Hey welcome back!
In this video,
I want to talk about how to make sure
you will never outlive your retirement savings
There is one big problem with retirement today:
and that is little to no direction r
how to plan for your retirement.
What’s more,
the common strategy is to put
all your faith in one single asset
like only in the stock market or real estate.
And as a result,
we are unsure if we can retire comfortably
and if the money we have will be
enough for the whole retirement.
And one question that I hear
over and over again is:
hey Thomas,
how can I make sure I have enough
money through my whole retirement?
So today I want to share my
4 piggy banks method with you.
As you will see later in this video,
these 4 piggy banks are
the essence of retirement planning.
It helps many retires to gain confidence
on their finance and sleep better at night.
And before we go in,
if this is your first time here!
My Name is Thomas!
This channel is to help Canadians
to make better choices on
Retirement Wealth and Insurance
My goal is to make sure you take 1 or 2 ideas home
And start making better financial decisions today
If you found this video valuable,
make sure you click the subscribe button below!
Let’s get started!
The first and most pressing piggy bank
is cash in your account.
This is the money you use to pay bills,
groceries, and other necessities.
The key here is to have enough to cover expenses
while also not holding too much cash in your account.
That’s because
the money will lose value due to inflation.
So, how can you create this balance?
I recommend using your bank’s chequing
and savings account to do this.
Have about 3-6 months’ worth of expenses
in there and keep the rest stashed away.
This makes sure you are covered and can live
your day-to-day life without money worries.
The purpose of the second piggy bank is
to create a guaranteed income that will
help you cover necessary expenses.
Your basic need.
The point here is that the income must be
guaranteed no matter the state of the market.
If the market goes up and down,
many forms of income aren’t guaranteed anymore.
But for your piggy bank #2,
you want sources that keep their value.
And here are some of my examples
of what I meant guarnateed income:
government benefits such as Old Age Security (OAS)
or Canada pension plan (CPP).
They are great because once you are qualified
you get a guaranteed amount
until the day you pass away.
Now, one could argue that the amount you get
is a bit small.
Yes it‘s not going to be enough to retire
just by relying to these governement benefits.
But it’s still a good thing to have –
simply because it’s guaranteed no matter what.
Another gurantee income is
If you work for a big corporation
or for the government then you might get
a define benefit pension plan.
In such a case your retirement payout is guaranteed.
Clients do ask me,
hey Thomas,
do rental income,
or dividends from stock holding
count as gurantee income then?
Some people might argue that rental income
from any real estate you own
is also a form of guaranteed income.
But I would be careful.
Rental income is always dependent on the rentee.
If there is a tenant turnover that takes 6 months
that means there is no rental income for 6 months.
So in my definition it’s not a guaranteed income.
Anyway,
What if you don’t have a define benefit pension plan,
but instead you have the RRSP then?
Did you know that you can create
your own pension plan for yourself?
Annuity can be one of the option to consider
There are many forms of annuity but
the basic idea is that you pay
a large sum of money to the bank
or other financial carriers
and they guarantee you a certain
percentage payout until the term ends.
Terms can range from
one year terms to permanent
(meaning it stays active until you die).
The payout is calculated depending on
your gender,
how much money you put in,
your age and health, length of time,
and interest rate.
In a way,
the annuity is acts like a reverse insurance.
Instead you pay a monthly premium to
the insurance carrier in exchange for
a larger lump sum.
Now you give the provider
a large amount of money
in exchange for a monthly benefit.
Annuity can also give you a
slight tax advantage
if you have it in a non register account.
Because The income payment is
consisit of a return of principal,
and a part of interest.
So it will not be 100% taxable
But there are also some downsides:
If the economy is in a
low interest rate environment
like right now,
just like a saving account,
the interest of your annuity will also be low.
It’s often the case that your money is
locked away and you can’t access it early.
If you want the lump sum back early
you have to pay a hefty penalty.
In many cases,
an annuity pays the remainder of the money
to the beneficiary when
the owner of the annuity passes away.
But this ISN“T always the case.
There are scenarios where
the annuity provider keeps the rest
of the money if the owner passes away
- so be aware of that.
if you like the concept of annuity
but you don’t like the idea of being locked in,
then there is an other solution for you.
And it’s called GMWB.
Guarneteed minmum withdrawl benefit.
GMWB is usually provided by insurance companies
and it’s like a combination of
annuity and investment fund.
Here is how it works:
Let’s say Tom is 65 years old and
he wants guaranteed income to
cover his needed expense for the rest of his life.
So, Tom invests $100,000 in an investment
with GMWB option.
Based on his age
the provider will guarantee Tom
a certain % in payout.
Let’s say it’s 4%.
The provider will keep paying the 4%
which is $4000 per year GUARANTEE
until the day he passes away.
At the same time,
the $100,000 will be invested in the market.
Usually in a set portfolio.
