Retirement Planning

Insuring seniors is costly!!


It’s a well understood truth that the best deal on life insurance can be had when the client is young and in relatively good health. But just because the premiums on seniors are much higher, the need for insurance in your golden years may still be a good deal.

There’s no shortage of worst case scenarios, ranging from larger-than-expected tax liabilities to the failure of a pension plan.

Adapted from an article written by Al Emid that appeared in ADVISOR.CA on March 14, 2011. This discussion has been modified and amended to address a public audience.

Even good news can conspire against the client: with longer life expectancies and earlier retirements, there is a higher likelihood that medical and living expenses will consume retirement assets.

At the same time, it has become more common – even socially acceptable – to carry debt into retirement. A Harris-Decima poll last August for CIBC found that only 35% of Canadians in the 55 to 64 year age group are debt-free and that 8% of respondents believe they will be in their 70’s before clearing their debts. Another 10% have no hope of ever becoming debt free.box1

In today’s environment – not like our parents‘ environment – there are a lot of people retiring with a mortgage or perhaps a long line of credit or they’ve signed for their kids to get their houses. There are a lot of reasons for seniors to be worried. They don’t have a debt free environment anymore.

Another common problem is that estates of baby boomers may face unexpectedly high tax bills. In the stereotypical scenario, parents bequeath the family cottage to their children, along with a massive capital gain, thanks to soaring vacation property values.

Some aim to shield beneficiaries from their debt. They want to make sure that debt is paid off when they pass away.

Carrying debt to the grave and unexpected tax bills illustrate the importance of term and permanent insurance in a senior’s protection portfolio.

Not all insurers provide coverage at the top of the age brackets, however. This can affect the availability of insurers with whom to write contracts.

Tracking differences can be a challenge, as well, since there are over 2,400 life insurance products and variations available in the Canadian market.

In the term insurance category, some insurers will not underwrite policies after the individual turns 65. Many will, however, renew term coverage up to 85 years of age when the policy ends, and a rare few will renew term coverage up to age 100.

Renewal costs on a term policy average four times the original premium – for those with additional risk factors, like tobacco use, that can rise to six times the original premium.

If the insured individual has remained in good health, a broker may be able to get an entirely new policy for a client at a lower cost than the renewal cost.

Applicants that are still in good health can look at applying for a new term 10 (T10) with medical evidence, rather than just letting the (existing) policy renew on its own, but this process should be concluded before the old policy lapses.

Changing policies, however, means exposure to a new two-year term of incontestability and the suicide exclusion.

In the permanent insurance category, underwriting age limits vary between companies and product lines.

The number of companies providing term 100 (T100) coverage has decreased in recent years and some companies that currently offer it are expected to drop it from their line-up, since underlying costs have proven higher than originally calculated.

To a senior who is already concerned about his/her debt purchasing life insurance coverage might be a difficult concept to come to terms with, but when the effect that debt and taxes can have on an estate is considered it can be a welcome strategy to consider.

People should also be reminded that survivor benefits on some pension plans provide only 60% of the original payment to the surviving spouse after the plan-holder deceases.

Given that the end beneficiaries of the life insurance policy are often the senior insured’s adult children, it might make sense for them (the children) to purchase the policy on the lives of their parents, to shield their inheritances on their parents’ deaths. In this fashion the children would own the policy. They would have the ability to use it to pay the taxes or keep the cottage.



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A personal story . . .

Ten years ago, at the age of 75, D.B’s. mother-in-law was diagnosed with Alzheimer’s and has since lost her ability to speak. For the past seven years she has lived in a chronic long-term care facility in Toronto. She is in a semi-private room and has a special attendant who visits her daily to help her dress and eat. When D.B. and his wife go out of town they arrange for additional medical professionals to be on call in case she has to be taken to the hospital. This care and attention provides his mother-in-law with the dignity she deserves and us with peace of mind.

