whatsoever. Statistics show that less than two per cent of all term insurance poli- cies sold ever pay a death benefit. LIVING LONGER:CAN WE AFFORD IT? Before we take a further look at this con- cept, consider these current statistics: The population of Canadians over age 65 is expected to double by 2030. This is certain to put pressure on governments to raise taxes and limit benefits as costs for health care con- tinue to skyrocket. The second fastest growing age group in Canada is the elderly, people over age 80. The number of Canadian centenarians has increased by over 50 per cent since 1996. This clearly shows we are living longer – and makes running out of money a major concern for retirees; Many Canadian seniors are living with dis- abilities, largely due to heart disease, arthritis and other chronic and debilitating conditions. Many will need long-term care or assisted liv- ing, draining retirement income substantially; Add to that the volatility of the future stock market and interest rates, inflation threats, the global financial impact of war, ever-in- creasing taxes, especially for higher net worth individuals, and the often unforeseen mainte- nance expenses for future vehicles, homes and other necessary items; The bottom line is that we are all facing many challenges in the future that we will have to deal with. Those of us who pre- pare properly and effectively will weather the storm and be able get the most out of what life brings. GUARANTEED WEALTH REPLACEMENT ASSET Now, back to my own personal situation – here is what I did. When I learned about this wealth strat- egy, I purchased a guaranteed permanent life insurance policy equal to my econom- ic life value. In my case, that was a mul- tiple of my income in insurance benefit. Previously, I would reinvest the returns on my investment portfolio each year. Now, rather than pay for this policy completely out-of-pocket, I take part of my invest- ment portfolio return each year to help pay for the policy. This lowers my out-of- pocket cost and has the effect of keeping my “wealth in motion.” As a result, I now have a guaranteed tax sheltered cash value asset with a guaranteed permanent death benefit. The net effect is my wife will get over $3 million upon my death, which 30 • CANADIAN CHIROPRACTOR | JUNE 2010 gives me “a permission slip” at retirement to choose one or all of the investment al- ternatives discussed below. OPTIONS AND CHOICES Under most retirement plans, we grow our assets as much as we can until re- tirement. At the end of our work life, we depend on our portfolio to generate an income. Traditional wisdom suggests you not spend more than four per cent of your portfolio each year in retirement for fear of running out of money, a common con- cern for most retirees. However, once you have a guaranteed death benefit, you can choose other investment options, such as the following, which will increase your retirement income significantly. (These alternatives are now part of my own retirement strategy, which I will use when I begin to live off my assets.) Spend your principal. The most ob- vious option is to spend down your principal over time, giving you a much higher income to enjoy. The guaranteed death benefit acts as “asset insurance” and gives you the “permission slip” to spend your portfolio because the death benefit replaces the money you spend. If you have a $1-million guaranteed policy, you can spend $1 million of other assets, and upon your death your spouse would have it completely replaced by the life in- surance proceeds. The tax savings alone on this strategy are significant. Buy an annuity. Between the ages of 65 and 70 you could, for instance, invest $1 million in an annuity, which when an- nuitized, will pay out between $80,000- $90,000 annually, for as long as you live. This bets that you’ll live longer than the 11 years or so it would take to recoup your entire investment. However, you can’t really lose because if you die earlier, the $1-million death benefit kicks in for your spouse or beneficiary. Take advantage of tax-free real es- tate equity. My personal favourite, this feature allows you to take out the con- siderable equity built up in your home or other properties, completely tax free to spend and enjoy in retirement, and you never have to move or sell the home. Most of us will have significant value built up in our real estate by the time we retire and the property(or proper- ties) will be mortgage free. Financial in- stitutions have no problem establishing a line of credit against a mortgage-free property. The concept here is to supple- ment your other retirement strategies by slowly spending the tax-free equity in your home(s) via a line of credit. No real estate fees, no worries about selling your home to generate income in retirement and needing another place to live, just tax-free income. If the strategy is execut- ed properly, 15 to 20 years of additional retirement income can be generated tax free. We will all die someday and, if you have purchased a permanent life insur- ance policy, the tax-free death benefit is used to pay off the line of credit, leaving the home completely debt free and your spouse in a position to repeat the process again if they choose. Wow! There are several additional advan- tages to the strategies I have touched on, including being able to pass on an estate effectively and efficiently to your loved ones or favourite charity. A NEW WAY OF THINKING Midway through my career I realized there had to be a better way. Financial institutions build financial products in- tended to protect, store, and grow our money. However, contrary to the com- mercials we all see, it is not the product that makes us financially successful, it is the strategies we use through our lives that make the difference. Think of it like the game of golf. The key to improving your golf game does not lie in buying the latest set of golf clubs (“financial products”). Improving your golf game lies in improving your swing and management of the golf course (“strategy”). WINNING STRATEGY I must admit that since introduced to this wealth replacement strategy and others, my new professional mission is to spread the word. We need a plan that does not lock us out of our wealth for fear of running out of money. People like me who have ad- opted this strategy now have permission in life to stop worrying about how they are going to live in retirement. I sincerely believe that during our lifetime a truly suc- cessful financial plan should allow us to be able to use and enjoy our wealth for the benefit of not only ourselves, but others and society as a whole. With well thought out planning it really is possible to dream, and dream big. That’s something we never hear on BNN or read in the financial sec- tion of our national newspaper. • www.canadianchiropractor.ca
Chiropractic + Naturopathic Doctor June 2010: Page 30
