Savings & Retirement

Savings form the basis of all good financial planning. Every amount you save helps you reach your financial objectives—maintaining your current standard of living during your retirement, acquiring a financial cushion to meet contingencies, providing a good education to your children, or simply fulfilling your dreams and carrying out your favourite projects.

With your objectives in mind, we offer you flexible products adapted to your needs that includes a range of retirement savings plans, education savings plans, non-registered savings plans, retirement income plans, etc. These products allow you to invest your savings and obtain a high degree of financial security.


Retirement Savings Plans

Retirement savings plans ensure that you have a comfortable retirement while reducing your taxable income. At Industrial Alliance, we offer a flexible registered retirement savings plan (RRSP). We also offer a locked-in retirement account (LIRA) to persons who have changed employers and wish to transfer amounts accumulated in their pension funds.


Tax-Free Savings Account (TFSA)

The Tax-Free Savings Account (TFSA) is a unique tax-free savings program (non-RRSP). Any earnings generated (interest, capital gains or dividends) in the TFSA, as well as sums withdrawn, are not taxable.


Education Savings Plans

Build up a tax-sheltered fund to finance a child’s post-secondary education. A registered education savings plan (RESP) is the ideal financial vehicle to help you defray mounting education costs.


Non-Registered Savings Plans

Non-registered savings plans allow you to accumulate savings to carry out your plans or increase your retirement income.


Retirement Income Plans

You are a young retiree? We offer several types of plans to help you manage the savings you accumulated throughout your working life. These plans are designed to meet your new financial needs and help you make the most of your retirement.


Your Retirement Income Requirements (calculator)


Your Investor Profile

The Overlooked Advantages of Universal Life

Universal Life (UL) insurance has three key advantages

Tax-deferred growth, potentially permanently
Tax-free retirement income through leveraging
Tax-free death benefit
Unfortunately, most Canadians are unaware or sceptical. There's a widespread belief that it’s better to buy-term-and-invest-the-difference. Affluent Canadians take advantage of UL with the endorsement of their accountants.Buy Term and Invest the DifferenceThis seems like a great idea. Term insurance is cheaper than permanent insurance. So there’s more money to invest outside. Yet astute investors like Warren Buffett buy permanent insurance, especially UL.Why is term insurance cheaper? Because it’s worth less! Coverage expires before most people do. So term insurance is well-suited for folks with young families and debts like mortgages. Term insurance is used for estate creation by people with little money. They buy term but don’t have money to “invest the difference”. They probably have unused contribution room in their RRSPs.

Life insurance was created to be an instant estate in the event of the premature death of the breadwinner. --- Herb Perone

In contrast, permanent insurance is used for estate preservation and tax planning by people with money.The Math of Compounding

“The most powerful force in the universe is compound interest.” --- Albert Einstein

Tax cripples investment growth. Conventional investments earn
interest (taxed at 46.41% in Ontario)
dividends (taxed at 24.64% or 31.34%) or
capital gains (taxed at 23.20%)
(the above figures may be outdated consult current tax year)

As with an RRSP, the tax rate on growth inside UL is 0% until withdrawals are made (then taxed your marginal tax rate). Tax deferred is tax saved --- a huge benefit.Here’s a simple example that shows the consequences of tax: What does $1 growing at 100% per year become after 20 years? $1,048,576. Suppose growth is taxed at 35%. The after-tax accumulation shrinks to a minuscule $22,371. With sheltering, tax is applied to the ending accumulated value, giving $681,574. For the math, see the table in $1,000,000 After Taxes on Investment Growth. For another example, read Do You Understand Compound Interest?, which has a live calculator


Tax-deferred Growth
You saw the power of tax-deferred growth above.UL lets you make deposits well above the RRSP contribution limits (the maximum is limited by the death benefit, which you select). Because withdrawals are not mandated, the savings can be paid out as part of the tax-free death benefit.Tax-deferred growth has another advantage. Insurance charges are partially paid by investment growth that was never taxed --- the government helps pay your premiums. This can't happen with term insurance because there's no tax-favoured savings elementTax-free Retirement IncomeIf you need retirement income, you have the option of getting tax-free income by using the savings as collateral for a bank loan. You can skip the loan payments and have the loan repaid with the tax-free death benefit.BonusIf you’re accumulating large sums, do you want to risk losing it to creditors? When properly-structured, life insurance can be creditor-protected.The advantages of universal life insurance lead to many creative strategies

