Eight steps to a. Create a bright future

Transcription

1 Eight steps to a better retirement Create a bright future

2 What your advisor and the Sun Life Financial team can do We re always striving to help you move your plan forward. We believe in working with you every step of the way. Our retirement savings products may have helped you save for your retirement. Now, we look forward to continuing our relationship by: Listening to your retirement plans Reviewing your Eight steps to a better retirement workbook Ensuring all of your retirement income questions are answered Helping you select and put in place the best possible retirement income option(s) for you. things to remember what does that mean? Here is a list of common acronyms used in this workbook. See the glossary at the end of this workbook for a more detailed explanation of each term. DPSP - Deferred profit sharing plan GIC - Guaranteed investment certificate GLWB - Guaranteed lifetime withdrawal benefit LIF - Life income fund LIRA - Locked-in retirement account LRIF - Locked-in retirement income fund OAS - Old Age Security RPP - Registered pension plan RRIF - Registered retirement income fund RRSP - Registered retirement savings plan 2 eight steps to a better retirement

3 Getting the most out of your retirement You ve worked hard to save for your retirement, so it s only natural to want to do what s best when it comes to your retirement income. Making sure you can afford the retirement lifestyle you want is not a simple task, and you re likely to have some questions and concerns. No matter how much you ve put away, it s important to create a financial retirement plan for your future. This workbook is designed to help you get the most out of retirement. It will guide you through each step of the decision-making process to help you consider the major factors that could affect your retirement income. Some of the steps include summary worksheets for you to record your personal financial details. Be sure to complete these worksheets as this information is used to determine your expected total annual retirement income. A glossary is also provided to help you understand the terms used in this workbook. The eight Steps to a better retirement Step 1 Calculate how much you ll need page 4 Step 2 Review your income from employment, government and miscellaneous sources page 6 Step 3 Summarize your current investments and assets page 9 Step 4 Learn how you can turn your investments into retirement income page 12 Step 5 Understand the advantages and disadvantages of your retirement income options page 14 Step 6 Determine your total annual retirement income page 18 Step 7 Assess if your retirement income meets your needs page 19 Step 8 Round out your retirement plan page 21 Your advisor is also available to provide support, answer your questions and offer advice on the products you need to retire in the way that s right for you. eight steps to a better retirement 3

4 STEP 1 Calculate how much you ll need Before you determine if you ll have enough money for retirement, you need to think about what expenses you ll have. Complete the Retirement expenses worksheet to determine how much money you ll need to afford the retirement lifestyle you want. tips try to pay off your mortgage and other personal debts before you retire. Consider how much it would cost to hire someone to do things you or your spouse might not be able to manage because of health issues (e.g. shovel snow). Without the daily commute to work, monthly travel costs are likely to decrease. Factor in any senior discount you may receive on public transportation. your monthly health expenses can be unpredictable. Check if the health benefits provided by your last employer will continue for you and your spouse into retirement. Life insurance can make a dream of leaving a legacy to your loved ones a reality. Clothing costs may decrease as your emphasis shifts from business attire to casual wear. budget for travel, hobbies, and other leisure activities if they ll be an important part of your retirement lifestyle. 4 eight steps to a better retirement

5 Retirement expenses worksheet Use your expected total household cost per month at retirement to fill in each applicable section below. Convert expenses to a monthly figure and remember to increase expenses to account for inflation from now until your expected retirement. Monthly expenses at retirement Housing Mortgage or rent Utilities (heat, hydro, water) Telephone Cable television/satellite Internet service Property taxes Insurance Maintenance/repairs Condominium fees Other Transportation Car payment/lease Insurance Licence/registration Gas/oil/repairs Parking/taxi/bus Other Health Health insurance Life insurance Prescription/non-prescription drugs Doctor(s)/dentist/optometrist Long term care services Other Talk to your advisor about your health and life insurance options. Living expenses Groceries Personal hygiene (haircuts, etc.) Clothing (purchase, cleaning) Alcohol/tobacco Other Entertainment Dining out Movies/theatre Newspaper/magazines/etc. Sports activities/hobbies Travel/vacation Membership fees Tuition fees for continuing education Other Miscellaneous Income tax Professional dues Dependant support Gifts Donations Savings Emergency fund Pet care Other Total monthly expenses eight steps to a better retirement 5

