High Income Clients Facing A Retirement Income Gap?

By Staff | January 31, 2003 | Last updated on January 31, 2003
2 min read

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Personal Retirement Account strategy can bridge the retirement income gap with the leverage of life insurance

Your higher income clients know as well as you do … earning more before retirement doesn’t guarantee adequate income after retirement. Even with RRSPs and other registered plans, they’ll have reached the maximum allowable contribution limits when their income reaches around $80,000. As their salaries grow, the gap between current employment income and potential retirement income looms ever wider.

Take Janet, for instance. She’s a partner in a large law firm and has an annual income of $150,000. Now 40 years old and with two teenage children, she wants to retire at age 65. To maintain her lifestyle, she will need 70 percent of her pre-retirement income in each of the first 10 years of retirement. Easier said than done. Even with her RRSP and other registered plans, Janet will need an additional investment to generate an extra $20,000 in after-tax income each year!

Janet’s financial advisor suggests the Personal Retirement Account strategy— to maximize both her retirement income and estate liquidity with the tax-deferred investment and death benefit insurance of universal life.

Using this strategy, Janet invests $5,000 a year for 25 years (age 40 to 65) in a single universal life policy with a face value of $250,000. The funds accumulate on a tax-deferred basis. When Janet retires, she can withdraw from these funds as taxable annual income – or she can use the policy as collateral for annual loans (possibly tax-free) to supplement her income.

Using the policy as collateral for a bank loan, Janet’s Personal Retirement Account gives her the extra $20,000 annual income she’ll need. This is more than she could have accumulated in a fixed income investment and only slightly lower than using a balanced portfolio. The tax-free death benefit includes all unused accumulated funds, and can be used to pay estate taxes and final expenses, or leave bequests to charity to reduce her final tax bill. If Janet dies before retirement, her estate receives $250,000 to $450,000 tax-free. If she dies between age 65 and 80, it can still receive over $250,000.

Your high income clients count on you for innovative investment ideas to reach their retirement goals. Give them a complete picture by explaining the Personal Retirement Account.

For more information on how it can benefit your clients and your business, please visit http://www.sunlife.ca/advisor.

Advisor.ca staff


The staff of Advisor.ca have been covering news for financial advisors since 1998.