A Regular Paycheque After Retirement? Yes, Please!

The information provided in The Kinder Way Podcast is for educational purposes only, and is not intended as a substitute for professional advice from a licensed advisor. The content of each episode is the opinion of the host and interviewees, and does not represent the views of Serenia Life Financial or any of its other subsidiaries or affiliates. Please always consult a licensed insurance advisor for guidance. Serenia Life Financial does not endorse any third-party views referenced in this content.

Will I outlive my retirement savings? With RRSP Season here, that’s a question that may be on the mind of many Canadians. Not surprising when you consider the average retirement savings in Canada. (Spoiler alert: It’s pretty bleak.) In the latest episode of The Kinder Way Podcast, our host talks about a truly unique way to fund retirement – via a regular paycheque, and using a strategy most people don’t know exists. If you’ve ever wondered, “How can I ensure I don’t outlive my retirement savings?” this episode is for you – it doesn’t matter if retirement is in the very near future or still feels like it’s a lifetime away!

Related Articles:

• Planning to Retire in 10, 20, or 30 Years? Then Read This.
• Your Step-By-Step Guide to Investing an RRSP Into a GIA
• Your Step-By-Step Guide to Moving a Life Insurance Payout Into an SPA

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Episode Transcript

Quick question: what would happen if your paycheque just… stopped?

Not because you got fired. Not because you quit.

But because you finally did the thing we’re all supposedly working towards: retirement.
Would you feel excited? Nervous? Or would you immediately start doing the mental math around how much you’re allowed to spend each month?
This is the kind of thinking that sneaks up on me every year around this time.

Well, here we are again – RRSP Season is upon us!

I don’t know about you, but I’ve been contributing a small amount of each of my paycheques into an RRSP since my 20s, and if I have some expendable income in the early New Year, I tend to throw in a nice little bonus amount before the tax deadline.

Of course, I’m still pretty far away from cashing in on this long-term investment , but every now and then, I can’t help but wonder what retirement will actually look like for me – it will, of course, be nothing like my parents who, as educators, retired quite comfortably in their 50s – I mean, who even retires at 55 anymore?!

But the big question that I try not to think about… but comes bubbling up to the surface every now and then is: Will I have enough money to fund my non-working years?

I realize I’m lucky to have both a pension and personal RRSPs to dip into later in life, but I do wonder: (a) if they will be enough to get me through ‘til the end of my life, and (b) how I will pay myself – will it be in a lump sum, or once or twice a year… rather than the routine of a bi-weekly salary to keep my spending in check?

While I’m usually pretty careful with money, I can’t help but wonder if the excitement of no job and no kid to keep me busy… no mortgage to keep me thrifty… and a large amount of money to just… spend… means I’ll do just that!

Don’t tell my husband, but it would be very easy to convince me to spend all of my retirement funds travelling the world until they simply ran out.

Okay… okay… I know I should probably re-invest a large portion of that money into something that will help me keep earning in my later years, but the truth is, I kind of want someone to do the work – and, well, the thinking – for me. I guess that’s why the idea of a Single Premium Annuity (something I knew nothing about five years ago) appeals to me.

If you’ve never heard of an annuity, you’re not alone. It was not a word I was familiar with before working in the life insurance industry.

And I know I promised not to use jargon in this podcast, but sometimes it’s just unavoidable.

So with that in mind, I asked ChatGPT to define an annuity in a way a 9-year-old would understand. Here’s what it came back with:

“An annuity is a deal where money is set aside and then either (a) earns interest or (b) gets paid back to you later in a steady way – like a monthly paycheque, but not from your employer.”

The fact that there are different types complicates things a little more, but the one I’m talking about is the one where you get your money paid back to you in a steady way. At Serenia Life, we call that one a Single Premium Annuity.

