Choosing the right retirement income product for you

Strategies to optimize your retirement income seem to be everywhere these days. Newspaper advertisements are touting rates of return, monthly income options, guarantees, growth, and other features to “fit” a population closing in on retirement.

The question about which product to select can often cloud the most important question – what do I need?

There is no product that provides the same value to everyone. Likewise, income products are designed to balance competing priorities. Before making a recommendation your financial security advisor will consider:

1. How much income do you need to sustain your lifestyle?

This is the most personal question of all, and requires a lot of thought. Your financial security advisor can help you determine your needs and understand how lifestyle choices can affect income portfolios.

2. What sources of income do you currently have in place?

Many investors make the mistake of looking for a specific (often overly liberal) income from their investments, rather than first determining how their investments can work with pensions, government entitlements like the Canada  Pension Plan and Old Age Security, and other sources of income like registered retirement income funds (RRIFs) and personal pension arrangements. A full determination of income can help ground your portfolio decisions in the reality of your monthly income needs.

3. How locked up do you want to be in the products you choose?

Many new products are coming to market with unexplored withdrawal minimum limitations which can serve to reduce the amount of money available in case of unexpected events or lifestyle changes. While balances may be available for spending, withdrawing funds can reduce or fully erode withdrawal guarantees. Your financial security advisor needs to consider these limits and contractual provisions very seriously before recommending any product or income decision.

Your best solution

While it’s always good to be financially aware, and keep up with all the options on how to structure your retirement income, your best course of action is to seek professional advice. The income portfolios you choose need to serve you now and in the future, through today’s realities and potential changes in life or income needs. If you’re thinking about the transition toward taking income from your nest egg, set up a meeting to fully understand your situation. Your financial security advisor can help you understand your choices and help you maintain confidence in the choices you make.

The information provided is accurate to the best of our knowledge as of the date of publication, but laws, rules and interpretations are subject to change. This information is general in nature and intended for educational purposes only. For specific situations, you should consult the appropriate legal, accounting or tax expert.

Managing your mortgage can save you thousands

Paying off your mortgage as quickly as possible will free up funds sooner to invest towards other important priorities like your child’s education or your retirement plans. In addition, the equity you build in your home as you pay down your mortgage often can be drawn on for unexpected emergencies or to supplement your retirement.

A strategy for reducing your mortgage is to take advantage of any prepayment or additional payment features that come with your mortgage. Consider using a portion of any bonus, tax refund, or inheritance you might receive to pay down your mortgage. This strategy could save you thousands of dollars in interest over the life your mortgage.

Your choice of payment frequency can also reduce the amount of interest you pay over the life of your mortgage. In addition to monthly payments, most lenders also offer weekly, biweekly and semi-monthly payment options.

Another popular way of paying off a mortgage sooner is to shorten the amortization period of the loan. The amortization period is the number of years it will take to repay the mortgage loan in full. Shortening the amortization period will increase your mortgage payment, but potentially you’ll save thousands of dollars in interest over the life of the mortgage. You’ll be surprised at how much you can save by reducing the amortization by just two or three years.

The key to effectively managing your mortgage is to ensure you select the right type mortgage for your needs. This means not to considering a mortgage in isolation, but rather looking at it as a key part of your total financial security plan. Here are some questions to ask yourself before renewing a mortgage:

• Can I afford to increase my regular payment?
• Do I have funds to pay down the mortgage?
• Do I need to change my payment method – i.e. monthly to semi-monthly?
• How sensitive am I to potential changes in interest rates either upward or down?
• Should I choose a short term or a long term mortgage?
• Do I plan to sell the property in the near future?
• What type of life insurance would best suit my needs to cover my mortgage?
• Should I have insurance coverage that pays the financial institution or my family?
• Do I need disability insurance coverage?

The information provided is accurate to the best of our knowledge as of the date of publication, but laws, rules and interpretations are subject to change. This information is general in nature and intended for educational purposes only. For specific situations, you should consult the appropriate legal, accounting or tax expert.