Universal life policy not for everybody

It's more suited to people with substantial assets, says columnist Ellen Roseman
Excerpt from The Toronto Star
Ellen Roseman
There are very few ways to avoid paying taxes in Canada. That's why many financial advisers like to recommend universal life insurance.
"A universal life policy allows tax-deferred growth," says Jack Snedden, a certified financial planner and chartered life underwriter. "With the proper arrangements down the road, every dollar can be extracted tax-free."
But while industry insiders don't like to admit it, you may not need life insurance at every stage of life – and even if you do, you may not need a tax shelter.
So, it's important to beware of being oversold on a product that works well for some people and not for others.
With universal life, you can choose to pay much more than the cost of your insurance.
Part of your premium goes into a reserve to cover the immediate and future cost of insuring you, while the rest goes into a tax-sheltered fund to earn interest.
You control the savings in the reserve account and you decide how to invest the money. You can stick with fixed-income investments or choose from a variety of mutual funds.
Here's the part that attracts attention: When you die, the insurance company pays the death benefits and the money from the savings component to your survivors.
But there are a few caveats, such as the high fees many companies charge if you want to get out of a universal life policy in the first 10 years.
"Be sure to ask what these surrender charges are."
Administration fees tend to be high. Also, the management fees on mutual funds held inside a universal life plan may be higher than if you held the same funds outside the policy.
"Not for the faint-hearted, this policy is complex, comes in many forms and requires a great deal of thought and attention," the authors say.
If you're knee deep in promotional material, with each insurer touting the value of its own products, it's good to pause and remember why you set out to buy life insurance. Was it to protect the well-being of your dependents? Or to create a savings plan or tax shelter?
Keep in mind that the insurance salesperson earns a much heftier commission on whole life and universal life policies than on term insurance.
Comparing the costs of universal life policies is difficult because the premiums you pay, interest rates on your investment account and sometimes even the death benefits can fluctuate.
For peace of mind, ask all the questions you can think of, such as:
Are there guaranteed minimum and maximum premium charges? What are they?
What interest rate is being used to illustrate the policy? The insurance company should use the current rate, not the more attractive rates of previous years.
What mortality rates is the company using?
How much are the management or administration fees the company charges?
You need to make a few key decisions. First, what kind of life insurance you want?
With annual renewable term, the cost rises each year to age 85 or 100, depending on the plan. You can get renewable term, with rates staying the same for 10 years or 20 years. Or you can get term to 100, where the premiums are set for the life of the policy and may be higher than regular term insurance, at least at first.
"In most cases we come across, term to 100 or level rates are the best option," says Asher Tward, vice-president of estate planning at TriDelta Financial Partners, which offers products from many life insurance companies. "This allows peace of mind, since you know your rate is contractually guaranteed never to change as long as you live."
Another decision: How do you want the death benefit to be paid out?
With a universal life policy, you can have the policy face amount paid out along with the fund value (the investments that build up within the policy).
Another choice is to get a refund of the premiums paid. Or maybe you want an indexed value, such as 3 per cent a year, which allows the death benefits to keep up with inflation.
Yet another decision: How do you invest the money in the policy?
If you buy mutual funds, look for a wide selection – AIG Life of Canada has 400 choices – and a reasonable management-expense ratio (MER).
"This is an area where universal life tends to get a bad rap," Tward says. "There are many plans available today that allow you to own an underlying index or mutual fund with no additional MERs."
If you don't want any investment risk, you can use guaranteed investment options (similar to a guaranteed investment certificate or GIC, but within a universal life policy).
"Today, many companies contractually guarantee yields of around 4.5 per cent on cash values within universal life – and no additional fees," says Tward.
"This means that regardless of the rate environment, they must offer at least this amount. In a case where someone is a classic GIC investor and has a fairly high marginal tax rate, universal life can work extremely well."
Suppose you have a 35 per cent marginal tax rate (the rate you pay on your last dollar of income). With a GIC at 4.5 per cent, your after-tax yield is about 2.9 per cent.
But with a universal life policy, the 4.5 per cent guaranteed investment will grow tax-free. The result is about 45 per cent more wealth over a 25-year period, compared with the same investment held outside.
This ignores the insurance costs, since you have already determined you have a need for insurance. If you don't need insurance, the tax shelter won't generally work for you.
Universal life is more suited to people with substantial assets who want to protect their families from substantial taxes on their estate after their death.
The investment growth will never be taxed, since most policies pay out the cash value tax-free when the insured person dies.
"In the case of a policy where a husband and wife are insured together, the tax-deferred growth can be unlocked for the surviving spouse to use," Tward points out.In some cases, a universal life policy can pay out its full cash value tax-free if the insured person becomes critically ill or disabled.