6 STEP 2 Review your income from employment, government and miscellaneous sources Employment-related sources While working, you may have contributed to registered pension plans (RPPs) set up by your employer(s). There are two types of RPPs: 1 Defined benefit 2 Defined contribution When you retire, you start collecting from your pension plans instead of contributing to them. In addition to your pension plans, you may have also contributed to other savings plans through your employer(s), such as group registered retirement savings plans (group RRSPs), deferred profit sharing plans (DPSPs) or other employee savings plans. When you retire, you need to use these savings to purchase retirement income plans (like registered retirement income funds (RRIFs) or payout annuities). Your options will vary depending on the type of savings plans the funds are taken from. A glossary is provided at the back of this workbook to help you understand these terms. Contact your employer(s) to determine how much you have in each plan and how much income the plan(s) will generate. Record this information on the Employment-related annual income section on the Annual income summary worksheet on page 8. 6 eight steps to a better retirement

7 Government sources Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) Anyone who has contributed to the CPP or QPP is eligible to receive a pension benefit from the plan once they retire. The amount you receive depends on: how much you ve paid into the plan, how many years you ve worked, and the age at which you started to receive the benefit. There are three types of income benefits offered by CPP/QPP: retirement benefits for retirees Disability benefits for disabled contributors and their dependent children Survivor benefits for a deceased contributor s estate, surviving spouse or common-law partner and dependent children Old Age Security (OAS) The OAS pension is available to all Canadians age 65 and older as long as certain eligibility requirements are met. You must apply for it to receive it. You ll be taxed on any amount you receive. In fact, if you are in a higher tax bracket upon retirement, some or all of your OAS pension will be returned to the government through taxes on your income. The Guaranteed Income Supplement is an additional benefit of OAS. It s available to pensioners who receive little or no income aside from the OAS pension. It s not taxed and must be applied for each year. To estimate how much you ll receive from government sources: Call the CPP office at or the QPP offices at Visit the Government of Canada s OAS and CPP/QPP Web site at Choose your language Under Life Events, select Retirement Select your province or territory of residence Select the program you want to learn about Record this information on the Government annual income section of the Annual income summary worksheet on the following page. Miscellaneous sources Miscellaneous income sources may include things like: Part-time work Property rentals Business income Record this information on the Miscellaneous annual income section of the Annual income summary worksheet on the following page. pension checklist Here are some of the questions you ll need to ask your employer(s): What will my pension amount be when I retire in X years? at what age can I start receiving my pension? at what age do I have to start receiving my pension? is my pension amount fixed or does it go up each year? If it goes up, how are the increases calculated? if I select a survivor benefit, does it reduce the pension amount I receive while living? are my government benefits going to be reduced as a result of any pension payments I receive? If so, how does this work? eight steps to a better retirement 7

8 Annual income summary worksheet List the annual income you and your spouse expect to receive during retirement from employment-related, government and miscellaneous sources. Not all sources may apply to you. self Spouse total Employment-related annual income Company pension plans (Registered pension plans RPPs) Total employment-related annual income Government annual income Canada Pension Plan (CPP)/Quebec (QPP) Pension Plan Old Age Security (OAS) Other (e.g. Guaranteed Income Supplement, Widow s Pension) Total government annual income Miscellaneous annual income Part-time employment Property rentals Ownership interest in a business Other (e.g. foreign income or pension from another country) Total miscellaneous annual income 8 eight steps to a better retirement

9 STEP 3 Summarize your current investments and assets Over the years, you ve accumulated a variety of investments and personal assets. Now it s time to look at how you can use those investments to provide a retirement income. But first you need a clear picture of what you have and where it is. You may want to contact your advisor or financial institution for a summary of your current investments. Investment summary worksheet(s) Be sure to include all of your investments. A glossary is provided at the end of this workbook to help clarify any confusing terms. Registered investments These investments are registered with the Canada Revenue Agency. Both the amount you put into a registered investment and the earnings from it are tax sheltered until you withdraw them. Remember that the government requires that you convert all of your registered savings to cash or move them into a retirement income product by the end of the year in which you turn age 71. Some registered savings may not be converted to cash because they are governed by pension rules. They allow the investor to defer paying taxes on contributions and the income earned in the plan. Use the Investment summary worksheet(s) to summarize your current investments and assets. You may need to create your own expanded worksheet(s) if you have several investments and need more space. Registered investment accounts include: Registered retirement savings plans (RRSPs) Group RRSPs Deferred profit sharing plans (DPSPs) Employee profit sharing plans (EPSPs) Life income funds (LIFs) Locked-in retirement income funds (LRIFs) Locked-in RRSPs/Locked-in retirement accounts (LIRAs) Registered retirement income funds (RRIFs) Company pension plans These registered accounts can be invested in: Guaranteed investment certificates (GICs) Accumulation annuities Term deposits Stocks and bonds Mutual funds Segregated funds eight steps to a better retirement 9