This care costs D.B’s. mother-in-law $50,000 a year. She and D.B’s. late father-in-law did save for their old age—but they didn’t invest in long-term care insurance (LTC) simply because it was not available and even if it were, she would not have qualified.

Because people in long-term care facilities live longer, they face a higher chance of outliving their money. Even if D.B’s. mother-in-law’s savings do run out, D.B’s. family will continue to provide financially so that she will always receive the same level of care. But not all families are in the financial position to cover such costs. That is where LTC comes in. LTC provides an option to those who do not have savings and the financial ability to provide care at a level that is appropriate. The government funds basic long-term care but LTC allows people to upgrade their service beyond the government minimum levels.

All for LTC and LTC for all
The fact is people are living longer. Whether at home or in an institution, many of us will someday need help with the ordinary, daily tasks for an extended period of time. The bigger point, though, is LTC is not just an issue for the old and frail. Head injuries, strokes, paralysis from accidents and spinal injuries can occur at any age and no one is immune.

People are not rushing to buy LTC, however, because they are understandably in denial. They feel they are too young, too old, too healthy or too unhealthy to need LTC. They believe the government will provide adequate funding. They do not understand what is at stake. LTC should be considered by anyone who wants to protect his or her assets, avoid relying on government-funded facilities or choose their preferred form of healthcare assistance.

LTC is a tough sell in the financial planning business. It is both an expensive product and a disturbing topic. It is, in fact, a product that is still purchased infrequently. Ask yourself, though, if you know of a relative or friend living in a care facility or receiving care at home – and you probably do.

We recommend people consider the cost for long-term care, because it varies widely. People can easily face monthly costs ranging from $3,000 to $7,000, just for facility charges. Costs can double if a parent or spouse still lives at home while his or her spouse is in a facility.

Throughout her life, B.D’s. mother-in-law supported and tended to her family. Now in her time of need, B.D. and his wife will spare no expense to ensure she has excellent care and dignity. Long-term care insurance is not available, simply because we may wish it. We have to qualify to have contracts issued. It should be considered as an integral feature of our comprehensive planning.

A research story . . .wheelchair
(May 31, 2005) Changing demographics will have a long-term effect on societal practices, experts say, and must be properly understood.
Demographics are “…one of the more important aspects of retirement planning,” argued Carl Haub, senior demographer at the Washington, D.C.-based Population Research Bureau during a recent National Press Foundation meeting, also held in Washington.
Haub defined demographics as the study of a population’s age structure, especially the relationship between age groups and their growth or shrinkage. A constant structure of young, middle-aged and senior citizens ensures that needs remain constant as long as the number of individuals also remains unchanged.
In a retirement planning context, constant structure means that the proportion of income-earning individuals “paying into the system” relative to youths and seniors remains steady and predictable. A bulge in the age structure produces increased tax money coming into government coffers — with an accompanying increase in services demanded while a contraction causes a decrease in incoming funds.
Currently, the most important demographic issue centers, perhaps not surprisingly, around baby boomers. “Every trend you can imagine is ascribed to the baby boom,” Haub said, defining it as a post-depression boom instead of the more frequent characterization as a post Second World War boom.
Haub believes the boomer trend peaked in the early 1960s. The fertility rate declined in the next decade, with many couples concluding that two incomes were necessary, he said. The American fertility rate fell to 1.7 children per couple but then stabilized at two by 1990, meaning that population stays constant except for the effects of immigration and longer life expectancies. The Canadian rate is estimated at around 1.5.
That equation, when combined with other projections, leads to the bureau’s estimate of an older and expanding Canadian population in the future, bringing with it many implications.
As the population ages, we will increasingly face problems that accompany advancing years, suggests Nathalie Tremblay, health products manager at Desjardins Financial Security. For example, a recent Desjardins-sponsored study undertaken by Toronto-based Baycrest Centre for Geriatric Care indicates that one in three individuals over 85 years of age suffers from dementia.
Increasing life expectancy and the prospect of dementia and other infirmities will become problematic given the shrinking family support systems triggered by the declining birth rate, she says. “Who will take care of them (when) you have 1.5 children per woman?”
That equation provides a compelling case for long-term care insurance. A long-term care insurance policy provides benefits for services needed when the insured individual is diagnosed with a debilitating illness or injury and can’t perform at least two activities of daily living, such as eating, bathing or dressing.
Eligible services can include health aid fees, home management, home-based hospice/palliative care, services of a nurse and nursing-home care.