Using Life Insurance to your (tax) advantage

It provides some benefits that may be attractive to people in the affluent income group.Excerpt from the Toronto StarEllen Roseman In last week's column, we talked about the way mortgage lenders push you to buy life insurance to cover your loan. The lender's insurance, while convenient, offers less protection than what you would get with a life insurance policy sold separately.Here are the main disadvantages of buying mortgage life insurance from a bank, trust company or credit union:The lender owns the policy and is the beneficiary. With a policy you own personally, you own the policy and choose the beneficiary.The lender's insurance is not portable. If you switch lenders, you may not be able to get insurance if you have a health problem. But if you own a guaranteed renewable policy, you will never have to provide medical evidence again.The lender's insurance doesn't decrease in cost, but the coverage shrinks as your mortgage balance declines. With a policy you own personally, the coverage doesn't go down unless you reduce it.Another problem (not mentioned last week) is post-claim underwriting. This means the insurance is sold to those who may be ineligible for benefits.Only when someone dies is an assessment done. And the claim may be denied if the death is related to a pre-diagnosed medical condition.When you own your life insurance policy, the coverage is underwritten at the time of application. It's almost impossible for the insurance company to get out of paying a death claim after the first couple of years.So, what kind of life insurance should you buy?Term insurance is the way to go when you're young. You can protect your spouse and children at a low cost because you're buying only insurance – with no savings or cash value.It's a no-frills way to insure your-self for a specific period of time. And if you survive to the end of the period, the policy is worthless.However, a term policy gets more expensive as you get older. You may find the cost prohibitive in your 70s or 80s, if you can get coverage at all."The probability of dying increases, so the insurance company must charge more to cover this risk," say financial professors Moshe Milevsky and Aron Gottesman in Insurance Logic: Risk Management Strategies for Canadians.But why will you need life insurance once your mortgage is paid off and your kids are grown up? What's the point of having it if you have no dependents?The answer is taxes. Life insurance provides some benefits that may be attractive to people in the higher income groups.With a permanent (or non-term) policy, part of the premium goes toward pure insurance coverage. Another portion goes toward a savings component to fund future premiums.This type of coverage also goes under the name of whole life, universal life or level life insurance. The premiums are higher than term premiums for the first part of your life, while term premiums exceed level premiums later on."Level, or permanent, insurance is a system whereby you overpay in the early years in order to subsidize the later years," the authors say."Since you're overpaying in the early years, the excess over the pure premiums is being invested in a side fund. In some cases, you can actually control where those excess premiums are invested."As you age, some of the savings will be depleted to make up for the fact that your annual level premiums are lower than what they should be."Some people buy life insurance for estate planning. While Canada has no death taxes, your estate will be taxed on the appreciated value of everything you own at the time of death – such as securities and real estate (aside from a principal residence).Faced with a large tax bill, your survivors may have to liquidate assets."In other words," say the authors, "the tax code can force you to sell the very asset that you are paying taxes to inherit. Ugh!"Besides helping to pay the final tax bill, life insurance can provide tax benefits along the way.The savings that build up inside a cash-value policy are sheltered from tax. You won't get a tax bill every year for interest, capital gains or dividends earned inside the policy, as you will when you invest in a bank deposit or mutual fund.Suppose you can defer tax for 30 years. How much would that saving be worth? The authors give an example.Imagine that you invest $10,000 at 5 per cent interest. If you pay tax each year on the gains at a 50 per cent marginal tax rate, you will have $20,975 at the end of 30 years.But if the inside build-up is tax-free, you have $43,220 at the end of 30 years – a gain of $33,220. Once you pay a 50 per cent tax on the gain – since you can't escape tax forever – you're left with $26,610."Compare the numbers," they write. "You have $5,635 ($26,610 minus $20,975) more from the tax-free inside build-up than from the alternative product."This is about 50 per cent of your initial $10,000 investment. Now scale this up to $100,000, or even $500,000, and you get a sense of the magnitude of this benefit."You have paid taxes in both cases, so we are not comparing apples to oranges. In the first case, you paid tax continuously; in the second case, you paid it at the end."You can use this strategy with a large variety of investment funds within a life insurance policy. That's why it's called universal life.Sometimes, financial advisers urge clients to buy life insurance policies for their newborn children.Why buy life insurance for children who have no dependents to protect?Adult children may not contribute to a registered retirement savings plan until they're 30 years old, says Asher Tward, vice-president of estate planning at TriDelta Financial Partners in Toronto.But they can have investments growing tax-free from birth if their parents buy them a universal life insurance policy. The policy costs very little at an early age, he says. You'll be doing your kids a favour since they will never have to buy life insurance again – and they won't have to worry about being uninsurable if they develop a medical problem later in their lives