Here’s how it works: you hand that lump sum of money from your RRSPs, pension, or even a life insurance payout over to your life insurer and have them pay you an agreed upon monthly paycheque
Now if you’re worried the money might run out before you pass away, there’s the option to choose a lifetime annuity – which means it will continue paying out until you are no longer around to accept it.
If, on the other hand, you’re concerned you might die before all that money is paid out, the good news is that you can choose a guaranteed period life annuity, which means will go directly to the loved ones you chose as your beneficiaries.
And finally… you may be asking yourself: Is this income… taxable? Well, we all know that RRSPs are taxed when we finally take that money out, right? But, if you were to take that RRSP money and transfer it directly to an SPA, you would not be taxed until you started receiving your payments. So – rather than cashing in your RRSP all at once (and getting taxed on that one large amount), you would get taxed each time you get your SPA “paycheque” – no different than your working years, except you’ll likely be in a lower tax bracket. So yay!

The way I see it, you can’t really lose.

I guess the ONLY downside is that you aren’t earning interest on this money – you’re simply living off your principal investment (which is really just a big word for amount of money you originally invested). So if one of your goals is growth, you might want to consider the other type of annuity – what we call a Guaranteed Interest Annuity here at Serenia Life (or a GIA for short… which is very similar to a GIC!).

Another thing to keep in mind: if you happen to own a whole life policy that’s already earning you interest, you may not be as bothered by the fact that an SPA doesn’t come with any growth potential.

The reason why you don’t earn interest is because that money goes to the life insurer – that’s how they get paid to keep your money AND pay you a salary – coupled with any additional costs for certain guarantees, though that would just be subtracted from your payments; you wouldn’t have to pay out of pocket – it’s just built in. If you don’t like that, an alternative would be to put your lump sum into an “untouchable” savings account at your bank, and go in there bi-weekly to pay yourself. The downside is that the money may too easily accessible… banking fees can be pretty high, AND the interest is so low that it may not be worth the extra work – and self-control – required.

Anyway, as I said earlier… retirement still feels a lifetime away to me. But, as you’ll know from my resolution this year, I truly believe it’s important to think about these things AND I just find it kind of interesting to contemplate my options.

So if you’ve decided to go with a monthly financial check-in as your resolution this year too – this is a good one to bring up with a trusted – and unbiased – advisor.

If you’d like to better understand this concept before getting on the phone with an expert, I’ve linked to a guide called, “Your Step-by-Step Guide to Investing a Life Insurance Payout Into an SPA” on this episode’s page. While this guide isn’t talking about retirement specifically, I think it’s a great starting point. The only real difference is the source of the lump sum of money that you’d put into your SPA – I’ve been talking about the money we get from a pension and/or RRSP while the guide focuses on a life insurance payout.

I know a new concept like this can feel overwhelming, but it’s really worth looking into a bit more. And I do think the guide will help you understand a little better, so give it a read!

Okay, let’s give our brains a rest. Because… it’s that time in the episode where I sprinkle a little bit of kindness in. Here goes:

Over the Christmas holidays, we got A LOT of snow (which I love during this particular time of year, so I’m not complaining!). But there were also a few really cold days where it was almost painful to go outside. On one of those painfully cold days, my husband did something really sweet after I made a big mistake. I had a few hundred dollars (I thought) I was keeping safe in an envelope in our kitchen, but I suddenly noticed it had vanished from my safe place. I spent a good half an hour frantically searching in every possible place I thought it could be… but still couldn’t find it anywhere. I began to think that I had maybe dropped it in the snow the evening before while I was going door to door for a fundraiser, and I was panicked. Without saying a word, my husband sweetly pulled on his winter gear and went walking up and down our street to see if he could find the white envelope in the very white snow. He came back cold and empty-handed, but luckily I had JUST found it in the strangest of “safe” places. But I have to say I was so touched that my hubby went and did that for me, without even being asked. He just knew I was really upset and he was trying to help. And maybe it was this small act of kindness that calmed me down enough to eventually find where I had placed the money. Who knows? But I was super thankful in that moment. (And yes, I did tell him he was a very good husband.)

What about you? Have you recently observed an act of kindness? I’d love to hear about it! Share it with me in the comments… and see you next time!