If you’re like most Canadians, your Registered Retirement Savings Plan (RRSP) will be a prime source of your retirement income. But, what would happen if you had to stop contributing to your RRSP or dip into those investments to pay for an injury or illness that prevented you from earning an income?
It could happen because your chances or becoming disabled for 90 days or longer, at least once prior to the age of 65, are about one in three.* The average length of a disability (which lasts over 90 days) is almost 3 years.
Your retirement plan requires your RRSP to deliver an income at a certain level over a certain period of time. But without your usual contributions, your plan will likely deliver far less than you expect and need. Here’s an example: At 25, you start making RRSP contributions of $300 per month. At age 35, you become permanently disabled and unable to continue your RRSP contributions. At age 65, your RRSP nest egg will be worth $400,000 less than it would have been had you continued to make contributions until retirement (assuming an eight per cent compound annual rate of return).** In addition, you may also have to cope with ongoing medical expenses related to your disability.
So don’t gamble that a critical or long-term illness will deplete your savings or income by making a modest investment in:
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Disability insurance that preserves your earning ability by providing a regular income if you’re unable to work because of an illness or accident. You may have some disability insurance through your group plan at work, but these plans may fall short of the coverage you really need. Use your own policy to ‘top up’ your “group” protection.
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Critical illness insurance that helps preserve your finances by enhancing your medical insurance often with a lump sum payment to use any way you wish should you contract a specified illness.
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Long-term care insurance that preserves your quality of life by providing tax-free benefits for expenses related to a physical disability or cognitive impairment requiring home or nursing care.
The right insurance coverage can avoid serious injury to your retirement savings – and a professional advisor can help you make the right choices for your life as it is today and as you want it to be tomorrow.
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CIA 86-92 Aggregate Morality Table and 1985 Commissioner’s Disability Table A (Experience Table).
** The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values or returns on investment.
For a personal and free planning for the APQ members
Noël Hémond, Pl. Fin.
Financial Planner
Investors Group
Courriel: Noel.Hemond@investorsgroup.com
Tel: 514-817-3483