10 Registered investment summary worksheet Ownership (yourself or spouse) Investment description Institution holding it Maturity date (if applicable) Interest rate (if applicable) % Current value Total registered investments Non-registered investments These investments are owned for general investment purposes. There are no tax deferral opportunities. They can also be used to generate income. Non-registered investments can be invested in: Chequing and savings accounts Canada Savings Bonds Guaranteed investment certificates (GICs) Accumulation annuities Term deposits Stocks and bonds Mutual funds Segregated funds Investment properties Business investments and ownership non-registered investment summary worksheet Ownership (yourself or spouse) Investment description Institution holding it Maturity date (if applicable) Interest rate (if applicable) % Current value Total NON-registered investments 10 eight steps to a better retirement

11 Other personal assets Other personal assets are things you own that may be sold as you move into retirement, like your: home recreational property automobile personal and household items cash value of life insurance Other personal assets summary worksheet Ownership (yourself or spouse) description Liquidity Can it be sold quickly and easily? (Yes/No) Gross resale value Net resale value (gross resale value minus selling costs, commissions, tax payable on the sale and outstanding loan) Total personal assets Total investments and assets for household (registered + non-registered + other personal assets) Your investments at retirement In order to understand what your investments could be worth when you retire, you ll need to do some calculations. Take the values of your registered and non-registered investments from the Investment summary worksheet(s) to project what these might be worth at retirement and record the information to the right. Your advisor is also available to help you estimate your retirement income. Investment projection calculator Registered investments: Non-registered investments: Planned retirement age: Age to project to: During your retirement Expected rate of return of your investments % Expected inflation rate % Marginal tax rate % Total projected value at retirement (after tax): Registered Non-registered eight steps to a better retirement 11

12 STEP 4 Learn how you can turn your investments into retirement income How you turn your investments and assets into a retirement income depends on the source of your savings. This step helps you understand what income options are available to you. If your money is coming from registered non-locked-in vehicles: The money has been contributed to plans like an RRSP, a spousal RRSP, or a DPSP. These investments are registered with the Canada Revenue Agency. These savings can be used to provide a retirement income or withdrawn in cash before or at retirement. Your retirement income options include: Cash RRIF Payout annuity If your money is coming from registered locked-in vehicles: The money originated from a company pension plan sponsored by an employer. If the employee terminates employment, the money may be transferred to a: New employer s pension plan (RPP) Locked-in RRSP LIRA Generally, the money cannot be converted to cash in most provinces and must be used to purchase a payout annuity or locked-in retirement income product. Many pension jurisdictions have revised their pension legislation to allow some unlocking of pension assets. The balance must remain in locked-in income options. Your retirement income options include: Payout annuity LIF. Not available in all provinces. LRIF. Not available in all provinces. If your money is coming from non-registered investments: Includes money held in non-registered savings accounts, Canada Savings Bonds, GICs/term deposits, stocks/bonds, mutual funds, etc., as well as money from the sale of personal assets, including your home, recreational properties, etc. Your retirement income options include: Continue to invest or reinvest these investments. Purchase a payout annuity to provide an income for life or for a specific number of years. Use the cash to supplement your income. This can be done through interest income options or systematic withdrawal plans or through a guaranteed withdrawal option. 12 eight steps to a better retirement

13 Decide which retirement income option is right for you The following chart outlines the benefits of each product and may help you decide what features are important to you. You may want to consider a combination of products (e.g. a RRIF plus a payout annuity). Feature Provides potential income growth through market exposure. Gives control over a selection of market opportunities. Allows you to reduce your exposure to the market. Provides income that can fluctuate from year to year, depending on your needs. Provides access to additional funds to cover emergencies. Allows you to set a regular income frequency. Provides a value on death or a death benefit. Provides a regular level income. Offers an option for guaranteed lifetime income. Offers a joint life option Offers indexing to keep up with inflation. RRIF Payout annuity * Guaranteed lifetime withdrawal benefit ** tips Withdrawing cash could mean you lose up to 46 per cent of your savings in tax. if you re age 71 or under, you could transfer your DPSP money to your RRSP on a taxsheltered basis; then purchase a RRIF. Alternatively, you can use your DPSP to purchase a payout annuity. keep in mind, withdrawing money in cash from a spousal RRSP may trigger tax in the hands of the contributor rather than the owner. the government requires that you convert all of your registered savings including locked-in retirement investments into a retirement income or cash (non locked-in) product by the end of the year that you turn 71. if you are 71 or under and are eligible to make RRSP contributions, you could maximize those contributions. Then purchase a RRIF and/or a payout annuity to provide an income. * The death benefit applies during the guaranteed period. ** Additional withdrawals may reduce future income. Your advisor has the expertise to answer any questions you have and offer sound personalized advice on the product or combination of products that best help you meet your retirement income needs. eight steps to a better retirement 13

