2017 will be no different. As a financial security advisor here are a few things I think you need to know in order to make sure you are ready when the clock strikes midnight on December 31st.
1 – Life Insurance rules. It’s no secret that people are living longer. In 2011 the federal government under Stephen Harper ordered the life insurance industry to change the dividend scales we use to calculate the growth of certain life insurance policies (and subsequently the rates we charge for coverage) to better reflect this fact. As a result, starting in 2017 the dividends in these polices will assume an average life expectancy of age 90, up from age 85. They will grow more slowly and cost you more.
According to a 2013 survey by industry association LifeHealthPro, 85 percent of consumers agree that having Life Insurance is good idea, yet only 62 percent actually own any. That means that over 20 percent think that Life Insurance is a good idea but never get around to buying it! If you were planning on purchasing Life Insurance in 2017 or later, do it now! Policies purchased and put in place prior to the end of this year will be grandfathered on the old system and could grow an average of 10% faster than policies issued just one second later.
2 – Income Annuities. Similar to Life Insurance, the income amounts for annuities are based on average life expectancy. You guessed it, with people living longer the industry is being forced to change the way it calculates payouts for income annuities. As with the changes to life insurance the difference between an annuity purchased in 2016 and those purchased in 2017 or later equal a difference to consumers of about 10%.
Annuities are often confused with RRIFs and other income vehicles but there are very different in function, guarantees and taxation. Depending on your needs for a secure income the differences are significant. A recent informal survey found that 4 out of 5 retirees who previously used only RRIFs to fund their retirement switched at least a portion of their income to annuities when they calculated their life expectancy and learned when the money in their RRIF accounts would run out compared to the life time guarantees available in an annuity.
Don’t let the rule changes come in 2017 leave you out in the cold come January.
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This year’s contribution limit is $25,370 or 18% of your gross income, whichever is less. If you have a pension or are contributing to a plan through your workplace the available limit will be offset so that you can never contribute more than the maximum to any retirement savings plans.
If you haven’t maximized your RRSP contribution yet for 2016 why not pull out your tax assessment from last year, find out what your total contribution limit is and make a plan.
Book your no charge consultation here.
As I said before, this is a busy time of year. Enjoy the holiday season but don’t ignore the calendar, you aren’t getting any younger….