time. For example in Ontario, a GIC like this will be subject to lawyer’s fees and probate taxes with the process taking about a year or so before the GIC can be released to beneficiaries in the will.
  3. If this is a couple, a joint account may make sense otherwise on the passing of one spouse the GIC will be frozen and inaccessible to the survivor until letters of probate and a death certificate is brought to the bank, trust or investment dealer.  The process usually takes about a year before it’s complete in Ontario.

There are alternative solutions that are just as safe and can provide a better income, lower taxes, less risk of tax claw-backs and more efficient flow-through of assets to beneficiaries.

Here’s an answer that will illustrate answers to all of the concerns addressed above.

A couple who are both 65 years old have about $100,000 in savings, plus $500,000 in proceeds from recently selling their home. This is all they have to live off for the rest of their lives. Their dreams are to live long, comfortable lives and have a generous sum left over that can go to their two children and their favourite charity. They explore three different ways to achieve their goals, and end up choosing the third.


Investment strategy #1:
Investing their money in GICs purchased from a bank, credit union or trust.

They like the idea of safely investing their savings, but in doing some number crunching, they worry that if they live two or three decades more (as some relatives have), and if their healthcare costs escalate in later years, that income from low-interest GICs may not be enough.

In addition, all the interest made by their GICs is taxable, and if interest increases, their income may generate a claw-back of their Old Age Security.

They see that purchasing GICs jointly would be better; if their GICs were in a single name, on the passing of one spouse the funds are frozen and inaccessible to the survivor until the issuer of the GICs receive not only a death certificate but also letters of probate, which take about one year to generate in Ontario.

They think through the ramifications of leaving GIC residue to their children, and realize that probate taxes and legal fees will delay the process and also unnecessarily erode the value of the GIC.

Investment strategy #2:
Investing their money in GICs purchased from an insurance company.

They see that insurance company GICs have distinct advantages over their bank GICs:

  1. Interest rates are often higher than offered by banks. Currently, even insurance company rates are low, but an independent insurance broker shows the couple that shopping around for the best rates will yield more income.
  2. Insurance company GICs can be assigned a beneficiary, which will receive the full proceeds of the GIC within about 10 days that the issuing insurance company receives a death certificate. This income is not subject to probate taxes, and no lawyer is required for the transfer to be made.
  3. Up to $2,000 of income from insurance company GIC’s is also eligible to claim the pension income tax credit, which is 15% in federal tax credits, plus provincial credits.

Although this investment solution meets most of this couple’s goals, they choose to go with the following third option, which offers guaranteed ways to increase their income without risk, save taxes, and possibly leave more to their children.

Their choice: Investment strategy #3:
Investing their money in variable annuities purchased from an insurance company.


A variable annuity is often used as a guaranteed savings tool because it converts to guaranteed income-for-life, but also allows the invested income to remain accessible should there be an urgent need for immediate income.

Our couple learn that their non-registered invested in variable annuities would offer a floor rate of return that will never go down as long as they live. The initial rate of return is based on their age, and may rise as they get older. Typical rates of return for ages 55-80 currently range from 3-6% of your deposit.

The couple’s registered savings (their RRSP in their case) can purchase variable annuities, which give them income that is based on the escalating annual minimums set by the federal government, and offers them a guaranteed lifetime base amount that will never go lower.

What’s even better, the couple learns that residual assets from variable annuities will flow directly to their children and their charities within days of the issuing insurance company receiving a death certificate. And, the proceeds bypass legal fees, probate taxes, and time delays associated with many other types of investment methods.

*  *  *

Everyone’s needs and situations are different and this is a simple example. To learn more about what investment strategy is best for you, it is important that you speak with an independent retirement and estate advisor with a strong background and understanding of all investment choices, including those offered by insurance companies.

Feel free to drop me a line if you have any questions!

Next: More guaranteed solutions to help you to  transition from retirement to retirement home -including annuities and combining annuities with insurance for a rock solid plan for life!