14 STEP 5 Understand the advantages and disadvantages of your retirement income options In Step 4, you ve seen that when you retire, you turn some or all of your investments into an income by purchasing retirement income products. The following information helps you consider the advantages and disadvantages of the various retirement income options available to you. Your advisor is always available to provide you with support, answer your questions and offer advice on products available to you. things to remember For registered investments (non-locked-in) Remember that the government requires you to convert all registered investments to cash or move the funds into a retirement income product by the end of the year in which you turn 71. Your retirement income options include: Cash payout annuity (as outlined on page 15) (income for life or until age 90) registered retirement income fund (RRIF) Withdraw your investments in cash Advantages This option gives you access to a lump sum of money whenever you need it. The money can be used any way you choose (e.g. for travel, household improvements or for nursing or medical costs incurred by you or your spouse). 14 eight steps to a better retirement Disadvantages Any amount you withdraw from registered investments is treated as taxable income during that income tax year. You could pay tax of up to 46 per cent on the amount you withdraw (applies to registered funds only). It may not provide a steady stream of income. Depending on the amount of money invested and your rate of withdrawals, you may end up exhausting your capital earlier than you would like or impact future income amounts.

15 Purchase a payout annuity Advantages A payout annuity offers you the security of a guaranteed income. You have peace of mind knowing exactly how much that income will be. When the plan is set up, you can choose to receive a lower initial income with annual increases to help offset inflation. Several types of payout annuities are available. You can choose the one that offers the features that best meet your personal situation. The amount of income you receive depends on your age, the amount of money invested and the type of payout annuity you choose. There are two types of payout annuities to choose from. Life annuity You have the option to receive an income for as long as you live or that lasts for your and your spouse s lifetime (joint life annuity). You can also select a guaranteed period. During this period, payment will be made regardless of whether or not you (or your spouse in the case of a typical joint life annuity) are alive. If you die before the end of the guaranteed period, the income will continue or a death benefit will be paid to your beneficiary(ies) for the payments remaining in that period. If the funds are registered, the maximum guaranteed period available is to age 90. You ll continue to receive income if you live beyond this period. term certain annuity This guarantees you with an income for a select period of time. If you die before the end of the term, your beneficiary is entitled to receive the balance (the present value) of the income stream remaining in the annuity. With the proper beneficiary designation, this death benefit may bypass probate and solicitor s fees and be paid directly to the beneficiary. The proceeds are taxable in the hands of the estate. Purchase a guaranteed lifetime withdrawal benefit* Advantages It provides you with a guaranteed level of income for life while maintaining a growth-oriented investment strategy. You have full access to funds if you need them. During the first 15 years, your income base will be guaranteed to grow by 5% regardless of negative investment performance as long as you do not make any withdrawals, including income payments, during that time. It resets every three years during the income stage which allows you to potentially increase your guaranteed withdrawal income. * You purchase a segregated fund contract which provides a guaranteed lifetime withdrawal benefit. Available through SunWise Essential Series Income class funds. Disadvantages Excess withdrawals above the guaranteed amount may exhaust the plan earlier than you would like and will affect future income amounts. Invested assets could be impacted by negative market performance, which may not affect the income guarantee but could reduce future estate value. However, the estate value cannot be less than the guaranteed death benefit. It does not have inflation indexing. Disadvantages Once the plan is set up, you can t make any changes to the amount of income you receive. Cash withdrawals to cover emergencies are not permitted. With a life annuity, the death benefit for your beneficiary is generally equal to the present value of any income remaining in the guaranteed period. There is no death benefit after the guaranteed period. With a term certain annuity, your income payments finish at the end of the term. eight steps to a better retirement 15

16 Purchase a registered retirement income fund (RRIF) Advantages A RRIF gives you control over the income you receive. You must withdraw the legislated minimum amount each year, but have the option to increase your income or withdraw extra money to cover emergencies, vacations etc. Only the amount you withdraw each year becomes taxable income. The remainder of your capital will remain tax-sheltered as it grows. Keep your money working for you by choosing from a wide range of investments that provide security, income and growth to help protect against inflation. If you decide you prefer the security of a more guaranteed retirement income, a RRIF can be converted to a payout annuity. At the time of your death, the balance remaining in your RRIF can be: used to provide an income to your surviving spouse, transferred, tax-sheltered, by your spouse to a personal RRSP or RRIF, or paid to your beneficiary. With the proper beneficiary designation, this death benefit may bypass probate and solicitor s fees and be paid directly to the beneficiary. RRIF proceeds to a non spouse are taxable in the hands of the estate. Disadvantages There is no upper limit on the amount of money you may withdraw from a RRIF. Depending on the amount of money invested and your rate of withdrawals, you may end up exhausting your RRIF earlier than you would like or affect future income amounts. Money coming from a spousal RRSP must be transferred to a spousal RRIF within the first few years after the last spousal contribution. Withdrawing more than the minimum required annual amount may trigger tax for the contributor rather than the owner of the spousal RRIF. Depending on the investments you choose, the value of your savings could be impacted by fluctuations in market conditions. Over time, the capital in your RRIF decreases and your income amount may decline. 16 eight steps to a better retirement