Addendum . . .
Long-term care insurance contracts can be designed to make “return of premium” benefits available, and, in this fashion, be structured to comprise an integral element in a person’s investment portfolio.

This report is abridged and modified from a variety of original discussions published in the “ADVISORGROUP” series of publications, read by the associates at FB FINANCIAL & Associates.

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A discussion exploring a strategy for ensuring
maximum income through retirement,
brought to you by the associates of
FB FINANCIAL & Associates . . .


Maximizing Your Pension . . .

If you or your spouse is healthy, consider purchasing a
permanent life insurance contract a few years before

Adapted from an article by Barry J. Dyke – a member of NAIFA-New Hampshire and an agent and advisor for more than two decades. This article is excerpted from his book, The Pirates of Manhattan, which is about the monetary system, finance and permanent life insurance. Contact him at 800-335-5013 or at The original article is written to address an American audience, but the concept translates easily to speak to the Canadian fiscal context.

If you have a defined-benefit pension plan, you should not only consider yourself lucky but you should also understand that a lifelong guaranteed pension can have a high economic value. Also, a defined-benefit pension plan in the private sector is protected by the terms of the Government of Canada Pension Benefits Standards Act, 1985 (PBSA). Such a plan, as well, has an even higher value if it provides a guaranteed income for life for a retiree and spouse.

For instance, let’s look at the recently calculated, approximate value of a pension for a p457-year-old female government retiree. Under her defined-benefit pension plan, the retiree qualified for a life pension of $57,000, which had the actuarial annuity or lump-sum economic value of about $806,207. At retirement, the retiree, who is married, had to choose from three options:

  • The maximum income for life: No benefits, however, would be paid to the surviving spouse if she predeceased her husband.
  • A life pension of slightly less: If the retiree predeceased her husband, he would get a partial recovery of her plan contributions.
  • A substantially reduced pension for life: The pension, however, would cover her and her husband and guarantee both of them a pension for life.

Many retirees in this situation feel compelled to take the reduced lifetime income, commonlyp3 known as a joint and survivor pension. Once they select this option, however, it cannot be changed in most cases.

Points to ponder:

There are several important things you should consider before deciding to take reduced pension benefits:

  • If the retiree lives a short time, the surviving spouse faces a lifetime of reduced pensions.
  • If they both live a full life and die within a year or so of each other (which is not unusual), little benefit, if any, is realized after 20 or more years of reduced pension income.
  • In either case, the children of the retiree and spouse will never inherit any benefits.

Let’s review (“green” box, to the right) the potential costs associated with the retiree who was considering the $57,000 pension for life. Keep in mind that this is only an example:

In conclusion (after our review), the pension survivorship option is just like expensive term life insurance – and may never pay a benefit.

A better way

An alternative is pension maximization, via which you purchase a life insurance policy before you retire in an amount that would give the survivor or other heirs a similar monthly benefit. For example, you couldbuy a universal life policy for about $471,000, which would fund a survivor pension/annuity option if interest rates are at 4.25 percent for the next 30 years. The annual premium or deposit into the life insurance would be $7,308.

Conversely, a low-premium whole life insurance contract, which would guarantee the death benefit and provide cash values as an additional economic asset, would cost approximately $11,000 per year.

The best way

The best way to maximize your pension if you are healthy four or five years before retirement is for you to buy low-premiump2 whole life insurance for about $8,600 per year. This strategy is widely used and has been implemented extensively in pension maximization circumstances for people.

