The pros and cons of buying life insurance when you’re older, which portfolio assets you should spend first in retirement and some advice on converting an RRSP

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Life insurance isn’t usually top of mind for Canadian retirees focused on generating income from their investment portfolios. Yet certain types of life insurance can play an important role in the lives of older Canadians, especially when it comes to leaving money to children or charities.

“People often say, ‘The kids are out of the house. I no longer have a mortgage, and so why would I pay a premium for coverage for life insurance?’” says Christopher Dewdney, a certified financial planner at Dewdney and Company in Toronto. “But that’s a misconception.”

Many Canadians are familiar with term life insurance – which lasts for between one to 50 years depending on the policy – and accounts for about three-quarters of the market, according to a Canadian Life and Health Insurance Association report. In the event of a death, term coverage helps Canadians replace lost income to support growing families.

Term life insurance is often unsuitable for retirees, but permanent life insurance – where the benefit is paid to beneficiaries on death – can often be a good addition to a financial plan, says Daryl Diamond, an adviser with Diamond Retirement Planning in Winnipeg.

“There are really only two reasons to have life insurance: One is to create an estate, and the second is to conserve the estate you’ve created,” says Mr. Diamond, a certified financial planner and author of Retirement for the Record. Joel Schlesinger reports.

Behind on your retirement savings plan? Here’s how to catch up

Retirement is looming but your savings look a little thin. What can you do to bulk them up?

There’s no single solution since everyone’s finances, lifestyle needs (and wants) and retirement dates are different, but advisers say some math mixed with the right saving and investing strategies can help many people get on track.

Steve Bridge, an advice-only certified financial planner with Money Coaches Canada, has worked with people who say they need $200,000 a year to live comfortably in retirement and others who can get by with about $40,000 annually.

“Getting clear on where you’re starting from is really important,” the Vancouver-based financial coach says. “What kind of retirement do you want and how much might that cost per year? You can go through the exercise of how much are you spending now and how that might look different after retirement.”

He cautions that the closer you are to retirement, the fewer options there are to make up a savings gap. Kathy Kerr reports.

RRSPs, TFSAs, downsizing cash, inheritance: Which assets should retirees draw down first?

Most Canadians will enter retirement with Canada Pension Plan and Old Age Security benefits, and whatever savings they accumulated over their career.

As Fred Vettese writes in the Globe, some of those savings will be in tax-sheltered vehicles – registered retirement savings plans, workplace defined contribution plans and tax-free savings accounts. Defined benefit pensions, meanwhile, are nearly extinct in the private sector. But you may also have financial assets that are not tax-sheltered, which he calls “after-tax assets.”

After-tax assets can arise from a number of sources, such as the sale of an investment property, day-trading, downsizing your home, an inheritance or a lump sum divorce settlement. These are assets for which income tax, if applicable, has already been paid. The question is, what assets do you tap first in retirement: savings from tax-sheltered vehicles or after-tax assets?

Investment income on after-tax assets is taxed each year. By contrast, assets in an RRSP – or registered retirement income fund after retirement – are tax-sheltered until the money is withdrawn. By drawing down after-tax assets first, you can defer income tax on your RRSP/RRIF assets as long as possible. That certainly sounds like the best strategy, but is it?

Three insider tips on choosing a digital broker for retirees

Digital investing is all about having the freedom to attend to your portfolio whenever and wherever you are using phones, tablets or computers.

But if you’re a retiree, you may have needs that are a bit more earthbound than being able to trade stocks on the fly. In this article, the Globe’s Rob Carrick looks at a few features of specific interest to retirees in choosing a digital broker.

“These features aren’t the kind of things brokers brag about in their marketing, but they can make a difference in making it easier to manage a portfolio,” the personal finance columnist writes.

Can this 66-year-old woman afford to retire without jeopardizing her and her husband’s lifestyle?

Ruby is age 66, her husband Rhys is 74. “I’m still working part-time and wondering if I have to,” Ruby writes in an e-mail. Ruby’s earnings, Rhys’s withdrawals from his registered retirement income fund and their combined Canada Pension Plan and Old Age Security benefits give them total cash flow of $68,410 a year. They have a mortgage-free condo in suburban Toronto where they plan to stay for the foreseeable future.

The couple married later in life and have no children. “Our life circumstances meant neither of us was a high-income earner at a time when most people were reaching peak years of income,” Ruby writes. Neither has a work pension. Ruby is managing their investments “with online support” and doing well, she says. “We’re very active, youthful, engaged seniors,” Ruby writes. “I’m afraid if I don’t have someone tell me I can retire, I may just keep working till I drop,” she adds. “All we need is to establish a retirement date ... combined with a thoughtful drawdown plan.” Their retirement spending goal is $45,000 a year, about what they are spending now.

In the latest Financial Facelift feature, Warren MacKenzie, head of financial planning at Optimize Wealth Management in Toronto, looks at their situation.

Retirement means square dancing and Caribbean cruises for this 67-year-old

In Tales from the Golden Age – a new regular feature in Globe Investor – retirees talk about their spending, savings, lifestyles and whether life after work is what they expected. Read how Andrew Chong of Toronto is filling his days, including during the pandemic. As told to Brenda Bouw.

