The Retirement Income Maximizer - Winter 2006

It's been 12 years now since Matthew Henessey began maximizing his RRSPs, contributing as much as possible to his company pension plan and putting some money into non-registered funds.

Preparing for his retirement 13 years away, Henessey wants to be sure he can fund the lifestyle to which he has accustomed himself over the years.

"I'm on a mission," says Henessey. "I intend to have the retirement of my dreams."

Currently living on an income of $95,000 per year, Henessey has set his sights on travel abroad, while dividing the remainder of his time between his home in Ottawa and a cottage in the Gatineaus.

"Matthew's situation is not uncommon," says Robert Lee, Rice Financial associate. "Granted, he doesn't have children, which leaves him with more disposable income than most. But a lot of Canadians are trying to maintain their current lifestyle in retirement. And with inflation projections and other considerations, this may mean he needs substantially more money for every dollar."

With this in mind, Henessey has been putting a lot of money into non-registered investments, hoping to account for the difference between what he has in RRSPs and his pension and what he needs to maintain the same lifestyle in retirement. Uncertain if this was the best route to go, Henessey called Lee.

He currently has a life insurance plan set at $450,000 to cover the mortgages on his home and cottage. Lee showed Henessey how to cut back the amount of taxes he pays and fund the retirement he is looking for.

"By taking out a different insurance policy, Matthew can actually grow his investments in a tax-deferred environment, even though his RRSP contributions are already maximized," says Lee

Essentially, he recommended Henessey begin an insured retirement program. He would plan to pay into this policy for a certain time frame, but contribute more than the minimum the policy requires. By putting in more money than needed, he is able to invest the extra inside the policy with the same flexibility as he can on his other investments. The best part is that, provided he does not allow the investment value to grow too big, no tax is applicable while the money is inside the policy.

Once retirement comes, Henessey can use his insurance policy as collateral to take out a loan for the extra money he needs annually. Because borrowed money is not considered income, he will not be charged tax.

"It seemed like the perfect option for me," says Henessey. "I am not against debt, as long as there's a plan in place to repay it."

This is an important consideration according to Lee.

"Debt is generally considered a negative but in this case, the investment is inside an insurance policy where the gains are not immediately taxable. And the loan repayment is part of the plan," he says.

When the individual dies, this larger insurance policy repays the amount of the loan and what is left over is passed on to the beneficiary.

"I am actually contributing the same amount annually, but I will get more out of it," Henessey says.

For further information on insured retirement programs, call your Rice Financial associate.