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Do you know the various retirement income sources and how they can match up to expenses in retirement? Here is an article I wrote in our Nov.1 newsletter. Feel free to reach out for the newsletter or a complimentary consultation in person or on zoom.
As in other aspects of life, there is a spectrum of retirement income sources. We can categorize them as guaranteed, variable and hybrid, a combination of guaranteed and variable.
Guaranteed Retirement Income Sources
CPP and OAS are obvious examples of guaranteed sources plus, they increase with inflation each year, guaranteed. They become more important if someone lives a long life since monthly payments increase each year. Other examples are pensions and annuities. Most non-federal government pensions are not guaranteed to keep up with inflation, such as provincial and municipal plans. They often give a little increase each year but many simply cannot afford it.
Annuities, like pensions, provide guarante
ed payments until the end of life. You can set them up with some annual indexing as well as other aspects such as guaranteed payouts for a period such as 15 years.
Annuities, like pensions, can have a survivor percentage payout to a surviving spouse after death of the annuitant. Matching guaranteed retirement income sources with fixed expenses is a common method of retirement planning. Therefore, we can peg variable investments/ income sources with variable expenses such as travel and leisure. Unfortunately, guaranteed sources like CPP and pensions die with the annuitant unless there is a surviving spouse and reduced payments will continue. From an estate planning view, however, fixed sources are not as attractive since nothing can be left to others like children or grandchildren if there are any.
Variable Retirement Income Sources
Many people are familiar with several variable sources such as stock and bond market investments as well as real estate. These do not have guaranteed payments for life like the guaranteed examples above. However, variable sources are often good inflation hedges. They often perform better over time than inflation
and therefore can last a long time.
Hybrid Retirement Income Sources
A combination of features of guaranteed and variable sources, a hybrid source will offer payout for life with access to principle while the annuitant is alive as well as after death. Unlike guaranteed income sources like annuities, hybrid plans can provide benefit to beneficiaries other than a surviving spouse. So from an estate planning view, they are favorable. An example of a hybrid plan is a product called Income Series by Sun Life, one of Canada’s largest pension providers.
Feel free to reach out for a complimentary consultation or with questions, doug@wiltshirefinancial.ca.