Suppose, for example, a retiree’s spouse predeceases the retiree. The retiree still receives the maximum pension. The life insurance proceeds are now directed to the retiree’s adult children— something that would not have happened under a traditional joint and survivor pension arrangement.

In another situation, a retiree has accumulated so much cash in his/her life insurance contract that he/she can now finance the purchase of his/her automobiles with his/her life insurance loans instead of using bank loans. He/she is still in excellent health, although his/her spouse’s health is failing. The pension-maximization strategy established will work better for adult children who are heirs to the estate.

Some caveats

Pension maximization does not work in all circumstances, however. Someone whose health has deteriorated is not a good candidate for permanent life insurance, which is the fundamental component and economic workhorse of a structurally strong pension-maximization strategy.

Here are some things to keep in mind as you consider a pension maximization strategy:

  • Life insurance proceeds to the survivor are income-tax free, whereas survivor pension benefits are fully taxable as ordinary income.
  • If annuitized at an older age, the survivor will have a larger monthly income than he/she would under a traditional joint and survivor option. If life insurance proceeds are annuitized, a large part of that benefit will be income-tax free as a return of principal under the exclusion ratio.
  • If a retiree and his/her spouse die simultaneously, insurance benefits could pass to other heirs, such as their children.

Life insurance can provide additional benefits such as long-term care insurance and accelerated death benefits if the policy owner has a terminal illness.

  • If the survivor recipient of the pension predeceases the retiree, the policy can be put into a reduced paid-up mode, whereby no further premiums are required at a reduced life insurance benefit. The retiree could also surrender the policy for its cash value if need be, or borrow against it, even in a reduced paid-up mode.
  • If the retiree’s spouse predeceases him/her and the retiree remarries at a later date, the new spouse can be named the beneficiary of the policy.

FB FINANCIAL & Associates


Firth Bateman

Principal / Associate




11921 80 Avenue, Delta, BC V4C 1Y1

PH: 604.591.1336 FX: 604.596.2223

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Retirement & Estate Planning

Have you ever wondered whether you will be able to retire?

Do you know how long your retirement savings will last?

With the average life span increasing, many of us may look forward to 30 years of retirement or more.

“Amid growing uncertainty about their future financial security, an increasing number of people do not know when they will retire. Others have simply delayed their retirement.”

• Are you prepared for retirement?
• Will your savings and retirement income be enough?
• What forms of income will you have?
• Do you know what your income needs will be at retirement?

It’s never too early to start planning for retirement.

A Financial Advisor can show you some of long term investment strategies and vehicles to help you meet your retirement savings goals, minimize your estate tax liability, and provide security for your spouse/family.

You should have an estate plan if:
1) you are the parent of minor children.
2) you have property (real estate) or a business.
3) you are concerned about health care treatment should you become disabled or terminally ill.

Estate planning includes more than just a simple will. Estate planning also typically minimizes potential taxes, and sets up a contingency plan to assure your preferences regarding health care treatment are followed.

Good estate planning identifies what will happen with your home, business, investments, life insurance, retirement plans, and other property when you become disabled or die.

A Financial Advisor will help you answer these questions:

  • Am I saving enough for my retirement?
  • How will inflation affect my retirement income?
  • I’m retired now, how long will my savings last?
  • How much retirement income will my RRSP provide?
  • What are the best retirement investment funds for me?
  • How much can I contribute to an RRSP?
  • What will my RRSP be worth at retirement?
  • What happens if I withdraw funds early from my RRSP?
  • I’m self-employed, how much can I contribute to a retirement plan?
  • How long will it take to double my money?
  • How do I compare any taxable vs non-taxable savings?
  • How should I allocate my assets?
  • How can I protect my assets from probate and estate taxes?
  • What is my potential estate tax liability?

Question or concern about Retirement & Estate Planning?

Call Firth Bateman: (604) 591-1336
Financial Services in Delta, BC

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