As more of your clients approach retirement, they’ll need advice from you about how to pay for their basic needs and generate income for the lifestyle they want to lead.

Fluctuations in equity markets can cause anxiety for clients because of the decreasing investment values in their portfolios. For this reason, your clients may seek less exposure to risk, especially during the years leading up to their retirement. Evidence for this preference exists in a survey showing three out of four early boomers in Canada are looking for guaranteed income in retirement.1

Life annuities, variable annuities with the guaranteed lifetime withdrawal benefit (GLWB), and SunFlex Retirement Income are solutions that can provide guaranteed retirement income.

Another option is the guaranteed investment certificate (GIC) issued by banks or trust companies. GICs give your clients two very important benefits in volatile markets: guaranteed interest and principal protection. Accumulation annuities, also known as Insurance GICs, are available only from insurance companies.

A strategy for these economic times

Despite these advantages, the current low interest rate environment could discourage some clients from considering Insurance GICs in their portfolios and you from promoting them. A relatively simple strategy – laddering – gives your clients three key benefits:

  • peace of mind – no risk  their investment’s value will decrease
  • guaranteed interest rate – for the full term of the GIC, with the potential to re-invest at a higher rate
  • flexibility – funds become available every year to re-invest or spend.

Here’s how it works: your client decides on the amount to invest in an insurance GIC, then splits that amount into five equal parts. Using $100,000 as an example, invest:

  • $20,000 in a one-year term
  • $20,000 in a two-year term
  • $20,000 in a three-year term
  • $20,000 in a four-year term
  • $20,000 in a five-year term.

For each of the next five anniversaries of the investment, your client will have access to $20,000 to re-invest in another five-year term (or another term available) at a potentially higher interest rate, convert to another investment or to an annuity, spend the money, or combine these options.

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Insurance GIC vs. bank/trust GICs

Your clients are more likely to be familiar with GICs from banks, but Insurance GICs may be attractive for retirement planning because of these features:

Beneficiary designation – with an Insurance GIC, your clients can name a beneficiary on non-registered assets, as well as RSP and TFSA registered assets. (A product from a bank or trust company cannot offer this benefit on a non-registered plan.) By naming a beneficiary, the payment upon death will:

  • be paid directly to the beneficiary(ies), avoiding legal, executor, and probate fees (probate fees are not charged in Quebec)
  • avoid the delay of probate; processing can take months – named beneficiaries on Insurance GICs are paid outside of the estate
  • maintain privacy – paying the beneficiary directly outside the estate can help avoid disputes.

Pension tax break – insurance GICs are eligible for the pension tax credit and become eligible for income splitting. Clients age 65 or older can allocate up to 50% of their eligible pension income to a spouse.

Creditor protection – Insurance GIC (annuity) contracts for RRSP, TFSA, and non-registered investments could be exempt from the claims of creditors, if the owner has designated a beneficiary who is a member of a class specified by insurance legislation.

Deposit protection – Assuris2 provides coverage for 100% of the accumulated value up to $100,000, if an insurance company becomes insolvent. (Note that bank/trust company GICs also provide deposit insurance.3)

Payout annuity option – Insurance GICs can easily be converted to an annuity income stream. This option is available for RRSP or non-registered investments.

Redeemable – Insurance GICs are fully convertible into cash. Your clients have access to the funds when they need them. (Note: early termination may result in a market value adjustment.)

When your clients are looking to reduce their level of risk, Insurance GICs offer an alternative to investing in mutual funds or stocks.

Insurance GICs can provide stable growth before retirement, ensuring your clients have investments that are protected. Using the laddering strategy, your clients can wait for interest rates to rise4 or access money if the need should arise, either before or during retirement. At retirement, your clients can depend on the protected principal of insurance GICs as part of their retirement income strategy.

More information about Insurance GICs, including product features, the advisor guide, and applications, is available on sunlife.ca/advisor.


1 Sun Life’s 2012 Canadian Unretirement Index; 75% of respondents age 57+ indicated they want guaranteed income in retirement.

2 Principal protection may be provided by Assuris up to Assuris deposit coverage limits. You can learn more about Assuris at www.assuris.ca.

3 You can learn more about protection for bank/trust company GICs from the Canadian Deposit Insurance Corporation at www.cdic.ca.

4 Upon renewal, the new guaranteed interest rate may be lower than the interest rate secured during the previous term.

Originally published on Advisor.ca