A demographic tsunami is upon us. Every day more than 1,000 Canadians turn 65, the traditional age for retirement.1 The risks to this retirement cohort have never been greater, with more and more Canadians telling the financial services industry that they’re concerned about their income as they age, outliving their retirement savings, and not being able to generate the kind of returns necessary to support life style needs.2

Two phenomena right now make living comfortably in retirement more complicated than ever:

  • People are living longer than ever before, with 9 in 10 people expected to live to age 65, and average life expectancies for males and females well over age 80.3
  • We’ve been in a historically low interest rate environment since the spring of 2009; that’s when the Bank of Canada overnight rate fell to 0.50%.4

These factors contribute to the risks making retirement income planning very challenging.

Risks to retirement income plans

There are many risks threatening retirement income plans. Four major categories [tweet this] of risk that need to be accounted for and managed:

Longevity – the risk that retirees outlive savings they’ve accumulated to pay for their retirement. Many people underestimate how long they are going to live. Life expectancies have increased, even over the past five years:5

  • For female beneficiaries of Old Age Security (OAS) aged 65, 75, and 85,life expectancy has increased to 22 years, 14.2 years and 7.7 years, respectively.
  • For male beneficiaries of OAS aged 65, 75, and 85, life expectancy has increased to 19.2 years, 12 years and 6.4 years, respectively.

Based on these statistics, we’ll see many retirees approaching and living past age 90. Making sure retirement income lasts long enough will require significant planning, with the right mix of products.

Income needs – in the last stages of life, they can be the most demanding, given the increased risk of poor health. Retirees often list being able to afford long-term care expenses as their number one financial concern.6 You can’t predict the costs for elder care – living in a retirement home or nursing home; prescription drugs; dealing with conditions such as Alzheimer’s disease and other forms of dementia – so it’s important not to overspend.

Market volatility – a risk that is sometimes misunderstood. Often retirement income planning is completed using average rates of return; however, the real world doesn’t operate on averages. Consider the TSX: over long periods of time, the TSX can produce attractive average rates of return, but experience significant volatility. For example, in 2015, the TSX had a -8.1% return, and in 2016 it had a 20.8% return. The average return over that period was 6.3%, a reasonable rate of return. What should a retiree with $1 million in investible assets looking to generate $50,000 of income per year do? Compare investing the money in the TSX over those two years versus investing in a portfolio that returns the average return over those two years. The resulting change in the asset balance is in the following table:7



Year-end balance

Your portfolio

Year-end balance











The drawdown of income in the year of -8.1% returns doesn’t allow the asset balance to fully recover the following year. Without proper portfolio management to minimize volatility in asset returns, retirees could face dwindling asset balances that put their income planning at risk.

Tax – in retirement income planning, tax issues can play a significant role in how income is generated. The following tips can make all the difference in maximizing income in the hands of retirees.

  • Use the least flexible income sources as they are available.
  • Use the least tax-efficient income sources in lower tax brackets.
  • Work efficiently within the tax brackets.
  • Look for income-splitting opportunities.
  • Determine which assets are the best to use or defer.

These steps can be quite complicated, and relying on expert advice helps avoid missing opportunities and making serious mistakes.

What can Canadian retirees and pre-retirees do?

If retirees are asking, “How much money will I need to retire?” the answer is simple: speak with you! There are so many risks that clients need to consider when structuring a retirement income plan that it requires the expertise of a qualified advisor to minimize the risk of missing something.

Having a portion of income in retirement that is fully guaranteed is a good start and is critical to retirees’ peace of mind. Although desire for these products has never been higher, too often guaranteed lifetime income products aren’t part of the retirement income discussions advisors are having with clients.8 Understanding how these products work and where these products can fit into a well-structured financial plan can help change the attitude of advisors and clients to these products that can uniquely address concerns around retirement income.

