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The variability of life expectancy introduces significant challenges and uncertainties in retirement planning.
According to the C.D. Howe Institute paper on Strengthening retirement income security, retirees in a capital accumulation plan (RRSPs) at age 65 have an expected future lifetime of almost 21 years, a 1-in-5 chance of living for almost 28 years and a 1-in-10 chance of still being alive at age 96.
With people living longer, retirement planning needs to consider a longer time horizon as longer life expectancy increases the risk of out living one's retirement savings. As well, determining how much to withdraw from retirement savings each year becomes more complex. Striking the right balance between maintaining a comfortable lifestyle and ensuring the savings last requires careful planning.
An IPP helps to mitigate the variability of life expectancies as it provides a defined income for the rest of your life (and a reduced benefit to your partner should you pass). In practice this means that the IPP structure provides you the opportunity to purchase an indexed annuity from an insurance company who will in turn provide lifetime retirement benefits. Alternatively, one can transfer their IPP assets to their LIRA, subject to CRA maximum transfer rules.
If you'd like to learn more about IPPs or begin your own, request a free consultation with us today.
