From the Editor: Live Long and Prosper?

Q1 | April 2019

Laptop, notebook, Tablet and coffee on work desk

Topic: Wealth Planning

Dianne C. White CPA, CA, CFP, TEP

April 8, 2019

Image used with permission: iStock/PRImageFactory


Print & Share

Print

From the Editor: Live Long and Prosper?

Q1 | April 2019

The 2019 Federal Budget content was not particularly newsworthy from a tax perspective. There were no tax rate reductions or any commitment to a comprehensive tax review or reform. However, one change worth some discussion is the introduction of the Advanced Life Deferred Annuity (ALDA) for registered plans.

There has been pressure on the government in recent years to increase (from 71) the age required to start withdrawing funds from registered retirement savings plans. The reasoning is twofold: life expectancy has increased and interest rates have fallen. There is a concern that Canadians will outlive their retirement savings. The ALDA is an attempt to help retirees live long and prosper.

Starting in 2020, an ALDA will be an investment option available to anyone with a RRSP, RRIF or other similar deferred plans like a defined contribution pension plan (DCPP). Annuities are not a new investment for registered plan holders. Anyone with a registered plan can take a lump sum of cash from their registered account and purchase a monthly or annual annuity from an insurance company. The difference with the ALDA is that payments begin at the latest by the end of the year that you turn 85, instead of 72. The other catch with the ALDA is that you are only allowed to invest 25% of your registered accounts, up to a lifetime maximum of $150,000.

Annuities have not been a popular retirement vehicle in recent years for a few reasons, but most notably in the last few decades, because of the low interest rate environment (resulting in lower payments) and the absence of inflation protection. So why would anyone want to buy an annuity to defer an income stream starting at age 85? Especially considering there are also merits to making early withdrawals from your RRSP that I recently wrote about in my blog Cashing in Before 71? When Early RRSP Withdrawals Make Sense.

The ALDA is likely to be a good vehicle for retirees who have a conservative investment portfolio or low risk tolerance. This means that they do not have the capacity to bear risk if they live a long life because they do not have sufficient retirement savings to cover shortfalls from unpredictable markets. It might also mean they don’t like uncertainty and may sleep better at night knowing they have locked in a guaranteed income stream at age 85 with no volatility.

There is also a possible tax reduction or tax smoothing opportunity with an ALDA. If money is removed from an existing RRIF account and put into an ALDA, this could reduce the minimum RRIF withdrawal requirement between age 72 and age 85. This could be an attractive deferral opportunity for someone continuing to work in their 70’s or having other retirement income sources and therefore paying a higher tax rate earlier than they expect to be paying in the future. It might also help reduce or prevent the OAS clawback for retirees with higher income in their early years of retirement.

It will be interesting to see how the ALDA gets used when it becomes available and how the insurance companies will price these investment products.

In this issue of Nexus Notes you will find an article about client communications and striking the right balance between doing right by clients and providing a high level of client service. It seems that less may, in fact, be more. We are also featuring a recent blog about investing in emerging markets and why we think there is opportunity despite the Aguas Tormentosas associated with these investments.

Happy Spring!

More Like This...

See another CRM2 blog post that may be of interest to you.

No posts found.

More Like This...

See another Foundations & Endowments blog post that may be of interest to you.

That Giving Feeling

Topic:
Foundations & Endowments, Tax Planning
Excerpt:
Summer is now a distant memory. In fact, a radio announcer declared only 77 days until Christmas. Ugh. It is usually in the last quarter of the year

More Like This...

See another Human Interest blog post that may be of interest to you.

COVID: An Uneven – and Unequal – Recovery

Topic:
Human Interest
Excerpt:
Canadians have had enough of the lockdown. Here we are 18 months after you first heard of the then mysterious Wuhan flu. Today, but for any curve ball

More Like This...

See another Inside Nexus blog post that may be of interest to you.

Nexus: Behind the Scenes

Topic:
Inside Nexus
Excerpt:
Over the years, readers of the Nexus blog have been treated to various posts from my colleagues. On the other hand, much like my role at Nexus, I have

More Like This...

See another Investments blog post that may be of interest to you.

The Burden of Experience in a Modern World

Topic:
Investments
Excerpt:
Those of us who started in the industry decades ago have witnessed enormous change. When I finished university in 1982, Japan was the world’s

More Like This...

See another Pearls of Wisdom blog post that may be of interest to you.

“Work, Work, Work, Work, Work, Work”

Topic:
Pearls of Wisdom
Excerpt:
This has been a busy year. I’ve had lots happening on the home front (a wedding!) and lots going on at the office (too long to list!) Managing work

More Like This...

See another Tax Planning blog post that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

More Like This...

See another Wealth Planning blog post that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all

On a Side Note…

See another CRM2 Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Foundations & Endowments Nexus Notes Quarterly article that may be of interest to you.

No posts found.

On a Side Note…

See another Human Interest Nexus Notes Quarterly article that may be of interest to you.

Worth 1,000 Words

Topic:
Human Interest
Excerpt:
A little humour makes the world a better place.

On a Side Note…

See another Inside Nexus Nexus Notes Quarterly article that may be of interest to you.

From The Editor: Summer Vacation

Topic:
Inside Nexus
Excerpt:
Summertime and vacations go hand in hand. The season is linked with feelings of relaxation and recreation. As kids, we saw the arrival of summer as

On a Side Note…

See another Investments Nexus Notes Quarterly article that may be of interest to you.

Nexus and the ESG Integration Approach

Topic:
Investments
Excerpt:
At Nexus, we think Environmental, Social and Corporate Governance (ESG) considerations are a helpful input to our investment decision-making process.

On a Side Note…

See another Pearls of Wisdom Nexus Notes Quarterly article that may be of interest to you.

A Table for None, Please; Working From Home on the Rise

Topic:
Pearls of Wisdom
Excerpt:
Reading is one of the principal occupations in our profession. As we digest a wide range of material, interesting ideas and surprising facts – some

On a Side Note…

See another Tax Planning Nexus Notes Quarterly article that may be of interest to you.

The Great Transition – A Tax Efficient Withdrawal Strategy

Topic:
Tax Planning
Excerpt:
The change from “saver” to “spender” is what I call the great retirement transition. Figuring out how to draw on your retirement savings to meet your

On a Side Note…

See another Wealth Planning Nexus Notes Quarterly article that may be of interest to you.

Living to 100… Is 100 the New 80?

Topic:
Wealth Planning
Excerpt:
It’s a common saying that there are two certainties in life, death and taxes. While we have a pretty good idea when we get taxed, which feels like all