The return depends on the market performance
please note that the 4% guarantee payout
is not a 4% return guaranteed.
Meaning If the investment return
is 2% growth per year,
and the withdrawl rate is 4%.
One day the saving will run out.
However,
in such cases,
the investment company will still have to pay the 4%
from their pocket to Tom until Tom passes away.
There are 3 reasons why this plan is attractive:
The 4% payout is guaranteed.
So, no matter if Tom lives until 80 or 180,
the provider has to keep paying even the pie runs out
Unlike annnuity,
The plan is flexible,
Tom can cancel the plan at any time,
and take back the remaining of
the investment base on the market value.
When Tom passes away,
any remainder of the pie will be given to
his beneficiaries with no probate fees.
As you can see
this is much more flexible than an annuity.
At the same time,
it provides guaranteed income like a term deposit.
What’s more,
this is an investment,
meaning that you can put it in
your RRSP, TFSA, or as a non-registered account
depending on your situation.
There is only one downside I can think of.
For most of the GMWB investment,
the investment portfolio is set
and usually they are heavy in fixed income.
think of a life payout saving account where
you don’t get to choose the investment.
So an experienced investor could get
a better return if they invest in something else.
If you want to find out more
and see if this option is right for you,
feel free to contact me.
Simply use the link in the description box
under this video.
Alright So,
what is piggy bank #3 about?
As you probably noticed,
piggy bank #1 and #2 focus on
your immediate needs and cashflow.
This is necessary for retirement
but that alone isn’t enough.
Most people retire in their 60s
but the life expectancy of an average Canadian
is mid-80s or even their 90s.
This gives us a unique challenge:
inflation will beat us in a long run if
we leave everything in a saving account.
So we do need to keep investing
some of the retirement money.
Where piggy bank no.2 covers your NEED
This piggy bank will help you to build your WANT
such as hobbies or traveling.
money that you can use for things you enjoy
How can you achieve this?
This is back to investing into the market
with the help of TFSA, RRSP,
and other similar accounts.
Plus, you can invest in a couple of assets that
will help you diversify your investments.
Last week,
I made a video about the
top 5 investments for retirement.
You can click the top corner to watch it.
Overall,
I recommend that
no matter what investment you take,
try to aim for an average of 4% return per year
to beat inflation and have
a bit of growth each year.
What’s more,
the nearer you get to retirement,
the more you want to go for cash accumulation
over asset accumulation.
So, invest in things that can be converted to cash fast.
The reason for this is simple –
if you don’t have enough cash,
owning a house won’t help you much –
because you need cash to pay for the bill
That’s why you want to secure
piggy bank #1 & #2 first
and go for investments after.
The future income power created from piggy bank #3
flows back to piggy bank #1 & #2 a few years later.
One of the most common
retirement problems in canada
is people unexpectedly spend
lot of money on medical bills.
Mainly because they don’t focous too much
about this topic when they are young
while Canada has a good health care system,
it only covers what happens inside the hospital.
But what if you need long term care?
Or you need to renovate your home
to fit the future you?
What about tools such as walkers or wheelchairs?
We have to pay those expenses
with our own money.
And therefore, we need to prepare for it.
But how exactly do we stash
all the money for medical expenses?
Should we simply put it in a savings account?
The challenge is that
we don’t know when we need this money.
It could be tomorrow or in 10 years.
therefore we need to protect the money from inflation.
That’s why I recommend first
get a home line of credit pre approved.
Yes, it means when you take it out,
you’ll have to pay interest
but because you have the credit ready.
you can then use the existing savings
to invest and build.
And when you need to pay the medical bills,
you have time to convert your asset back to cash.
Then my next suggestion is
If you have extra cash flow,
then you can also consider insurance plans
such as life insurance,
sickness insurance to fund this piggy bank
You might still able to find long-term care insurance.
But it’s rare now
as most of the players are out of the game.
Also there is another great advantage to life insurance.
You can use it to fund your legacy account.
so you don’t have to worry about
how much you want to leave to your next to kin.
Let’s be honest here!
Do you remember who your grand grand father is?
Most people don’t even remember
their grand grandparents much –
But not until they leave us a legacy right?
So, my question to you is –
do you want to be remembered?
A legacy planning or estate planning
might just be the way to go.
Either way,
piggy bank #4 makes sure you have
enough money for yourself,
your children, or your grandchildren
and you can enjoy yourself during retirement.
I understand the biggest fear we have
for retirement is that the money will outlive us
and we live our last days on earth in poverty.
To avoid all the headaches,
I came up with the 4 piggy bank method.
And while there is never a 100% guarantee,
this method makes it way less likely that
we have money worries during retirement.
If this sounds like something you want
but you aren’t sure where to start,
make use of the link in the description below
and contact me.
I’m more than happy to chat with you.
This is Thomas!
Looking forward to speaking with you soon!