Episode 77: Retirement Plan Reimagined: Canadian Strategies for Maximizing Your Golden Years

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32% of Canadians are approaching retirement with no savings. 

Is your retirement strategy safeguarded for the future? 

Will your investment portfolio hold up? 

Could you aim for higher rewards while minimizing risk? 

As more Canadians face the uncertainty of retirement without traditional defined benefit pension plans, understanding your options is crucial to secure a comfortable future. As a real estate investor, small business owner, or entrepreneur, safeguarding your assets into the future is top of mind (or should be). This episode looks at how to protect your hard earned assets while at the same time giving you investment growth opportunities that can dramatically increase your chances of that Canadian retirement you envision. 

What you’ll learn: 

• Learn to create your own pension plan through strategic investment choices, understanding the balance between risk and reward.
• Discover how to use permanent life insurance in the form of participating whole life policies not just as a safety net, but as an active financial tool that offers stability and growth potential through leverage.
• Gain insights into managing investment risks and structuring your portfolio to ensure long-term growth and security – even during market downturns – to ensure that your retirement fund never dries up.

Listen to this episode now to start building a retirement plan that not only secures your future but also maximizes your financial potential today!

Resources:

• Episode 63: Create Your Own Canadian Pension Plan So Good That Ontario Teachers’ Pension Plan (OTPP) Members Will Be Jealous!
• Episode 57: Canadian Wealth Strategies for Your Safe, Fixed Income Investments Beyond GICs and Bonds
• Retirement ‘becoming unaffordable’ for many Canadians. What can they do?
• Dig into our Ultimate Investment Book List
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.  
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting corporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

By hopping on a discovery call with Kyle, he will review your specific personal and corporate financial situation in order to determine if there are some quick wins available for you to minimize taxes personally or corporately, provide ideas for how you can increase your personal cash flow, and ensure that the net worth of your estate continues to grow in tandem.

Watch Now!

Detailed Episode Summary 

Retirement Planning in Canada: Challenges and Strategies

Kyle and Jon discussed the challenges and strategies of retirement planning in Canada. They noted that 32% of Canadians are nearing retirement without any savings, a trend exacerbated by the reduction in defined benefit and defined contribution pension plans. They observed that while there are tools available to help individuals create their own pensions, the complexity and range of investment options can lead to analysis paralysis. They agreed on the need to strike a balance between saving enough and not becoming overwhelmed by the investment options. They also discussed strategies for retirement planning, including an aggressive investment plan based on a $200,000 annual income, and the standard 60-40 split between equities and fixed income. They emphasized the importance of diversifying one’s investments and considering multiple sources of income to provide comfort during market downturns allowing the 4% rule to work without fail.

Managing Risks and Balancing Investments

Kyle and Jon discussed the impact of losses on their investments and strategies to mitigate risks. Kyle presented two investment scenarios and emphasized the importance of considering the ‘sequence of returns’ in accumulating wealth. They discussed balancing investments between equities, fixed income, and possibly a policy managed by an insurance company, with the aim of providing upside potential while reducing risks. They also explored the benefits of utilizing participating whole life insurance policies as a financial tool, specifically through the use of leverage via policy loans or 3rd party lender loans such as lines of credit from the big banks so corporations or individuals can borrow money against their policy’s cash value growth in a safe, conservative manner. Lastly, they discussed a strategy for managing their financial resources, focusing on the balance between accessing funds and allowing for growth, and the potential benefits of segregating one’s investment portfolio into different retirement plan buckets.

Transcript:

00:00:00:22 – 00:00:37:10
Kyle Pearce
Did you know that 32% of Canadians are approaching retirement with no savings? Is your retirement strategy safeguarded for the future? Will your investment portfolio hold up? Could you aim for higher rewards while minimizing risk? As more Canadians face the uncertainty of retirement without traditional defined benefit pension plans? Understanding your options is crucial to secure a comfortable future as a real estate investor, small business owner or entrepreneur, safeguarding your assets into the future is top of mind.

00:00:37:10 – 00:01:07:22
Kyle Pearce
Or it at least should be. This episode will look at how to protect your hard earned assets while at the same time giving you investment growth opportunities that can dramatically increase your chances of that Canadian retirement you envision. Here we go.

00:01:07:24 – 00:01:45:19
Kyle Pearce
Welcome to the Canadian Wealth Secrets Podcast with Kyle Pearce and Jon Orr. We are recovering high school mathematics teachers and education consultants whose entrepreneurial spirit led us to begin multiple businesses in real estate investing. Digital courses and coaching and consulting. After the bell rang at dismissal time. Fast forward a decade later where we’ve grown our portfolios and time freedom to the point where we can now help entrepreneurs, business owners and investors grow their wealth into a legacy that lasts generations through hidden investment and tax secrets.

00:01:45:20 – 00:02:18:22
Kyle Pearce
Your financial advisors won’t believe are true. All right, let’s dig in. Well, they’re Canadian wealth secrets seekers. Today we’re going to be digging into I’ll be honest, we often say we’re not big fans of the word retirement. However, there’s a few things on our mind when it comes to building our wealth. And typically it comes down to having time freedom, having the income, that passive income coming in so we can do what we want when we want, where we want.

