How Your Pension is Insured Against Loss
In Canada, annuities that form the basis for pension plans are insured by Assuris. Assuris is an entity of the insurance industry, whereby the insurance companies pay large annual premiums to create a growing pool of money that sits in reserve to pay investors in insurance products (life insurance and annuities for example) should the insurance company default on their payments (e.g. go bankrupt).

Each investor is insured for $200,000 per insurance company, per separate insurance product and per separate investor.

Example. John Smith has a $200,000 annuity with Manulife Financial, a $200,000 life insurance policy with Sun Life, a $200,000 annuity with Standard Life and a $200,000 annuity with Great West Life. John Smith is fully insured by Assuris on all of his products.

Your pension would be further supported by the general strength of the insurance company. This is measured by the global credit rating agencies (Standard and Poors, Dominion, Moody’s) who rate the insurance companies (e.g. AAA, AA, A) for their financial strength and re-rate these companies regularly.

We at only use the strongest insurance companies for your pension and will allocate larger pensions among several insurance companies in order to maximize the Assuris insurance coverage. How much of your retirement income should be in the form of a pension?

All essential costs of living such as food, shelter, utility bills and other “must have expenses” should be covered off by a guaranteed income source in retirement – further still, this guaranteed income source must rise with inflation over the years.

Only a pension can give you this kind of guarantee.

Ahead of retirement, we encourage you to review the last year of your costs and allocate all the expenditures you made as follows:

  • Core fixed costs – essential food, utility bills, gasoline, shelter and other largely fixed costs that allow you to preserve your core lifestyle.
  • Core variable costs – these are costs that are very important (core) but can fluctuate in some way. A core variable cost may be a birthday gift – it is a core, essential purchase but you can control what you spend on the gift - $20, $200 or $2000.
  • Discretionary costs – these are costs that are not essential at all and you have choices as to whether you incur the cost at all and how much you spend. Examples are dinners at restaurants, premium gasoline, home renovations, private school costs, etc.
  • Luxury costs – these are purely optional, non-essential costs such as large vacations, financial gifts to your adult children, new vehicles frequently, club memberships and so on.

Special Note – When looking at your future retirement expenses based on your past real expenses you will need to “normalize” the costs for the realities of retirement. This means you need to exclude costs for raising kids, paying mortgages, new savings and life insurance premiums, all costs that should be gone before you retire. Just as importantly, you will need to include occasional future costs in your total – home repairs, new vehicle purchases, weddings and other irregular costs that you need to factor in.

The Math
Based on our experiences, we estimate that the core fixed costs and core variable costs for the average Canadian retired couple is $20,000 to $40,000.

If your Canada Pension Plan and Old Age Security pensions (both which are inflation indexed) amount to approximately $20,000 / year for a couple (estimated), then you may need another $10,000 or $20,000 of guaranteed lifelong pension to cover your essential costs.

Please review your own expenses according to the allocation categories discussed above. We would be pleased to assist you to finalize an amount for your new pension based on your real expenses.

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