Do you know where your retirement income will come from?
Just because you’ve stopped working doesn’t mean your money has to. Find out how you can invest your savings to provide a steady stream of income so you can enjoy your retirement years to the fullest.
Different retirement income options for different needs
Your retirement income will typically come from a number of different sources. You may be eligible for CPP/QPP and OAS or other government benefits – and you may have a company pension. But, if you’re like most Canadians, you also need to turn your savings into a retirement income stream to help meet your financial needs throughout retirement.
With a range of products and features to offer, an advisor can help you choose the product or products that best fit your needs.
Types of retirement income:
- An annuity guarantees you will receive an income for life, or as long as the annuity contract specifies.
- Your retirement income will be secure from both market and interest-rate risks.
- Segregated funds, like mutual funds, are market-based investments, but because they are insurance contracts, they also have additional benefits, including efficient estate settlement.
- There are a number of different types of segregated fund contracts that combine capital protection with growth potential.
- Your savings will be protected. When your contract matures or when you die, your savings will be guaranteed to return a minimum of 75% up to 100% of the money you put in (less withdrawals).
- Some segregated fund contracts also offer guaranteed lifetime income.
- A mutual fund is a large pool of money belonging to many people that is invested by experts in stocks, bonds or other securities with the goal of increasing the value of the overall pool.
- Mutual funds are often held in tax-advantaged retirement income plans as a way of participating in markets.
Guaranteed interest products
- There are a number of guaranteed interest products that all offer protection for your initial investment and the opportunity for predetermined growth.
- The guaranteed return is based on interest rates, the deposit amount, the length of the contract and other factors, depending on the type of product you choose.
- You’ll have peace of mind knowing your savings are protected from market fluctuations.
Tax-advantaged retirement income plans
- A registered retirement income fund (RRIF) is a tax-deferred way for you to use your RRSP savings to generate retirement income
- A life income fund (LIF) or locked-in retirement income fund (LRIF) is like a RRIF for “locked-in” money that originally came from a pension plan.
Government rules require all RRSPs to be cashed in or converted to income by December 31 of the year you turn 71. You can choose to do this earlier, if you wish.
You have 3 choices:
- Use the money to buy an annuity.
- Transfer the money to a registered retirement income fund (RRIF) product.
- Take the value of your RRSPs in cash.
Most people prefer not to cash out because all the money will be taxed in 1 year.
Sun Life product types that offer RRIF registration are:
The options you choose depend on what you need and whether you want a guaranteed income stream. Many people find that using a combination of these options best fits their needs.
A "locked-in” RRSP may also be called a “locked-in retirement account (LIRA)”, depending on the jurisdiction in which your money is registered. But whatever the account is called, locked-in money originally came from an employer or association pension plan and has rules attached.
“Locked-in” money is treated differently than money in a regular RRSP, because the government wants to ensure that money in a registered pension plan will only be used for retirement income. If you put your locked-in money into a LIF or LRIF, there is a minimum amount that you must take out and a maximum amount that you can take out from the plan each year. These rules vary by province.
Locked-in money can be put into an annuity or any of the following income products that offer LIF or LRIF registration:
You may have assets outside of registered accounts that can also be used to help fund your retirement:
- Non-registered investments. These include mutual funds, segregated fund contracts, guaranteed interest products, stocks, bonds or bank accounts.
- Real estate. Some people who own their homes choose to downsize and free up some of the value of their home. One of the advantages of this strategy is that there is no tax on the gains when you sell your primary residence.
- Inheritance. For some, the prospect of an inheritance can make a big difference in their retirement planning.
Because money from these sources is not registered, you can do whatever you want with it, including:
- Buy an annuity or a segregated fund contract that guarantees your income for life (or a fixed number of years).
- Buy investments that provide income in the form of automatic withdrawals.
Income from government pensions:
Canada Pension Plan (CPP)/Quebec Pension Plan (QPP)
- The plans provide a lifetime monthly income based on individual contributions and are indexed to inflation.
- You may apply for income to start as soon as age 60 (with reduced monthly payments) or as late as age 70 (with increased monthly payments).
Old Age Security (OAS)
- The plan provides a lifetime monthly income, indexed to inflation.
- Benefits begin at age 65 (or age 67, if you were born in 1958 or later), but you must repay some or all of it if your total income is over a certain amount ($72,809 for 2015). You can delay your income start date up to age 70, to receive an increased payment.