Clark Wealth Management Group - ScotiaMcLeod Fredericton

This week we marked the anniversary of what is now known as the “market low” of 2009. On March 9, 2009 the S&P TSX Index closed at 7567. For those who were watching events unfold those were bleak times indeed. You may recall that the index had peaked above 15,000 only 9 months earlier.

Thankfully many of the bad things that were anticipated when the market bottomed did not come to pass. Then nobody would have predicted the same index would close the day a year later at 11,918 -- up 57.5% from the 2009 low.

What’s crystal clear from the past couple of years is that there is a good deal of volatility in financial markets. Higher volatility means that predictability of investments (at least over the short term) can be quite low.

In the face of this reduced predictability, perhaps the single most important retirement related question we face is “will I have enough?” Most of us want to know that we’ll have a steady base level of retirement income that won’t run out soon.

Sources of that base level of income typically include, Canada Pension Plan and Old Age Security, and for those lucky enough to have one, an employer provided pension. Other ways investors who are focused on preservation of their capital generate retirement income is by using investment vehicles like bonds and GICs. Of course with interest rates as low as they are, it’s difficult to generate enough interest to meet ever-increasing expenses.

If you have money outside your RRSP or RRIF you want to make sure you pass on to your heirs or favourite charity you have another option you may not have considered. More specifically, if you are more than 60 years old and are in good health, using a strategy known as an Insured Annuity can increase your pre-tax interest equivalent return to between 7% and 10% for the rest of your life.

Some recent pre-tax yields (assuming a 40% marginal tax rate and non-smoker status) using this strategy follow. A 60 year old male could earn 7.59% for life while a 75 year old couple using joint insurance could earn 8.83% for life. As you can see, the rate is significantly higher than those available in other traditionally secure guaranteed investments like GICs and government bonds.

Using this strategy involves the purchase of two contracts: a permanent life insurance contract and a prescribed life annuity contract.  Because of the tax treatment of income received from a prescribed annuity, you may find that the amount of taxable income will decline while the absolute amount of income you receive increases. This could even mean that you will avoid or reduce other tax-like expenses such as the OAS clawback.

This strategy is suitable for those who are between the ages of 60 and 85, risk-adverse, dissatisfied with currently low interest rates, and in average health for their age (to qualify for life insurance).

It’s important to point out that once the annuity is purchased you cannot cancel the contract and that although interest rates may go up, the annuity income remains the same. Similarly, it would not make sense to place all your available money in this strategy in case you needed a lump sum of money unexpectedly in the future.

If you would like to increase the predictability of your retirement income, speak with your advisor about all available alternatives. Be sure not to overlook an insured annuity strategy.

Keir Clark, is a senior wealth advisor, with Clark Wealth Management Group and branch manager at ScotiaMcLeod in Fredericton, NB. He can be reached online at www.keirclark.ca or by telephone at 506-450-6465.

Information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, expressed or implied, is made as to the accuracy or completeness.

All insurance products are sold through ScotiaMcLeod Financial Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Life Underwriters (Financial Security Advisors in Quebec) representing ScotiaMcLeod Financial Services Inc.

Keir Clark, is a senior wealth advisor, with Clark Wealth Management Group and branch manager at ScotiaMcLeod in Fredericton, NB. He can be reached online at www.keirclark.ca or by telephone at 506-450-6465.

Information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, expressed or implied, is made as to the accuracy or completeness.