Boomers Need Asset Protection

Over the next several years, millions of Canadian baby boomers will be readying themselves for retirement.  Advisors are already fielding more retirement-related questions from clients, and there’s a good chance your attention will shift from growing your assets to preserving your wealth.

Protecting investments is always important, but it’s even more critical in retirement, since most Canadians will need to start drawing down the money they’ve saved.

One way to ensure that your money is safe is to store it in one of the  financial institutions that are members of the Canada Deposit Insurance Corporation (CDIC).

RRIF protection

Anyone who’s saved money in an RRSP will have to start withdrawing cash from their RRIF the year they turn 72. Imagine what would happen if your bank failed that year and you couldn’t use your savings.

CDIC, a crown corporation established in 1967, ensures that depositors’ funds are protected if one of its member financial institution fails.

Up to $100,000 of cash and term deposits, such as Guaranteed Investment Certificates, with an original term to maturity of five years or less, held in a registered retirement income fund will be protected, says Brad Evenson,  CDIC’s director of communications and public affairs.

In 47 years, no retiree — and no Canadian of any age — has lost a dime due to the failure of a CDIC member institution, he says.

“If you are worried about losing your savings, you can keep the money in CDIC-insured products,” he says. 

Trust coverage

The closer you get to retirement, the more you might be thinking about the legacy you want to leave to future generations.

Some Zoomers may want to set up a trust to keep some control over how their estate is distributed to their children and grandchildren after they pass away.

Fortunately, money in a trust is protected by CDIC, says Evenson. As with a RRIF, the corporation will cover up to $100,000 of cash and term deposits.

What’s different with a trust, though, is that each beneficiary is protected to the full amount. If you have $500,000 in one trust account, with $100,000 allocated to five different people, all of that money will be covered in the event of a bank failure.

“Trust accounts are often very large and have a lot of beneficiaries,” says Evenson. “Each person will be protected.”

Going south

It’s safe to say that America’s snowbird population is going to increase as more Canadians retire. It’s important for southbound Canadians to understand what CDIC protects and what it doesn’t — no one wants to get caught without funds in another country.

Cash and term deposits saved in a Canadian dollar account at a Canadian CDIC member institution will be protected up to $100,000. Money in a U.S.-denominated account, however, will not be covered, says Evenson.

Money saved in a U.S. account in an American branch of a Canadian bank is also not protected by the CDIC. However, if that bank is a member of the Federal Deposit Insurance Corporation, it will protect some of those savings.

“CDIC deposit insurance is set up to protect most kinds of deposits that Canadians have,” he says. “That’s important to know when it comes to retirement planning.”

To help you calculate the coverage of your portfolio, download the CDIC Estimator App from your favourite app store.  If you have any other questions, visit cdic.ca.