At a time when Canadians are planning their retirement, they are faced with challenges such as low-interest rates, fluctuating stock markets and unfavourable demographics. The Canadian life insurance industry has created a large toolbox of solutions to assist with these challenges with segregated funds. When planning for your retirement segregated funds can reduce some risks you can face such as named beneficiaries and death benefit resets. 

The Facts

By the year 2031, 9.6 million baby boomers will be age 65 or older.  This creates pressure on the government and corporate pension funds, individual savings and provincial health care budgets and services. A recent study by the Canadian Life and Health Insurance Association revealed that “government programs will pay only about half of the expected 1.2 trillion in long term care costs over the next 35 years. The gap in payments will add significantly to the demands upon retirement income”.

Years ago, we had 8 workers in Canada for every retiree. In the not too distant future, we will have 4 workers in Canada for every retiree. With increased life expectancy there will be continued demand on pension income sources and clients will need to plan for income beyond age 100. Canadians must accumulate larger retirement nest eggs while dealing with the uncertainty of fluctuating markets and low-interest rates.

The Benefits

Segregated funds are a combination of mutual funds with insurance products that guarantee all or part of your capital investment. Mutual funds are an important tool for retirement savings, but for those who have a low-risk tolerance, segregated funds provide a valuable addition to the portfolio mix. Segregated funds provide a few important protection features such as:

1) Creditor protection

 2) The opportunity to name a direct beneficiary(ies) and bypass the probate process and fees

3) Death benefit guarantees

4) Maturity guarantees

5) Reset options

A death benefit guarantee ensures that at death the beneficiary receives 100% of the original investment and growth. Any withdrawals will reduce the death benefit guarantee. If the equity markets drop and a client dies, the segregated fund tops up the fair market value of the investment to 100% of the deposit or the last reset value. If the markets are up when the client dies, your beneficiaries will receive the higher market value. Depending on the individual contract some death benefit guarantees can be reset optionally up to two times a year,  or automatic reset options to include the growth in the investment. Discuss what your options for resetting your death benefit guarantee are at your next meeting with your financial advisor.

Segregated funds create a “Win/Win” scenario for those saving for retirement as well as those individuals receiving retirement income now.