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www.insideHALTON.com | OAKVILLE BEAVER | Thursday, November 21, 2013 | 14 TODAY AND TOMORROW FINANCIAL · TAX · LIFESTYLE · RETIREMENT & ESTATE PLANNING Ron Rousseaux is a well-known, successful and respected Independent Financial, Tax, Retirement and Estate Planner located in Burlington. He is the Leader of the Today & Tomorrow team with a background encompassing Finance, Revenue Canada, Private Industry, Technical Advisor, one of the few Certified Professional Consultant on Aging in Canada and ex-military (2 P.P.C.L.I) M.C.I., T.E.P., C.P.C.A. T R A D I T I O N S Ron Rousseaux 2013 GOLD WINNER VOTED BEST FINANCIAL PLANNER: Burlington: 2001, 2010 & 2012 Oakville: 2006, 2008, 2010 & 2012 Flamborough: 2005 to 2013 & Hamilton: 2012-2013 2012 Modern Day RRIFs WHAT ALTERNATIVES ARE THERE FOR MY RRIF? HOW DO I CHOOSE THE OPTION THAT IS RIGHT FOR ME? We all have many choices and as with most Canadians, shopping around is not usually done to any degree. The street corner Financial Institution that you have dealt with for years and years is the normal choice. If you haven't noticed yet, they are going through many changes. Some of which may cause you to look at alternatives. When it comes to converting your RRSP into income (RRIF) or looking for an alternative to your existing Financial/Retirement plan, there are more options available to Canadians today than ever before. In today's low interest/longevity world, flexibility and guarantees are required, remember we are talking about Pension Income and it "should out last you". When I and my associate planners complete a Financial, Tax, Retirement and Estate Plan, the average lifespan's we use are Male 90 and Female 95. Longevity is here for a large portion of our CANADIAN population. We also complete the plan using $4,000 - $5,000 per month for Retirement/Long Term Care Facility Expenses starting at age 80/85 depending on the clients background/history etc. The net result is that your RRIF (Registered Retirement Income Fund) must outlast you and or your Spouse. Let's look at what I would call a normal garden variety RRIF for a person 72 years of age that is purchased at the corner financial institution. Age 72 GIC Age 73 GIC Capital $100,000 Capital Left $100,000 - $7,534.00 + $2,423.00 = $95,609.00 Required Withdrawal is 7.48% Required Withdrawal is 7.59% = $7,257.00 (Minimum) Earning an Interest Rate of 2.5% Earnings $2,297.00 Annual Income at Age 72 is $7,534.00 (RRIF Minimum) Capital Used $4,960.00 Earnings $2423.00 Balance End of Year $90,649.00 Capital Used $5111.00 Capital Left for Age 73 $95,609.00 You can see by the above numbers that this RRIF is dwindling each year and by age 82, the Capital is reduced even further than you thought it would be and you would be left with a market value of $51,924.00 with Income that year of approximately $5,169.00. Some people may think "well, why we don't use a Bond Portfolio as they are guaranteed and may provide better yearly returns?" A possibility and a valid option as Bonds are guaranteed at maturity and in today's world of low interest rates and market (investment) uncertainly you may have a problem. Example- Age 71 BONDS Capital $100,000.00 Bond Interest at 3.50% Annual Required Withdrawal is $7,300.00 (Minimum) Annual Earnings are $3,500.00 Capital Used $3,800.00 (better) Let's look at the Bond Market declining by 10% (as it has this year). You still need to take out the required amount of 7.48% at age 72 but it is based on the new Market Value as at January 1st of each year. In this case: Capital $100,000.00 minus $7,300.00 plus $3,500.00 = $96,200.00 less market adjustment of 10% = $86,580.00. (You still have your guarantee of Capital with Bonds less Withdrawals but IT IS AT MATURITY). Your income at Age 72 is $6,476.18. Your income has dropped for the year and you are waiting and hoping for a Bond Market Recovery as you are now cashing in lower valued bonds to raise the required income. No different in some cases then the volatility of the Stock Market or Commodities, etc... We all know that as we age our needs increase due to various costs associated with aging. From my years of experience, people in their mid-70's and 80's tend to change their minds about