17 things to remember For registered investments (locked-in) Your retirement income options include: Payout annuity (as outlined on page 15) LIF LRIF Purchase a life income fund (LIF) or a locked-in retirement income fund (LRIF) Advantages Tailor the income you receive to meet your needs. You must withdraw the legislated minimum each year, but can increase your income up to the maximum annual withdrawal limit. The maximum annual withdrawal limit ensures that there will be sufficient funds to provide income for the rest of your life. You re able to withdraw extra money to cover emergencies, vacations, etc., provided you don t exceed the maximum annual withdrawal limit. Only the amount you withdraw each year is taxable income. Choose from a wide range of investments that provide security, income and growth to help protect against inflation. Depending on pension legislation, at the time of your death your surviving spouse may receive the remaining balance in cash or be able to transfer it on a taxsheltered basis depending on his/her age, to a personal RRSP, RRIF or payout annuity. With the proper beneficiary designation, the remaining balance may bypass probate and solicitor s fees and be paid directly to the beneficiary. The proceeds to a non spouse are taxable in the hands of the estate. Down the road, if you prefer the security of a more guaranteed retirement income, you can convert your LIF or LRIF to a payout annuity. Disadvantages There is a limit to the amount of money you can withdraw each year. Depending on the investment vehicles you choose, the value of your savings could be impacted by fluctuations in market conditions. LIFs and LRIFs are not available in all provinces. In Newfoundland and Labrador, a LIF must be used to purchase a payout annuity by the end of the year in which you reach age 80. Your advisor can help you choose the appropriate income plan that would work best for you and determine how much income the plan will generate. things to remember For non-registered investments Your retirement income options include: Cash withdrawals (as outlined on page 14) Payout annuity (as outlined on page 15) guaranteed lifetime withdrawal benefit (as outlined on page 15) eight steps to a better retirement 17

18 STEP 6 Determine your total annual retirement income In Step 2, you recorded income amounts from various sources. In Steps 4 and 5, you learned more about retirement income plans. In this worksheet, you ll list the annual income you and your spouse (if applicable) expect to receive from all of these sources of retirement income. Annual retirement income worksheet self Spouse total Various sources Employment-related annual income (from page 8) Government annual income (from page 8) Miscellaneous annual income (from page 8) Retirement income plans RRSP periodic withdrawals RRIF LIF LRIF Payout annuity Guaranteed Lifetime Withdrawal Benefit Other (if not used to purchase an income plan) Non-registered investments cash withdrawals Total gross annual retirement income (before tax) Total gross monthly retirement income (annual retirement income 12) 18 eight steps to a better retirement

19 STEP 7 Assess if your retirement income meets your needs Now that you ve determined your expected gross retirement income in Step 6 and expenses in Step 1, use the Tally worksheet to calculate if you ll have enough income to afford your desired retirement lifestyle. Tally worksheet Total gross monthly retirement income (from page 18) Minus total monthly expenses (from page 5) Surplus or shortfall = If you have a surplus, this could help you live your retirement your way. You may find that the income you expect to receive isn t enough to cover the expenses you anticipate. This shortfall could keep you from reaching your retirement lifestyle goals. You may want to consider part-time work, or one of these possible solutions: Increase your investment return When investing your money, you may have tried to minimize risk by investing in safer, lower-yield investments. The effects of inflation are much stronger on lower long-term returns, and the result could be that you won t have enough income. Take a look at your investment mix to determine how you can best keep your money working for you. Your advisor can help you decide what approach works best for you. Sell personal assets In Step 3, you learned how money from the sale of personal assets like a house, recreational property, cars and other valuables can be invested or used to supplement your income. eight steps to a better retirement 19