How much income should be guaranteed? It could be as easy as using a percentage of total retirement savings to generate guaranteed income, for example, 25%. Or, it could be through a planning model that follows this simple 3-step process:

Step 1 – Look at isolating all fixed basic expenses, for example, food, shelter, clothing, transportation, tax, health care.
Step 2 – Deduct existing forms of guaranteed income, for example, defined benefit pensions, Canadian Pension Plan (CPP), Old Age Security (OAS).
Step 3 – Calculate any shortfall between basic expenses and guaranteed income, and look to generate that shortfall through guaranteed income sources.

Fortunately, attractive ways to generate guaranteed income exist.

Payout annuities

These products, in particular life annuities, pay guaranteed monthly incomes as long as clients live, in exchange for an upfront premium. Even in this low interest rate environment, life annuities offer very attractive income rates. Depending on a client’s age, it’s possible to achieve guaranteed income rates in the 4% to 6% range for life, or higher.

One of the concerns clients might have with a payout annuity is that if they die early, they won’t receive their money back. A feature of this product is the option to take some of the initial income payments as guaranteed. For clients age 69 and over, a 15-year guarantee period9 will ensure that the value of the initial deposit will be returned in the form of income, even in the event of early death.

Guaranteed investment funds (GIFs)

Have the conversation with clients about (GIFs) in the accumulation years and early in their retirement. GIFs can help Canadians meet specific needs during different life stages, such as:

  • building and protecting savings,
  • depending on the product, reducing clients’ risk with guarantees on their investments, and
  • providing traditional insurance advantages, including named beneficiary options, potential creditor protection, and avoiding probate.

Payout annuities and GIFs are powerful tools that can help address the anxiety clients might have about outliving their money in this very low interest rate environment. With income rates in the 4% to 7% range, it’s unlikely that any other asset can generate such returns without taking unnecessary risk. When you mitigate retirement risks, you can help clients achieve lifetime financial security and gain confidence they’ll enjoy in the years after age 65.

Guaranteed to start a conversation

  • To learn more about retirement planning strategies, contact a member of your Sun Life wealth sales support team.
  • The advisor website Sun Life GIFs contains product information, fund performance, tools, videos and other resources.
  • Use the consumer-facing Annuity calculator to show clients an estimate of how much retirement income they’ll get from a life annuity and go to Payout annuities to run an illustration and access an application form, guides, brochures, and more.

Contact your Sun Life relationship manager

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Mark L. Arruda, BMATH, FCIA, FSA, CERA, Assistant Vice-President, Strategic Business Development & Marketing Actuary, Insurance Distribution, Sun Life Financial. He’s found his niche helping explain often complex elements of product design to advisors in straightforward terms – so they can see opportunities more clearly and help clients reach their financial and retirement goals.

1 Data tables, 2016 Census of Population, Statistics Canada. For this Census, 421,370 Canadians were age 64, meaning an average of 1,155 would turn age 65 every day in 2017.

2 Retirement in Canada: Lots to enjoy about ‘golden years’ but financial worries loom large — especially for those still working, Angus Reid, 2015.

3 “Age and sex, and type of dwelling data: Key results from the 2016 Census,” Statistics Canada, May 2017.

4 Gordon Pape, “Be prepared for Bank of Canada to raise interest rates,” Toronto Star, July 8, 2017.

5 “Life expectancy increases for OAS recipients,” Office of the Superintendent of Financial Institutions,” February 20, 2018. The figures cover the rise in life expectancy from 2011 to 2016.

6 “One huge cost to factor into retirement plans,” Jonathan Chevreau, July 13, 2017. 33% of Canadians are “very concerned” and 39% are “somewhat concerned” about their ability to meet future health-care expenses.

7 The figures in the following chart are from https://ca.investing.com/indices/sp-tsx-composite-tr-historical-data.

8 “Canadians Concerned about Maintaining Standard of Living in Retirement,” 2018 Canadian Guaranteed Lifetime Income Study (GLIS), Greenwald & Associates and CANNEX Financial Exchange, May 15, 2018.

9 Note that a 15-year guarantee period significantly reduces the income level.