A retirement crossroads
Canadians on the cusp of retirement often struggle with one question above all others: when should they officially start living off their savings?
Many choose to retire on schedule, at 65, drawing income from a mix of their Registered Retirement Savings Plan (RRSP), Canada Pension Plan (CPP) and Old Age Security (OAS). What they may not realize, however, is their contributions will continue growing between the ages of 65 and 70 – if left untouched.
Waiting to access these assets has clear financial upsides: Canadians who delay collecting their CPP can see payments rise by 0.7% per month after the age of 65, up to a maximum of 42%.1 Simultaneously, clients who leave their OAS benefits undisturbed can grow the amount by 7.2% each year,2 all while their investment portfolio continues to generate returns.
This is especially helpful for asset-rich, cash-poor Canadians whose wealth is tied up in illiquid assets, such as real estate or whole life insurance policies.
To avoid a possible funding shortfall, these individuals can maximize their post-retirement income by waiting until 70. The only cost they pay is time – a price which unfortunately becomes steeper with age and deteriorating health. Is there any way to bridge the gap?
Best of both: CSV Lines of Credit
For clients with a whole life insurance policy, Equitable Bank’s CSV FLEX Line of Credit3 offers a valuable compromise. The solution allows Canadians to borrow against the cash surrender value (CSV) of their policy, giving them access to tax-free cash which would typically have passed to the beneficiary after death.4
Clients can turn this hidden nest egg into a “living benefit,” adding cash to supplement their retirement plan and push out their withdrawal schedule. The policy itself acts as collateral, and interest continues to capitalize so that proceeds are repaid by the death benefit, with the remainder going to the beneficiary.
Whether the money is used at 65 or 70, an alternate source of capital is extremely useful for planning purposes. Borrowers can leverage the CSV FLEX to meet their short-term cash needs – from home renovations to helping their children afford a home – and strategically alter their decumulation timeline to maximize the value in their retirement accounts.
Moreover, leaving the RRSP undrawn until age 71 (when it must be converted to a Registered Retirement Income Fund) would keep the portfolio growing. Given that Canadians are living longer than ever, the added flexibility not only optimizes cash flow, but also mitigates the risk of a retirement funding shortfall in the long run.
Canadian residents 50+ years who have:
- A whole life insurance policy with one of Equitable’s insurance partners5
- Adequate CSV available in their policy6
Use the Equitable Bank CSV FLEX Line of Credit Qualification Calculator to assess individual eligibility amounts and begin the application.
1 CPP retirement pension: When to start your pension, Government of Canada website, https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/when-start.html.
2 Old Age Security: How much you could receive, Government of Canada website, https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/benefit-amount.html.
4 The Equitable Bank CSV FLEX Line of Credit offers access to tax-free cash while the policy continues to grow, and payments are not required as long as the line of credit remains in good standing. This is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time. The outstanding balance must remain below 95% of the cash surrender value of the policy. This option allows you to access up to a maximum of 90% of the cash surrender value of your policy (evaluated on a case-by-case basis). Credit limits are subject to deductions based on required premium payments. Borrowers are eligible for credit limits totaling 90% of the cash surrender value of the policy, provided that monthly interest payments are made. Equitable Bank is in no way providing investment advice. Consult your financial advisor to discuss your unique tax situation and the tax-free benefits of an Equitable Bank CSV Line of Credit.
5 A full list of partner insurers can be found on the Equitable Bank website.
6 The amount of capital made available depends on the projected growth of the policy and the age of the borrower.