In case you missed it

Senior fitness trainers are helping baby boomers stay healthy and active

Dee Simpson retired from her film and television production company at age 65 and took up her fourth career as a personal trainer. Fourteen years later, at age 79, the Torontonian is currently working with 11 clients ranging in age from 56 to 84. Her oldest client to date was 101 and her youngest, 38.

“I’ve always been fit and active and very driven but I’d never actually been to a gym until I was 61 and I was looking for something new to do,” says Ms. Simpson, who ran her first marathon at age 60, finishing first in her age category in the Ottawa Marathon and qualified for the prestigious Boston Marathon.

She completed her personal trainer certification five years later and began taking on clients through Vintage Fitness in Toronto, which specializes in training for people over age 50.

Having a mature trainer helps people get over their fears, Ms. Simpson adds. “A less young fitness trainer – I don’t use the word older – is far less intimidating,” she says. “I’ve had so many people tell me even in their 50s and 60s, that they didn’t want to be trained by a beauty in Lycra who has no idea how they are feeling.”

A mature trainer is aware of the physical limitations and is reassuring, even inspiring, she says. “I always work out along with them as much as I can and I think that often is motivational.” Dene Moore reports.

How robots can make aging in place more enjoyable

Pepper isn’t your average seniors’ residence care worker. That was immediately evident when the diminutive robot arrived at the Yee Hong Centre for Geriatric Care in Scarborough, Ont., to lead weekly exercises, call bingo numbers and take visitors’ temperatures during the pandemic.

Less clear was whether staff – and more importantly, the senior centre’s residents – would embrace the mechanical person with large, round eyes and a tablet embedded in its chest. The robotics team at the University of Toronto (U of T) that programmed Pepper, alongside a fellow robot named Salt, certainly tried their best to design it to fit in.

The robots have facial expressions and can gesture with their arms and head, says Goldie Nejat, Canada research chair in robots for society, who leads the U of T’s Autonomous Systems and Biomechatronics Laboratory. “They use the same verbal and non-verbal communication we use, and they have some emotional intelligence, so they can detect emotions and respond to them,” Dr. Nejat says.

The notion of robots caring for aging people may sound like science fiction, but the Pepper pilot shows the future is closer than most people realize. “We’re about five years away from seeing robots more commonly used in the home or at [seniors’] residences,” Dr. Nejat adds. Joel Schlesinger reports.

Ask Sixty Five

Question: I am 67, retired and have a direct investing account with RBC and hold funds in RRSPs (registered retirement savings plan) and a LIRA (locked-in retirement account). I am completely flummoxed between regulations regarding conversion to income funds and annuities as well as minimum and maximum withdrawals. Can you provide some information and advice?

We asked Rona Birenbaum, certified financial planner and founder of Toronto-based fee-only financial planning firm Caring for Clients to answer this one:

There are many ways to structure your retirement cash flow and the optimal approach depends on a range of factors. However, a summary of the key rules/features to consider are summarized below for your reference:

• You don’t have to change your investment strategy when you convert an RRSP to RRIF (registered retirement income fund) or LIRA to LIF (life income fund). That’s your option.
• You can convert part or all account value(s) to its income fund alternative now. Any remaining balance must be converted in the year you turn 71 and withdrawals must commence in the year you turn 72.
• Annuity purchases are no longer mandatory at age 80. You can annuitize your savings any time, or never. This video outlines the pros and cons.
• For most investors, the required RRIF minimum and LIF minimum are the same. It is determined annually in January. The mandated minimum withdrawal is calculated by multiplying the year-end balance of your account by an age factor (found here).
• There is no limit to how much you can withdraw from a RRIF (or RRSP for that matter), but a LIF has an annual maximum. The calculation is the same as above except the age factor is higher.
• Unlocking 50 per cent of your LIRA when you convert to a LIF is recommended to reduce how much of your portfolio is subject to withdrawal maximums. It’s a one-time opportunity.
• If you have a variety of retirement funding options, a fee-only financial planner can help you establish the optimal drawdown strategy. This free tool may also help you envision your options.

Best practices that apply to most investors are:

• Always unlock LIRA accounts when converting to a LIF.
• Elect a custom withholding tax on your minimum withdrawals to avoid a large tax bill upon filing which, if over $3,000 necessitates quarterly tax installments the next year.
• Ensure that you hold a variety of asset classes to give you choice when deciding which investments to sell to fund withdrawals if portfolio income is insufficient.
• Base your withdrawal minimum on a younger spouse’s age if you want to minimize the required withdrawals.

I hope that this summary is clarifying. The optimal timing of converting, and whether to convert fully or partially if younger than age 71 is based on a range of factors including:

• Amount in non-RRSP savings, whether taxable or TFSA accounts.
• Amount of pension income, whether private or government, indexed or level benefit.
• Your estate aspirations.
• Your cash flow needs.
• Your investment volatility tolerance.
• Your tax position now and over time.
• Your CPP/OAS options.
• Other assets funding retirement such as real estate that can be sold, or future inheritances.

The decisions you make will have long-lasting repercussions. It may be worth some time and money to get customized advice from a fee-only planner.

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Have a question about money or lifestyle topics for seniors, or want to suggest a story idea for the Sixty Five series? Please e-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters.