Soulmates: The Longevity Pension Fund and the RRIF
Simon Barcelon
.25 Sep 2023
.Retirement planning is a long process that typically starts when employees begin to invest a portion of their earnings. They will spend those savings to cover living expenses when they are no longer working. To do so, they often use Registered Retirement Savings Plans (RRSPs), a retirement-focused investment account. Once investors retire and begin to draw from their savings to fund retirement spending, these accounts convert into Registered Retirement Income Funds (RRIFs).
These accounts were designed to encourage saving for retirement with a tax-efficient means of growing and then drawing down retirement savings. When the Longevity Pension Fund (LPF) is held in these account structures, several benefits can contribute to a successful retirement:
Both are designed for retirement
Since Longevity optimizes retirement income to ensure retired investors can spend throughout their retirement, helping meet lifestyle goals, investing in the Longevity Pension Fund within these income-oriented accounts is a natural fit. As an example, similar logic underpins how Longevity’s Income Policy sets distribution levels based on the remaining life expectancy of a cohort of investors, and how the CRA’s mandated withdrawal level rises as RRIF holders get older. Both reflect the evolving life expectancy as people age.
Meeting the RRIF Minimums
During the annual review of the Fund’s distribution levels, conducted in close partnership with an independent actuarial consulting firm, the distribution levels are adjusted according to the fund’s Income Policy to ensure each cohort is adequately funded. One of the core elements of that policy is that distribution levels meet the RRIF minimum withdrawal requirements for people of those ages. To illustrate this, the chart below shows the yield LPF provides in a median case scenario as a % of its year-end Net Asset Value (NAV) vs. the RRIF minimum withdrawal schedule:
For illustrative purposes only and is not indicative of expected or guaranteed performance by the Fund.
Maintain rising income from your RRIF over time
The continually rising minimum withdrawal levels will mean that most RRIF accounts diminish in value over time; as a result, the amount withdrawn each year will begin to decrease in one’s 90s. For some people, this could align with a period when they may be incurring rising medical or other care costs. However, the Longevity Pension Fund portfolio supplements market gains with “longevity credits”, which are expected to grow over time as mortality increases with age. This has a powerful effect on sustaining and growing the income level, even in the face of rising RRIF minimum withdrawals. So, as most investors are seeing their RRIF accounts deplete and the income they withdraw decline, Longevity investors can expect to see rising income levels from their LPF holdings in their RRIF account.
The bottom line
Incorporating the Longevity Pension Fund into an RRSP and/or RRIF account offers tax advantages that can enhance a retiree’s financial security during their golden years. Every investor’s circumstances and preferences are unique, so it’s important to consult with your financial professional or investment advisor to assess your situation and help make an informed decision regarding the integration of LPF. By doing so, retirees can maximize their retirement spending, achieve financial stability, and enjoy a fulfilling and peaceful retirement.
Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. The prospectus contains important detailed information about the investment fund. Please read the prospectus before investing. There is no assurance that any fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Income in the form of Fund distributions is not guaranteed, and the frequency and amount of distributions may increase or decrease. The Fund has a unique mutual fund structure. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or the initial investment amount less any distributions received. You can always access the lesser of unpaid capital (initial value of your investment less any income payments made) or your net asset value. Fees may apply.
The Longevity Pension Fund is managed by Purpose Investments Inc. The document is not investment advice, nor is it tailored to the needs or circumstances of any investor. Talk to your investment advisor to determine if the Longevity Pension Fund is right for you, and always read the prospectus before investing. Nothing on this document shall be considered a solicitation to buy or an offer to sell, or a recommendation for a security, or any other product or service, to any person in any jurisdiction where such solicitation, offer, recommendation, purchase or sale would be unlawful under the laws of that jurisdiction. No securities commission or similar regulatory authority has reviewed this document, and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable; however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.
Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend on or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” intend,” “plan,” “believe,” “estimate” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are, by their nature, based on numerous assumptions. Although the FLS contained in this document are based upon what Purpose Investments believe to be reasonable assumptions, Purpose Investments cannot assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on the FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed, that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.