20 Downsize to a smaller house One of the biggest benefits of downsizing to a smaller house is that you will free up some capital to generate income. Maintaining a house can be costly, but living in a smaller house can reduce your maintenance costs. If you can decrease maintenance costs by 1,000 a year, it s like putting an additional 1,700 into your pocket (depending on your tax bracket). Income splitting You and your spouse may apply for an assignment of your Canada Pension Plan (CPP)/Quebec Pension Plan (QPP). The pension you earned during the marriage is split equally, allowing you to take advantage of income splitting in retirement. Income splitting works best when income that would have been taxed at a higher rate in one spouse s hands is taxed at a lower rate in the other spouse s hands. To be eligible for an assignment of your CPP/QPP, both spouses need to be at least 60 years of age and earn an employment income of less than the maximum CPP/QPP benefit payable in that year. To apply for assignment, contact the Income Security Program, Canada Pension Benefits at , or QPP at Take only what you need Income tax is only payable on the money you withdraw. So when withdrawing money from a RRIF, LIF, or LRIF, take only what you need each month. This allows your money to accumulate tax-sheltered for as long as possible. At the end of the year, you can withdraw any additional income required to bring your total income up to the legislated minimum. Withdraw money at year end If you re not dependent on the income you ll receive from a RRIF, LIF or LRIF, withdraw your money at the end of the year to keep it tax-sheltered for as long as possible. Withhold more tax during your retirement When withdrawing money from a RRIF, LIF, or LRIF, the tax withheld by the institution may be less than your personal tax rate. To avoid being hit with a large tax bill at income tax time, you can request to have more tax withheld. To have additional tax withheld, contact your advisor. Non-registered savings Over the years, you ve probably accumulated a mix of registered and non-registered savings. Drawing an income from your non-registered savings first allows you to keep your registered money intact and defer taxes for as long as possible. However, as time goes on and you are left with only registered savings to draw from, you may find yourself paying tax at a very high rate. A better solution may be to take a blend of income from both registered and non-registered savings throughout your retirement to enjoy a more moderate tax rate. By keeping some non-registered savings on hand at all times, you ll have the funds available to cover unexpected emergencies or even for taking that trip of a lifetime! tips tax is payable on the retirement income you receive. If tax is not deducted at source, be sure to set aside enough money to pay the tax bill in April. an emergency fund helps cover unexpected or occasional expenses (e.g. new roof, dream vacation). 20 eight steps to a better retirement

21 STEP 8 Round out your retirement plan Here are some additional steps to help you get the most out of your retirement. Consider your health We re all vulnerable to accidents, illnesses, and the effects of aging that can change the way we live and seriously impact our income and savings. While government health care programs pay for basic in-hospital care and visits to the doctor, many other health-related expenses aren t covered. If this concerns you, it s good to know there are different kinds of private health insurance. Personal health insurance If you ve had drug, dental and supplementary health coverage through your employer, you know how valuable it is. Be sure to ask whether that same coverage will be available to you in retirement. If your coverage won t continue, you still have options with personal health insurance. Personal health insurance provides coverage for many ongoing health-related services not covered by government plans. Long term care insurance If you re unable to care for yourself because of an illness, accident or deteriorating physical or mental abilities, long term care insurance helps bridge the gap between your personal finances and government sponsored services. There are more costs than you might think: from hiring a personal support worker or someone to perform chores around your home to paying for accommodation in a retirement home or long term care facility. A long term care insurance policy can help you obtain the quality of care you want in the setting of your choice, without having to deplete your savings. Different types of long term care insurance policies exist. Some provide reimbursement for eligible expenses; others provide you with cash to spend as you choose. tip Find out what long term care costs in your region. A long term care cost of 2,000 per month could deplete 200,000 of savings in about 10 years.* * Impact of removing 2,000 per month from savings of 200,000, earning 6% interest with inflation of 2%. When it comes to protecting your retirement plan, know the facts and consider the benefits of health insurance as part of your overall financial plan. Personal health insurance and long term care insurance are geared towards your needs in retirement. Disability insurance and critical illness insurance are other forms of health insurance that may also be applicable to your personal situation. Your advisor can help clarify your options and provide advice about the solutions that best suit your needs and financial situation. eight steps to a better retirement 21

