Rights & Money

Ways to Protect Your Finances in Retirement

Sponsored by RBC Insurance

Discover how wealth insurance can secure your savings and guarantee your income for life

After living through the uncertainty of a pandemic, most of us were already feeling at least some anxiety when inflation and unstable markets began driving up costs and impacting our savings. In a survey conducted for RBC Insurance and released in May, 78 per cent of Canadians aged 55–75 said their most pressing concern was the inflation’s effect on their savings, expenses, and purchasing power. Half (48 per cent) said they worry about outliving their savings and almost the same number (47 per cent) worry about not having a guaranteed income in retirement. “The events of the last two years are clearly affecting Canadians,” says Selene Soo, the Director of Wealth Insurance at RBC Insurance in Toronto. “What people must remember is they can take control: good planning is critical to feeling confident about their future finances.”

Soo points to two important elements of solid planning: discussing your future with a financial advisor and diversifying your portfolio. “An advisor can help you determine next steps and help you be financially prepared for any scenario,” she says. As for diversification, Soo says, most people know that their investments should be varied, but they don’t necessarily think of diversifying the kinds of products they invest in. “A successful portfolio will generally contain three kinds of products: those that provide guaranteed income for life, such as annuities; those that will provide you with protection during times of market volatility, such as segregated funds; and those that provide growth, such as mutual funds, ETFs, and stocks.”


Protect your money with Segregated Funds

While a majority of Canadians have RRSPs, the RBC poll showed that few are taking advantage of wealth insurance products that can both safeguard their money and provide guaranteed income for life.

Soo says that segregated funds are basically mutual funds, but they protect your money while it grows. “Say you invested $100,000 in a segregated fund and the value of that investment dropped to $75,000 as a result of market volatility—the insurance company would top up your investment to the full $100,000 at maturity or when you passed away,” she says.

You can take money out of the fund should you need it, but the money in the fund is protected. “A segregated fund has the growth potential, the fund diversification, and the liquidity of a mutual fund, but it has the additional benefit of guaranteeing the full deposit amount,” Soo says. A segregated fund can also be a useful estate-planning tool: any assets in the fund when you die pass directly to your beneficiaries without having to go through probate – the legal approval process to validate a will.


Guarantee income for life with Annuities

A payout (or life) annuity provides guaranteed income for life and protects you from the risk of outliving your savings. “If you live long enough that your initial investment has been depleted, the insurance company will continue to pay that income for the rest of your life,” Soo says. If you’ve selected a guarantee period and you pass away during that period, your beneficiaries can either continue receiving payments for the duration of the guarantee period or take the amount as a lump sum.

Annuities can be especially helpful for those without a company pension, Soo says. Once you buy an annuity, the money and the payout amounts are locked in. “Because you can’t access the money, you wouldn’t put all your money in an annuity, but it can be a useful part of your retirement portfolio,” Soo says. “When you purchase an annuity, you’re trading access to your capital for guaranteed income for life.”

Another benefit of an annuity is that the regular fixed payments ensure that fixed expenses such as food, housing, and utilities may be covered for the rest of your life. Soo says the amount an annuity pays out depends on a number of considerations, including interest rates, your age and life expectancy, your gender, the initial deposit amount, and the frequency of your payments.

“Basically, the older you are, the higher your income will be from a payout annuity,” she says. Women receive a lower income than men do because women have a longer life expectancy: “The assumption is that the annuity will pay out for a longer period of time.” By the end of the year you turn 71, you’re required to convert your RRSP to a RRIF or an annuity, so you can use some of your RRSP savings to buy an annuity without the money first being subjected to tax. According to Soo, “A 71-year-old male purchasing an RBC life annuity for $100,000 could expect to receive about $650 per month for the rest of his life. A 71-year-old female purchasing the same annuity would expect to receive approximately $590 per month for the rest of her life.”

“It’s important to protect the money Canadians have worked so hard to save,” Soo says. “The right tools can help do that.”


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