Canadians worry about money. In the 2016 Sun Life Canadian Health Index, 3 of the 4 top drivers of stress were related to financial challenges:
- 45% experienced uncomfortable levels of stress related to personal or household finances. [tweet this].
- 32% faced excessive stress in trying to maintain a budget.
- 31% were stressed by unexpected expenses.
Low interest rates and market volatility likely don’t help, particularly when clients are nearing or in retirement. They may be wondering:
- Have I saved enough?
- Will I be able to cover all my costs?
- Will my money last my lifetime?
And they’re not alone. Many Canadians recognize the importance of guaranteed income in retirement planning. Research confirms that:
- 98% feel it’s very or somewhat important that some of their retirement income is guaranteed, no matter how long they live in retirement.1 [tweet this]
- Nearly half (48%) of retired Canadians surveyed by Angus Reid are worried about outliving their money.2
Many Canadians also have less access to guaranteed sources of income than they used to.
- In the pension world, private sector employers have largely transitioned out of defined benefit (DB) plans in favour of defined contribution (DC) plans that offer no income guarantee.
- Pension plan coverage overall is decreasing. The proportion of all employees covered by a registered pension plan (DB and DC) dropped from 38.1% in 2014 to 37.8% in 2015.3 This means that nearly two-thirds of Canadians have no workplace pension plan coverage at all.
What’s more, life expectancies continue to rise. On average, a 65-year-old Canadian – male or female – will live into their 80s.4 Many will spend 20 to 30 years or more in retirement. At the very least, they’ll want the confidence of knowing their basic living expenses are covered.
Solutions that guarantee a portion of basic retirement income can go a long way in boosting client confidence. Consider this 3-step approach for your next client conversation.
1. Calculate the basic income gap. Help clients divide their expenses into discretionary and basic. It’s the basic expenses — such as food, shelter, clothing, transportation, tax — that clients need guaranteed lifetime income to cover. Deduct their existing sources of guaranteed income, such as income from DB pensions, the Canada/Quebec Pension Plan and Old Age Security. If there’s a difference after deducting guaranteed income from basic expenses, that’s the basic income gap.
2. Teach clients how to cover their guaranteed income needs. A key issue with guaranteed income options is that clients don’t know what they don’t know. Only 26% of Canadians are familiar with guaranteed investment funds (i.e., segregated fund products), and just under half (48%) are familiar with income annuities.5
Talk with clients about these options. Show them how guaranteed solutions within an investment portfolio can help bridge an income gap. A payout annuity can provide a guaranteed source of income, for the lifetime of your client and their spouse — and can be indexed to help offset inflation. Some guaranteed investment fund contracts offer guaranteed annual income, along with the potential to grow this guaranteed amount by deferring the start date for payments. And depending on the product, these contracts may also allow access to capital.6
3. Bridge the gap. A guaranteed income solution should be based on a client’s specific needs, and build on the guaranteed income base provided by government programs and income from other retirement savings or pension plans they and their spouse might have. In most cases, a proposed retirement income solution draws on a various product options — mutual funds, ETFs, GICs, guaranteed investment funds, payout annuities, etc. The key is to choose options that work together in a tax-efficient way, while considering factors such as the client’s risk tolerance, ongoing income needs and long-term financial security.
A valuable solution for other needs
While not everyone will have a basic income gap, guaranteed investment funds and annuities can be a valuable solution for other needs, such as legacy planning. And there are single-product solutions that provide the flexibility to meet these different needs.
By listening carefully to clients’ retirement goals — and analyzing any need for additional guaranteed income — you’ll help ease retirement anxiety. It can be a key differentiator for you — and a key benefit for clients.
Did you know?
Sun GIF Solutions combines 3 different series in 1 flexible contract, with the ability to move between series at any time.
- The Estate Series provides a 100% death benefit guarantee, and the estate value is automatically locked-in annually if the market value is higher than the previous guaranteed amount.
- The Income Series provides guaranteed income for life, with full access to capital7 if the need arises.
- The Investment Series lets clients maximize their potential investment growth by choosing from approximately 60 funds, with no restrictions on their equity fund exposures.
For all 3 series, the death benefit payment isn’t part of the public probate process and is paid quickly and privately beneficiaries have been named by clients.
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1 Sun Life Financial Unretirement Index, 2016.
2 Retirement in Canada: Lots to enjoy about ‘golden years’ but financial worries loom large — especially for those still working, Angus Reid, 2015.
3 Pension plans in Canada as of Jan. 1, 2016, Statistics Canada.
4 Life expectancy, abridged life tables, Statistics Canada, 2014.
5 CANNEX/Greenwald & Associates, Canadian Guaranteed Lifetime Income Study (GLIS), August 2015.
6 Any withdrawal of capital will affect the guarantee.
7 Withdrawals proportionately reduce the guaranteed income.