22 Preserve your estate Life insurance helps you round out your financial picture by: replacing the capital you used for your retirement income to provide an estate for your heirs maximizing your retirement income by eliminating the need to set aside funds for gifts, inheritances, income tax, capital tax, capital gains tax and other fees associated with your estate, etc. replacing or supplementing any group life insurance provided by a previous employer that may reduce or terminate upon your retirement providing the funds necessary to pay the taxes due on your estate upon death, ensuring your heirs receive their full inheritance covering funeral and burial expenses which can range from 7,500 to 20,000. Add to that legal fees, executor/ liquidator fees and probate fees, which are usually based on a percentage of the value of your estate. Investments Whether you re saving for a large purchase, the vacation of a lifetime, or want to leave an inheritance for your family, an investment account can help you achieve these goals. To learn more about the benefits of specific investment products and getting the most out of your retirement savings, contact your advisor. Base your RRIF retirement income plan on your spouse s age As you get older, the minimum amount of income that you re required to withdraw from a RRIF increases. If your spouse is younger than you, you may be able to reduce the minimum amount of income that you need to take from your RRIF each year. Basing the plan on your spouse s age may allow you to reduce your taxable income. Get expert advice Contact your advisor if this workbook has left you with any questions about the right retirement income plan for you. tips Will A properly prepared will is critical to successful estate planning. It gives you the opportunity to put the right person in charge as executor and to designate who will inherit your assets. Remember to update your will as changes in your life occur. These changes may include: a death, birth, marriage, divorce of your heirs your divorce or marriage a change in the value of your property a change of residence, or acquisition of property in another province or country a major unexpected increase or decrease in your net worth (or net assets) a major change in your insurance program changes in tax laws affecting inheritances. Power of attorney People often arrange their financial affairs for retirement and death, but seldom consider administrative requirements should they become temporarily or permanently incapacitated. By appointing another person under a power of attorney, you allow someone you trust to manage your property (e.g. home and/or your personal care, such as medical treatment) if you become unable to act, due to illness or disability. Many provinces have made or are in the process of making changes to regulations regarding power of attorney. Your lawyer or legal advisor can assist in the preparation of a power of attorney. 22 eight steps to a better retirement

23 Glossary of terms Asset Property or investment that has cash value. Capital gain Profit from the sale of assets such as investments or property that must be reported as income. Deferred profit sharing plan (DPSP) A profit sharing plan under which the employer makes tax deductible contributions; employee contributions are not allowed. Contributions are not taxable to the employee until they are withdrawn. The plan is registered under the Income Tax Act. Diversification A strategy that helps reduce the risk associated with investing by spreading investments over a range of funds or investment type to balance risk exposure. Equities Ownership interest in a corporation in the form of common stock or preferred stock. Executor/Executrix An individual or institution appointed in a will to settle the estate of the deceased. Guaranteed investment certificate (GIC) A fixed-dollar deposit with a bank or other financial institution with a pre-determined rate of return and term (e.g. one-year, five-year, etc.). Funds in a GIC can be typically accessed prior to maturity but a penalty or market value adjustment is generally applied. Guaranteed lifetime withdrawal benefit (GLWB) On SunWise Essential Series segregated funds the GLWB can provide a secure annual income beginning as early as age 55. In the years before retirement, the 5% annual bonus helps you to build your guaranteed income (assuming no withdrawals are made during those years). Guaranteed period The time that the death benefit is guaranteed in a payout annuity. If the annuitant dies within the selected guaranteed period, the beneficiary will receive a death benefit. If a guaranteed period isn t selected, there will be no death benefit. Income splitting A tax planning strategy where the higher income earner arranges for income to be transferred to a family member(s) in a lower tax bracket, thus reducing taxes for the higher income earner. Inflation The overall general upward price movement of goods and services in the economy, usually measured by the Consumer Price Index (CPI). Legislated maximum Based on a legislated formula of the various pension jurisdictions that stipulates the maximum amount that an individual can withdraw each year from a life income fund (LIF) or locked-in retirement income fund (LRIF). Legislated minimum An Income Tax Act requirement that stipulates the minimum amount an individual must withdraw each year from a registered retirement income fund (RRIF), life income fund (LIF) or locked-in retirement income fund (LRIF). Life income fund (LIF) One of the retirement income options available for locked-in money in a registered retirement savings plan (RRSP), a registered pension plan (RPP) or a locked-in retirement account (LIRA). Tax and pension legislation regulates the minimum required and maximum allowed to be withdrawn each year. eight steps to a better retirement 23

