6 Sources of Retirement Income you Rarely hear about
Published by Terry McIntyre on Mar 24, 2015
As a Certified Retirement Strategist I am constantly working to make sure the public know all the choices that are available to them. Below are 6 ideas for income that are rarely offered to clients by the investment industry. You should know about them to make the right decisions for your personal situation.
We are constantly bombarded in the newspapers about the few options we have for income in our retirement. We keep seeing the same obvious choices: GICs – a top end five year rate today is 2.06%, Government of Canada Bond with a 5 year rate today of .733% or corporate bonds which bring in more risk. These are all taxed at your highest tax rate. You can also buy dividend paying common or preferred stocks for better tax treatment. Only the GIC’s principal won’t fluctuate with changes in interest rates or risk.
Here are 6 other ideas:
1) T-Series Funds – These are tax advantage mutual funds, often with a 5%, 6% or 8% payout. The income comes back to you in a tax efficient manner when bought outside a registered product. Most of this income will not be taxed in the year you receive it, but will be taxed at the end of the investment at the preferable Capital Gains rate. You do have a chance of being taxed on a small fraction of the income for Capital Gains, Dividends or interest.
This strategy can allow you to preserve your Old Age Security/Guaranteed Income Supplement if you are at the edge of losing them.
2) Pension Builder – This type of investment will guarantee you a lifetime income. If you pass on before your assets are depleted, you will leave an estate. If your assets deplete first, you are still guaranteed your lifetime income. In a RRIF you can collect payments for life, unlike other products that can be in a RRIF.
3) GIF Variable Annuity – This is similar to the pension builder in that you are guaranteed a level of income for life and can leave an estate. If your investment portfolio grows at a better rate than your withdrawals, every 3 years you will see your guaranteed lifetime income increase and stay at that level. Your lifetime income can go up, but never come down. In a RRIF you can collect payments for life, unlike other products that can be in a RRIF.
4) Life Annuity – In its base form this type of annuity is best for maximum income and leaving nothing to your estate. A common misconception is that interest rates are all that matter with this type of investment. The older you are when you invest in a life annuity the more your age is a factor with interest rates having less effect on the payout.
5) Reverse Mortgage – I am sure you have all heard of this. A financial institution puts a mortgage on your house, leaving you with principal and/or ongoing income to meet your needs. You can stay in your house until you pass away or move out. The difference between the house value and the size of the mortgage will be paid out. One way to let your house pay you to stay in your house.
6) Systematic Withdrawal Plans – Many investors will set up a monthly amount to be paid out of their mutual funds to create an income stream. As with the T-Series Funds, the goal is to grow the portfolio at a faster rate than you withdraw to keep from running out of money.
There are a still few more strategies that are less commonly used. As with everything in the investment world, you need to know more than just the quick overview covered above. Sit down with an expert who actually can sell each of these (or refer you in the case of reverse mortgage) to find out what is best for you. So few advisors in the industry are allowed to have all of these products on their books, restricting your real choices.
If you want to see what a truly independent investment/insurance advisor can do for you, call me at 905-846-9060, ext.3838, email me at Terry.McIntyre@manulifesecurities.ca or visit my website at www.terrymcintyre.ca