an inheritance for their children/grandchildren. They then advise me that they wish to leave a legacy behind and they think it will be the RRIF. Many years ago the thought process of clients in their mid-70's / 80's was "whatever was left goes to the kids". Now it becomes a set amount. In most cases this wish is very hard to accomplish (The RRIF would be taxable for one thing and given life expectancy very little would be left in most cases) WHAT ALTERNATIVES CAN WE PROVIDE TO YOU? LET'S LOOK AT A FEW: I am going to use the same $100,000.00 in this example and use the same ages as I had previously used. First, we know that the previous Interest Rate Sensitive Solution had Income starting at age 72 at $7,534.00 per year reducing in 10 years to $5,169.00 annually and in 20 years to $3,468.00 annually, with Capital remaining at age 92 of $18,539.00. In the years that we may need more money for our living expenses the income is actually falling. I am a firm believer that Pension Incomes must have guarantees on both Capital and Income. They must also provide some flexibility, Inflation protection, and Estate and Probate protection. Let's split the $100,000.00 into two parts. A. $50,000.00 ANNUITY: Guaranteed for a minimum of 19 years or life. We are guaranteeing that at a minimum you/ or your beneficiary will receive $63,748.80 and should you live longer than 19 years the Annuity continues to pay you for life. The annual amount is $3,355.20 or a guaranteed income return of 6.7% per year for life. $50,000.00 VARIABLE ANNUITY: This is a 100% guaranteed Segregated Fund invested in a balanced portfolio of 60% Equities, 40% Income, which has been averaging net 5.9% since 1993-2012. This product has guarantees on Capital and on Lifetime Income or the RRIF amount, whichever is greater. Annual Income at Age 72 is $3,724.00 Annual Income at Age 82 is $4,796.00 Annual Income at Age 92 is $2,887.00 Using both products you have a potential annual Income of: A&B GIC Age 72 $7,079.00 vs. $7,534.00 Age 82 $8,151.00 vs. $5,169.00 Age 92 $6,242.00 vs. $3,468.00 Life Time Guaranteed Income with this option is $5,692.20 (non-reducing) vs. $3,322.00 for the GIC (reducing) C. Placing all $100,000.00 into a joint RRIF Annuity would provide a guaranteed Annual Lifetime Income of $6,568.20. D. Placing all $100,000.00 into a Variable Annuity (Lifetime Income Benefit) which could provide an inheritance, would provide an annual income at age 72 of $7,448.00 with a guaranteed lifetime income of $5,618.00. It's your money-your life-your choice but please educate yourself as to your Alternatives/Choices. My Next Seminar is Thursday, November 28th, 2013. I will be discussing: Tax Advantages for Retirees, Other Fully Guaranteed Products and Reducing Claw backs. See ad on facing page. Summary: What I am trying to show you is that there are many alternatives today and improved products come with improved Guarantees that go well beyond the old C.D.I.C. Pension Income from your RRSP/RRIF or Locked in funds, etc., must last you a lifetime and your expenses can increase with age not decrease. The variation and guarantees are numerous. Note: The Annuity is fixed and cannot be changed. We advise that the guarantee ensure a return of Capital plus some gains. The interest rate shown is based on a Manulife Bank 7-year RRIF rate as of November 5, 2013. The variable annuity is based on a Great-West Life guaranteed Lifetime Income Benefit. The Lifetime Income Benefit is flexible in design, can be cancelled and will bypass the Estate and Probate process. As balance funds are used, returns may fluctuate and I am using historic returns (1990 ­ 2009) of 5.90% net per year. Ron Rousseaux, M.C.I., C.P.C.A, T.E.P Financial Advisor, Today and Tomorrow Financial Planning Inc. B. The annual Christmas Tree Lighting Ceremony was held Friday in the Towne Square in downtown Oakville. At top, Arianna Lovatt, 6, adjusts her Santa hat, as her brother Isaac, 4, watches the musical performance on stage. Julia Cormack of the Merriam School of Music sings Christmas carols on stage. Santa and Oakville Mayor Rob Burton pull the switch to light the tree. For more photos, visit www.insidehalton.com. | photos by Graham Paine ­ Oakville Beaver (Follow on Twitter @halton_photog)