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How To Create the Right Retirement Plan For You

By RBC Insurance • Published September 21, 2023 • 7 Min Read

At the centre of your retirement planning is the need to ensure that a steady stream of income will be available to you for the duration of your retirement years.

Managing your finances in retirement may present challenges, but careful advance planning and advice from a financial advisor can set you up for success. It also might help to ease some of the current anxieties you may have about ensuring a sustainable and sufficient retirement income.

Key takeaways

  • A well-thought-out retirement income plan will take into account your future expenses and desired retirement lifestyle.
  • Factors to consider in retirement planning include your tolerance for risk and your need for flexibility versus your desire for stability.
  • Payout annuities are insurance products that can provide you with a guaranteed income stream for life.
  • A financial advisor can help support you in assessing different strategies for ensuring a retirement income stream that will suit your needs and goals.

Understanding your retirement income needs

“How much money do you need to retire?” It’s a question many of us come back to again and again. A recent Ipsos poll conducted for RBC Insurance reports that more than a third of Canadians feel anxious about saving enough money to support them in their retirement years, and this feeling of worry increases with age.

Understanding your retirement needs and goals is the first step to creating an income plan that will meet your future financial obligations and help ease the stress and anxiety about your retirement finances.

Ask yourself about the expenses you might face in retirement. Will you have mortgage payments? Do you plan to travel? It’s important to have a clear picture of the type of retirement lifestyle you’re aiming for, as well as an accurate estimate of your future living costs.

A financial advisor or retirement planning specialist can help you estimate your retirement expenses and assess your potential retirement income sources, including the Canada Pension Plan, pension plans relating to your current and past employment, and retirement savings, such as RRSPs.

Creating a retirement income plan

A comprehensive retirement plan will take into account your financial situation, your future needs and goals, and your tolerance and capacity for risk in your retirement years. A financial advisor should look at all of these factors when helping to guide you toward an income plan that’s right for you.

Some of the key factors you’ll want to discuss are:

  • Your tolerance for risk in terms of market fluctuations
  • Your investment goals when it comes to growth within your retirement fund
  • Your desire for flexibility and liquidity versus your need for stability
  • Your personal health and potential longevity; and
  • Inflation and how it can affect your purchasing power during your retirement years

A financial advisor can support you in designing a plan that suits your needs and goals, whether it’s a straightforward strategy or a diversified approach to generating your retirement income.

Payout annuities as a retirement income stream

A payout annuity is a type of insurance product that offers a stable retirement income. It can give you financial security and stability when you retire, offering you regularly timed guaranteed income for as long as you want…even for life! Together with your advisor, you can choose the type of annuity that best suits your needs.

RBC Insurance offers several kinds of payout annuity solutions.

  • Single life payout annuity: This payout annuity provides a guaranteed income for one person until the end of their life, with payments based on the amount of their initial investment. The payments stop when the plan holder dies.
  • Joint life payout annuity: A joint life payout annuity offers guaranteed income for the lives of two people. It allows for a second annuitant (or beneficiary) to be added to the policy—often a spouse or a partner. Payments continue to be made to this person after the annuitant dies.
  • Term-certain payout annuity: Instead of providing payments for life, a term-certain payout annuity ends on a specific date—the end of the term that was agreed upon when it was initially set up. With this type of payout annuity, a beneficiary can be chosen to receive the remaining payouts if the annuitant were to die before the end of the term.

Payout annuities are one product option that can play an important part in a retirement portfolio and can alleviate concerns about outliving your hard-earned savings.

Benefits of payout annuities in retirement income planning

Payout annuities are reliable and stable. Regular guaranteed payments offer a degree of predictability for retirees and are a hands-off option for those who may not wish to actively manage their investments. Fluctuations in the market do not alter these regular, guaranteed payments, and the money invested in them isn’t taxed until a payout is made. A financial advisor can inform you about some of the potential benefits.

The biggest advantage of purchasing a single life or joint life payout annuity is the potential to have an income stream for life.

Factors to consider when evaluating payout annuities

Not all insurance products are created equal, and this goes for payout annuities, too. If you’ve decided to invest in a payout annuity, begin by choosing a provider with a strong reputation and a trusted track record. Come equipped with questions about any attached fees or initial expenses and ask about additional options or features that can help you tailor your payout annuity to better fit your needs.

Incorporating payout annuities into retirement income planning

When planning for retirement, you can seek the assistance of a financial advisor to help decide what type of payout annuity works best to generate income during your retirement. Payments can be timed to be delivered monthly, quarterly, semi-annually, or annually, with the aim of supplementing other sources of income, such as pension plans, investments, and other savings.

Understanding the risks and limitations of payout annuities

Talk to your financial advisor about both the benefits and risks of a payout annuity plan. Purchasing an annuity means that your money is locked in. You’re trading liquidity and flexibility for stability and a guaranteed income for life. If you decide you want to invest elsewhere, according to profitable market conditions, you will not be able to transfer the money in your payout annuity to another financial product. For this reason, investing in a payout annuity should represent only a portion of your total retirement portfolio.

The risks tied to payout annuities include your purchasing power being reduced by inflation. When prices rise, your payouts stay the same. Changing interest rates present another limitation. Buying a payout annuity when interest rates are low can mean lower returns during your retirement. However, in some cases it may be smart to act immediately and not wait.

Other important things to consider

Payout annuities are a solution that you may want to consider as part of a well-diversified retirement plan. If you’re ready to begin retirement planning, consider speaking with an RBC Insurance advisor about the options available to you. They can offer reliable advice and support to help you make wise financial decisions about your future and inform you about the insurance products and investment tools that will allow you to build the kind of stable retirement income streams that suit your needs and goals.

You can look to RBC Insurance to help you create a retirement income plan that meets your financial goals as you move into your retirement years.

RBC Retirement Investment Solutions

Whether you’re building up your nest egg or ready to turn your hard-earned savings into retirement income, our solutions can help you make the most of your money. Have an RBC Insurance Advisor call you to learn more.

*Home and auto insurance products are distributed by RBC Insurance Agency Ltd. and underwritten by Aviva General Insurance Company. In Quebec, RBC Insurance Agency Ltd. Is registered as a damage insurance agency. As a result of government-run auto insurance plans, auto insurance is not available through RBC Insurance in Manitoba, Saskatchewan and British Columbia.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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