How to Buy a Pension

How to Buy a Pension
This article is presented for general information only and is not a solicitation for any investment product or program. The information is compiled from various sources and errors may have occurred in compilation. Investors are advised to seek professional advice concerning the suitability of any strategy and are advised to read the prospective before making any investment.

If you are a Canadian, 50 or older, you now have access to options for the type of income you can receive from your Registered Investments (RRSP and RRIF accounts), as well as from your cash accounts (non-registered investments). The option is available to all Canadians, working or retired.

Retirement Income

Retirement Income for Canadians comes from many sources, including government plans (CPP and OAS), company pensions, and from savings. The problem is that income from savings is not guaranteed to last for your lifetime. Read about how long your money will last.

With two devastating market meltdowns since year 2000, and the risks with the Mexico Economy and Peso, this Guaranteed Pension option ensures that income from your savings will last for your lifetime…something that has been an elusive goal for many retirees.

  • With this strategy, income will not decrease no matter how your portfolio performs, providing you with protection against the risks of market returns and volatility. Even if your portfolio value drops to zero, your new Pension continues for life.

Why Buy a Guaranteed Income Investment?

The risk of a Market Crash is real. The question is not "Will a Market Crash Happen?"... The question is "When Will the Next Market Crash Happen?"

The crashes of 2000-2003 saw global markets melt about 50%. Markets were down about 30-50% again in 2008. Ouch !! In 2011, North America saw another 11% downturn, and they were down again, about 13%, in 2013. It happens.

For someone retiring in Mexico, the Guaranteed Income Plan is particularly attractive because it eliminates the need to manage a portfolio from Mexico. But more importantly, there are 3 key benefits:

  • You will know exactly what your income will be. It is Guaranteed.
  • You no longer need to worry about "Running Out of Money" due to a market crash.
  • You no longer need to worry about market performance.

How Much Does it Pay?

You can elect to have a Pension for Life at a predetermined amount no matter how your portfolio performs. If you don’t need the income yet, you have the option of deferring the income and Guaranteed Income levels will be increased the longer you wait.

The Guaranteed Income amount will vary depending upon your age. For example, assuming a $500,000 total investment...

  • If you opened a Guaranteed Income plan at age 50 and waited to age 65 to start withdrawals, your Guaranteed Minimum Income could be $30,450 per year. It may be a lot more if the portfolio grows.
    • For example, if your portfolio averaged just 5% during those years, the Guaranteed Minimum Income could be $43,657 per year for life. With full CPP and OAS, your Minimum Income becomes about $5,338 per month (2017) or  about $64,000 per year.
  • If the plan was opened at age 70 and withdrawals started at age 75, your Guaranteed Minimum Income could be a minimum of $28,750 per year. Combine that with full CPP and OAS, and your income becomes about $4,100 per month (2017) or almost $50,000 per year, minimum for life. It may be a lot more if the portfolio grows.
  • If you were aged 75, deposited $500,000 and started income immediately, you could receive a Guaranteed Minimum Income of $25,000 per year for life. Combined with CPP and OAS, the monthly Guaranteed Income for Life becomes $3,783, or $45,400 per year.

If you want to learn what your Guaranteed Income Plan might look like, contact TioCorp.

The Pension Continues even if the Portfolio Value Drops to Zero

Canadian Actuaries have designed this new guaranteed income option to be the best available to Canadians anywhere. The Pension is set at a minimum level for life, and can increase if the market outperforms. If markets decline, the Pension continues even if the portfolio value drops to zero.

Admittedly, the plan may not be suitable if you are a more aggressive investor who wants to strive for higher returns and feel you can outperform the market. However, even for more aggressive investors, protecting a portion of your portfolio can make sense.

Who Can Benefit?

The type of Canadian who would benefit from this new plan includes:

  • Those who are not happy with their current portfolio performance, or simply do not want to manage a portfolio any longer;
  • Investors holding bonds or GIC’s and who want a guarantee with higher payouts;
  • Investors who are not yet retired and want to see steady income growth potential;
  • Retirees who worry about how long their money will last.

What Else Should You Know?

These Guaranteed Income for Life Pension options have some great features giving them advantages over typical annuities or other income strategies:

  1. A guaranteed Bonus of Higher Income is paid for every year you delay taking income. The longer you wait, the higher your Guaranteed Income Pension.
  2. If the portfolio grows faster than Bonus Income values while you wait, higher market values are locked in on certain anniversary dates, with bonuses calculated on the higher locked-in market values.
  3. The plan pays a Guaranteed Income Pension for life once you start drawing.
  4. If the portfolio grows while taking your income, higher income becomes locked in for life on certain anniversary dates. If the portfolio goes down later, income stays at the higher Guaranteed level.
  5. Capital value is Life Guaranteed and pays value (proportionally reduced by redemptions) to your beneficiaries should you die prematurely…before or after starting income. Your capital is not lost and goes to your estate. That's a lot better than normal pension plans.
  6. Even if the portfolio drops to $-zero, the income still pays as per the Guaranteed and Bonus calculations. That’s certainly better than regular investments.
  7. You can elect an unreduced income for your surviving partner by starting your income at a slightly lower amount, just like a normal Pension Plan.
  8. Guaranteed Income from Non-RRSP investments has a lower average income tax rate. It’s not all taxed like “income”. That certainly is better than a normal Pension Plan.
  9. There is no Canadian tax on non-RRSP income from these plans for non-residents.
  10. Money left in the plan when you die goes to the beneficiaries named on your investment application. Unlike normal annuities or normal pension plans, the capital is not lost at death.
  11. Beneficiaries can be anyone...children, grandchildren, anywhere in world. They can be non-Canadians or non-residents.
  12. There’s more…You are not locked in and can switch out to alternative investments at any time, even after you start your Guaranteed Income Pension.
  13. All this and no probate taxes. Some clients are now using it as an estate planning tool to avoid probate taxes or to set up guaranteed income plans for their children.

These newer Guaranteed Income Pension programs are unlike anything in the market today. Using them may be the right decision for today’s economy and for peace of mind. You can relax knowing that you will have a Guaranteed Income, just like a pension, no matter what the markets do. Even if markets crash and your portfolio values drop, your income is Guaranteed. Not everyone has this protection.

For Canadians who wish a no-cost consultation. Please have a Canadian Financial Advisor contact me about this Pension Plan option.

Return to Financial Planning for Canadians

Return to Canadians in Mexico

Return to HOME Page

Report a Problem on This Page - Click Here