Thursday, February 18, 2016

Creating A Well That Never Goes Dry

You may be approaching retirement and feeling cheated that you don’t have a pension plan simply because you are self-employed or your employer doesn’t offer one.  Did you know you can create a pension income for life? Throughout your lifetime, you may have been building equity in your business or contributing regularly to a Registered Retirement Savings Plan (RRSPs).  One of the challenges you may face is creating a lifetime income.    

For example, George and Mabel recently sold some farm land.  They are reluctant to invest their money into mutual funds. Because they had taken risks throughout their farming career, they are not willing to gamble with the money from the farm sale. Yet they are unsettled about today’s low GIC (Guaranteed Investment Certificate) interest rates.  They simply want a comfortable retirement and to be able to fulfill their retirement dreams.  Their biggest concern is outliving their income. They are both healthy at 65 and know they have a very good chance of living beyond 90.  

Situations like George and Mabel’s are common.  Looking for suitable investment options can be a difficult task.  It’s like trying to find a comfortable pair of shoes that fit and feel right for the activities you are planning.   But here lies the answer. You could have more than one activity planned for your retirement.  You don’t wear dancing shoes for golfing; you don’t wear gardening shoes for travelling.  This means one thing: you have different shoes for the different activities.  This is also true with your retirement investment products.

Let’s say you are committed to the idea of having a guaranteed income stream for life.  You simply don’t want to outlive your income.  In other words, you don’t want the “money” well to run dry.  You may also like flexibility. You are not sure exactly when and how much you will spend on travel in any given year or whether the desire to own a new vehicle has even made your dream list.  Having money on hand to pay for these luxuries is important.  

The blog, Can Investing Really Be Easy, describes how to diversify your investments appropriately using asset allocation.  From a slightly different perspective, now the discussion is about diversifying your investments into different products.  Product allocation isn’t something new.  People may actually be implementing this strategy unknowingly by having multiple investment products.  Others may believe in using only one investment product. It’s about matching the right strategy and the right product to fit your unique situation.

For those who are uncomfortable about investing and are primarily focused on an income for life, the solution may be the purchase of an annuity with a portion of either non-registered or registered investments.  In essence, you are trading a lump sum of cash for an annuity which will provide a series of income payments guaranteed for a specific period of time or a lifetime.  You may have seen Sun Life Financial’s Money for Life television commercial. This is exactly how you create an income for life . . . with the purchase of annuity.   If your primary fear is running out of money, then considering an annuity might be a good fit for your needs.  The path then branches further to determine the right type of annuity for you.  This decision cannot be taken lightly.  It’s a conversation you want to share with a CERTIFIED FINANCIAL PLANNER® professional.

In my encounters with clients, the scenarios are complicated.  We have had to decipher what they really want from their retirement nest egg.  Are they more concerned about providing a lifetime income for themselves or are they more concerned about preserving the principal for their children?  They are sometimes confronted with a tough choice.  Depending on their desires, then other products, like insurance, may be introduced into their financial plans to satisfy multiple needs.  All of these are relevant to cost and whether the clients are insurable.

Your retirement is intended to be your most enjoyable time of your life.  Your retirement should provide you with freedom to do the things you have longed to do without the hassle of worrying about finances. Creating the appropriate financial plan with the right investment products equals the ideal retirement lifestyle of your dreams. It’s time you stopped feeling cheated.    

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