CASE STUDY FOR A WOMAN RETIRING AT 65 YEARS OLD

–SIMPLIFIED LIFE INSURANCE—

• Lorraine is 65 years old.
• She has $350,000 in her RRSP where she contributes $600 monthly. She also has, for $7,000, a small pension fund.

• Lorraine wants to retire at age 65.
• She plans to live on the interest and leave the total to her 2 daughters as an inheritance.
• Lorraine estimates that she needs $45,000 gross per year if she wants to live comfortably.

• Will $350,000 in savings suffice?
• She has a moderate risk profile (for risks) and a typical yield of 4%.
• Retraite Quebec will pay her $1,134 monthly and she will receive her federal pension of $587 from the federal government.

EXPLANATION AND CALCULATION OF THE EXAMPLE OF LORRAINE AND HER LIFE INSURANCE

As for the insured’s income, she will get $20,652 from both municipal and federal government and an additional $7,000 from her retirement pension, for a total of $27,652.

Since she wants to live on $45,000 a year, she still has a gap of $2,029 monthly or $24,348 $ for each year.

As for the RRSP, the accumulated value of her RRSP savings over a decade must be considered. With her contributions of $600 a month at a rate of 4%, she can expect $606,000 to come.

Considering that the average life expectancy is 91 years old, Lorraine must, in order to reach her goal, earn $2,029 monthly for a period of 26 years.

This is more than the value of the interest earned. At this rate, at age 91, her savings will be worth $570,000.

At age 65, this is less than her capital but much more ($350,000) than its value in 2018.

This leaves her with sufficient room for maneuver to combat inflation, and above all, to forecast unexpected expenses concerning her health.

If Lorraine opts for the depletion of her capital, withdrawals would potentially increase to $3,000 a month ($36,000 annually) supplemented by her annuities (guarantees).

SOME ADVICE FOR LIFE INSURANCE AND PREPARING FOR YOUR RETIREMENT

• ➢ Always include the cost of inflation in your projections. The IQPF recommends a 2% rate.
• ➢ Subscribe to term life insurance or permanent life insurance to be able to bequeath money and try to use up your wealth.
• ➢ The balance that will be used to create your retirement income will depend on the contribution amount, the target rate of return, the amount of time elapsed before making any withdrawals, and the funds raised.