24 Locked-in money This is money originating from a registered pension plan (RPP) sponsored by an employer. The employer makes contributions to the RPP. The employee may or may not be required to make contributions to the RPP. After a certain number of years, the money becomes locked-in, meaning it can t be withdrawn in cash. If the employee terminated employment, he/she may be able to transfer the money to his/her new employer s RPP, a locked-in registered retirement savings plan (RRSP), a locked-in retirement savings plan (RSP) or a locked-in retirement account (LIRA). Ultimately, the money must be used to purchase a retirement income product, e.g. a payout annuity, life income fund (LIF), locked-in retirement income fund (LRIF). Locked-in retirement account (LIRA) A registered plan for employees who leave a company with a pension plan. The LIRA shelters pension money and investment earnings from taxation on a locked-in basis. Locked-in retirement income fund (LRIF) A registered plan that shelters pension money and investment earnings from tax on a locked-in basis while generating retirement income for the fundholder. Legislation requires a minimum and maximum withdrawal amount be taken each year from the plan. Marginal tax rate The rate of tax paid on the highest band of earnings of a taxpayer. The rate indicates how much tax would be paid on each additional dollar of income at that band level reported on the tax return. For example, if the marginal tax rate is 43%, the amount actually pocketed is 57 cents of each dollar earned after taxes. Market-based funds Investments that derive all or most of their growth from securities that are actively bought and sold on the stock market. Unit value fluctuates with the market value of the underlying securities. Maturity date When an investment becomes available for reinvestment at the end of a term. Mutual funds Combines the assets of many investors into a single pool, and is managed by a professional investment manager. Non locked-in money This is money that has been contributed to things like a registered retirement savings plan (RRSP), a spousal RRSP or a deferred profit sharing plan (DPSP). These savings may be used as a source of retirement income. Non locked-in money may also be withdrawn in cash prior to, or at retirement, to fund a special purchase, trip, etc. Non-registered investments Investments that are owned for general investment purposes. The savings are after-tax dollars and the interest growth earned is taxable in the year it s earned. Payout annuity A retirement income plan that provides a guaranteed income stream for life or for a specified period of time. Portfolio The entire combination of securities or investments an individual or institution holds. A portfolio can contain a variety of government and company bonds, preferred and common stocks from different businesses and other types of securities and assets. Power of attorney A legal document designating an individual to act on another s behalf. Registered investments This is money that has been contributed to things like a registered retirement savings plan (RRSP), a spousal RRSP or a deferred profit sharing plan (DPSP). These savings may be used as a source of retirement income, and allow the investor to defer paying taxes on contributions and the income earned in the plan. These investments are registered with the Canada Revenue Agency. 24 eight steps to a better retirement

25 Registered pension plan (RPP) An employer-sponsored plan registered with the Canada Revenue Agency, established to provide pension income benefits for its employees when they retire. Both employee and employer contributions to the plan are tax deductible. Registered retirement income fund (RRIF) A tax deferral retirement income plan available when registered money is converted to an income. It s available for non-locked-in money in a registered retirement plan (RRSP), a spousal RRSP, a registered pension plan (RPP) or a deferred profit sharing plan (DPSP). The plan holder invests in funds within the RRIF, and must withdraw a predetermined percentage of the total assets legislated by the Canada Revenue Agency each year. Registered retirement savings plan (RRSP) A savings plan set up in accordance with the Income Tax Act to hold certain investments intended for retirement income. The investments and any interest earned won t be taxed as long as it s left in the plan. Retirement income plan/options When it comes time to draw on registered retirement savings for income, retirement income plans provide access to some of this money while continuing to tax-shelter the remaining investments. All of the money in registered retirement savings vehicles must be transferred to an income plan by the end of the year an individual turns 71. Spousal registered retirement savings plan This is an RRSP owned by the spouse of the person contributing to it. The contributor can direct up to 100% of eligible RRSP deposits into a spousal RRSP each and every year. Contributing to a spousal RRSP reduces the amount one can contribute to one s own RRSP, however, if the spouse is a lower income earner, it s an excellent way in which to split income for a lower taxation in retirement years. SunWise Essential Series* By investing in Income Class, you receive the Guaranteed Lifetime Withdrawal Benefit, that can provide a secure annual income beginning at the age of 55, regardless of the investment performance of the portfolio. With the first 15 years providing a 5% annual bonus as long as no income is taken, this product can help you build income in the years before retirement. * This is Sun Life Financial s current segregated fund contract. Will A written legal document directing the disposition of property to designated individuals upon death. Segregated funds Segregated funds are pooled investments separate from the assets of an insurance company. The purchaser is allocated notional units of the fund. The value of the units fluctuates according to the value of the securities held in the pool. Segregated funds are available by purchasing a segregated fund contract, which is a type of annuity contract. These contracts have maturity and death benefit guarantees and may have an income guarantee. Because it is an annuity contract, the death benefit may be excluded from probate with a proper beneficiary designation and creditor protection may be available. eight steps to a better retirement 25

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28 Create a bright future Build. Protect. Enjoy! Your advisor and Sun Life Financial are here to help. Some call it retirement, others think of it as the start of something new. When it comes to preparing for life after work, an advisor and Sun Life Financial can help you figure it all out. We ll work with you to build a plan that suits your life s goals, and evolve that plan as your needs and situation change. This is your time. Together, we ll help you get the most out of it. Talk to an advisor about Sun Life Financial today! For more information and resources: Visit Call SUN-LIFE ( ) Sun Life Financial (TSX:SLF) is a leading international financial services organization providing a diverse range of insurance and investment products and services to individuals and corporate customers. We re dedicated to helping you achieve lifetime financial security. Sun Life Assurance Company of Canada,