Investing for a long life

Long life a risk? Not a blessing? The truth is living a long time can be both a blessing and a risk.

Associating risk with a long life is not a new concept. Pension funds have always considered longevity risk when setting premiums for pensions that pay benefits over a lifetime. What is new is that a long life now poses a risk for all of us. Thanks to good nutrition, medical advances and universal health care, many of us can expect to live into our 80s, 90s, and some us even into our 100s. That’s the good news. The worrisome news: will our savings last as long as we do?

When you add up a long life span, today’s economic uncertainty and the prospect of inflation, you’ve got a headache. Fortunately, relief is as close as a financial professional.

A financial advisor is trained to quantify your longevity risk and help you choose investments that guarantee a steady stream of income for as long as you specify. Some guaranteed products even have features that meet special needs.

Below are overviews of 4 guaranteed investments products your financial advisor will likely mention.

1. Payout annuities are a popular home for RRSP funds when one reaches that magic 71st birthday and must convert registered savings into income products by the end of the year. Payout annuities offer a number of benefits:

•  a registered income that can increase each year to help offset inflation

•  a preferential tax treatment for non-registered funds

•  a guaranteed income — ideal for covering day-to-day expenses

•  a choice of receiving payments over a set period or for life.

2. Accumulation annuities (AAs) are offered only by life insurance companies. While similar in concept to GICs, they offer different guarantees and benefits, such as allowing you to designate a beneficiary and giving you several estate planning advantages. Your AA investment is protected by Assuris, a coverage issued by life insurance companies.

3. Registered retirement income funds (RRIFs) are another popular destination for RRSPs. They are flexible and let you choose the type of guaranteed investments you prefer — guaranteed investment certificates (GICs), mutual funds, segregated funds, among others.

4. Segregated fund contracts are similar to mutual funds in that they pool many people’s money and invest it in stocks, bonds and other securities with the goal of growing the value of the entire pool. The difference lies in the benefits they offer when the contract matures or on your death, such as guaranteeing a percentage of your contributions minus a proportional reduction for withdrawals. They also allow you to choose a guaranteed income.

All these guaranteed products are multi-faceted, so please see a financial advisor for details.

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While your investments are the cornerstone of your financial security, here are a few suggestions for stretching your savings:

•  Identify ways to adjust your lifestyle to your income, such as cutting back – but not eliminating – important but non-essential expenditures. For example, instead of 3 or 4 trips each year, settle for 1 or 2.

•  Consider selling your high-maintenance house and buying a condo.

•  Work part-time or consult to earn enough income to pay your day-to-day expenses and keep your savings invested. This option offers additional benefits like mental stimulation, engagement with people and contact with the wider world.

•  Explore ways to share expenses with family or a friend.

And always remember — whatever stage you are in — nearing retirement or in retirement — you have a future to plan.

Sun Life wants you to enjoy, not fear a long retirement.

To maximize the duration of your nest egg, we encourage you to discuss your income and savings options with a financial advisor. Also, since a happy retirement depends on more than money, be sure to visit the News & views section of My Retirement Café regularly for new insights into health, lifestyle and relationship issues.