This is the fifth and final installment of a five-part commentary about an issue central to your financial wellbeing as you approach retirement age. It is an analysis of the sources of income necessary to support your retirement objectives.
In our earlier articles, we provided you with an overview of your various pension plan options as you approach that critical transition into retirement.
We described two company sponsored pension plans – a defined benefit pension plan and a defined contribution pension plan – and explained their distinctions and differences.
As well, we reviewed personal savings and retirement oriented investments, such as Registered Retirement Savings Plans (RRSPs).
…but none of these completely exhaust retirement income possibilities. Continue reading to discover three more available options.
Three Additional Retirement Income Options
1. Reverse Mortgage
When you take out a mortgage, you are receiving a loan from the bank that you pay back over time while your home provides the collateral for the loan. As the name implies, the reverse mortgage works the other way around. It is a way to withdraw some of the equity value of your home—allowing you to receive funds today while still living in your residence. The proceeds can be paid back when the home is sold.
2. Universal Life Insurance Policy
Using a universal life insurance policy can also be a tax effective way of receiving funds in retirement while still being able to leave an inheritance on your death. This approach needs to be carefully structured.
3. Tax-Free Savings Accounts
As of January 1, 2009, the federal government provided a new tax-efficient savings vehicle for Canadians called the Tax-Free Savings Account (TFSA). The TFSA allows taxpayers 18 and over to contribute up to $5,500 per year (as of 2016) into the account where any income earned grows tax-free, and funds may be withdrawn with no tax implications. The range of investments available is essentially the same as provided with an RRSP. The major difference between a TFSA and an RRSP is that there is no deduction allowed for TFSAs.
If you have followed our five part series – Introduction to Retirement Income Planning – you will immediately understand that your range of pension options is both considerable and complex. Almost everyone, whatever their level of financial sophistication, needs help in comprehending their pension income possibilities and balancing them successfully. If you do not have a financial advisor, one of our partner credit unions (Coastal Community Credit Union, Interior Savings Credit Union, or FirstOntario Credit Union) would be happy to help.
Healthy, wealthy and wise is an expression with which we are all familiar. Retirement income planning is a fundamental building block of that crucial challenge as you prepare for one of the most critical of all life’s transitions. Getting informed, professional advice is both sensible and necessary.