Perils of a Mortgage Life Policy

Insurance attached to your home loan can be a poor deal. You're buying or have bought a house and taking out a big loan to pay for it. Now, the bank is asking whether you want life insurance.Reluctant to leave an unpaid debt when you die, you say yes. Within minutes, your application is approved and the cost is added to your mortgage payments.For lenders, life insurance is an easy sell. They suggest it at a time when you're vulnerable and have yet to do any comparison shopping.And they make you sign a waiver form if you say no, agreeing not to hold the lender responsible if something bad happens to you.Most people don't realize that the life insurance sold by mortgage lenders is different from the policies sold by life insurance agents and brokers.It sounds like a great deal at the time, but mortgage life insurance can be more expensive than insurance sold separately.Suppose you're taking out a $250,000 mortgage at the Royal Bank of Canada. You're 49 years old and your spouse is 45.If you opt for the RBC Insurance HomeProtector plan, you'll pay a monthly premium of $153.90 – or $1,846.80 a year.Before you sign up, you should shop around.For a $250,000 life insurance policy with an initial term of 10 years, the premiums range from $390 to $792.50 a year. For a $250,000 policy with an initial term of 20 years, premiums range from $710 to $2,150 a year.In both cases (10-year and 20-year terms), nearly all of the companies charge less than RBC's Home Protector."You buy life insurance to replace the financial value of the person who died. It's related to income, not debt.If you have an insured mortgage, your loan will be paid off if you die. But the mortgage payments are typically only one-third of your income. (Banks won't lend you more than that.)This means your family still has to replace the other two-thirds of your income. You need enough life insurance to cover all your financial obligations to your dependents (including post-secondary education costs).There are other key differences between mortgage life insurance sold by banks and term life policies sold by insurance agents and brokers:Underwriting: The group insurance offered by banks is a one-size-fits-all product. Smokers and non-smokers are lumped together in the same age category. Individual insurance is based on the client's own medical condition. "If you're a slightly overweight smoker, you may be better off with the bank," says Andrew Rickard, a financial writer who used to work as an insurance adviser.Portability: If you change banks when your mortgage is up for renewal, you will have to reapply for coverage at the new lender. This means submitting new medical evidence and paying rates based on your current age. Suppose you have been diagnosed with diabetes since you took out your mortgage. Your new mortgage lender may not want to insure you.Level premiums: You may pay $100 a month for the bank's mortgage insurance, but the amount owing on your loan goes down with each payment. Why pay a fixed amount for reducing coverage? With an individual life insurance policy, the face value stays the same for as long as the policy is in force. However, the cost of term insurance goes up when you renew it.Expiry: The mortgage insurance you buy through a bank terminates when the mortgage is paid off. And you may be cut off when you reach a certain age, generally 70 years old. An individual policy can be held for as long as you want. If you have a term life policy to cover your mortgage, you can convert it into a whole life or permanent policy to cover taxes on your estate after you die.Beneficiaries: With an individual policy, you name your own beneficiaries. Your loved ones can decide what to do with the life insurance proceeds, either paying off the mortgage or using the money for something else. With group creditor insurance, the bank is the beneficiary and collects the proceeds when you die."The banks offer convenience, but individual insurance offers portability and flexibility. That's a better deal, never mind the price," Rickard says.Ellen RosemanExcerpt Toronto Star