00:02:18:24 – 00:02:41:18
Kyle Pearce
And also something else that people are often battling is what should I be doing to sort of plan for my estate? And we’re going to have some episodes in the future about estate planning and some of the realities of what we’re accumulating wealth when we’re accumulating assets. Sort of like what happens later if we don’t have certain plans in place.

00:02:41:18 – 00:03:00:13
Kyle Pearce
But for today’s episode, we’re going to focus in on this time freedom idea. Because I don’t know about you, John. When you look in the media, the word retirement’s always floating around. So we’re going to use it on today’s episode. But this idea, we’re going to translate that to time, freedom and feeling like you’re able to do what you want when you want.

00:03:00:15 – 00:03:25:14
Kyle Pearce
But we’ve got some headlines here. If you’re watching on YouTube, I’ll share the screen with a couple of these articles by Global News, for example, Has a headline Retirement Becoming Unaffordable for Canadians? What Can They do? We look at another one here as from the Financial post. This was in February 2020 fourth, 2024, I should say. Retirement out of reach for almost 40% of working Canadians over 50.

00:03:25:16 – 00:03:33:02
Kyle Pearce
And then we see another one here. This is Bloomberg. 32% of Canadians are nearing retirement without any savings.

00:03:33:02 – 00:04:00:04
Jon Orr
So here’s what I wonder. When you read these and I’m sure you listening right now are wondering the same thing. Are these headlines out of the norm? So they indicating that this is a new world we’re in where all of a sudden retirement was out of reach for 32% of Canadians? Or is it? Historically, that’s been true all along and they’re just pointing it out so that we now have to like something to write about or we want people to kind of get into the.

00:04:00:06 – 00:04:10:03
Jon Orr
You’re reading that from a Bloomberg article, which is like, let’s get someone over here to kind of start doing some investing. Are we really talking about things that are saying like this is a new phenomenon or is this the norm?

00:04:10:05 – 00:04:34:02
Kyle Pearce
I mean, honestly, when we read and we see that people are in this place, one thing that we’re seeing here, we don’t know if it’s necessarily a cause and effect relationship. But I mean, the reality is the stats show that there are less defined benefit pension plans, there’s less undefined or matched contribution plans out there. So ultimately, more people are on their own to figure this thing out.

00:04:34:02 – 00:05:03:03
Kyle Pearce
And I think it really comes down to that place. Now, we do have an episode where we talk about making your own pension. I think what keeps a lot of people in certain jobs specifically like think about government jobs, anything that is funded by the government oftentimes has that really nice pension, both you and I, John, coming from the education sector, having that golden pension waiting for us and walking away from that idea is a really tough thing, right?

00:05:03:04 – 00:05:28:09
Kyle Pearce
Definitely a tough thing for people to think about. But here’s the flipside, is that whether you do walk away from that, if you were lucky enough to maybe have a pension or whether you are on your own and having to do this on your own, one of the big thing that I think these articles and these surveys are showing is that we have tools available to us to recreate our own, quote unquote pensions.

00:05:28:11 – 00:05:53:05
Kyle Pearce
But I feel like analysis paralysis sort of halts our efforts. And what I mean by that is you’re reading things, you’re seeing these articles. It’s saying that we need to save more. We need to do more, we need this, we need that. But then when you actually go to go down that rabbit hole, probably not for the folks listening to this show, because you’re down a rabbit hole listening to a podcast about building your wealth and getting those time freedoms.

00:05:53:07 – 00:06:09:20
Kyle Pearce
But in general, every time you go further down the rabbit hole, you get a new problem, right? So it’s like you can decide I’m going to invest more. But then the questions like, what am I going to invest in? And then you go down that rabbit hole and then even if you want to go, I was on a call about two weeks ago.

00:06:09:20 – 00:06:32:04
Kyle Pearce
There was a caller listening to the podcast. Amazing person, super great is deciding to go into real estate. But then there’s the rabbit hole of like, Do I do long term holds, do I do fix and flips, do I do burns, Do I do any short term rent? All of a sudden now you have all of these ideas and you’re just becoming overwhelmed with the result.

00:06:32:04 – 00:06:49:01
Kyle Pearce
And really we have this fascination and part of it’s probably ego, right? Our ego wants us to do the best, right? Like we want to pick the best thing. I want to be able to say that look at this investment over that investment, whether it’s just to yourself or maybe with some friends around the campfire. And you want to.

00:06:49:01 – 00:07:08:08
Kyle Pearce
I did this. I picked that stock, I did that, whatever it might be. And when you kind of rewind to those who either are in retirement and have pensions that were defined for them, how many of those people actually thought about what the returns were that they were getting? They paid into this thing, right? Usually the employer is matching, right?

00:07:08:08 – 00:07:20:16
Kyle Pearce
So they’re two people are funding this thing, but nobody’s really asking what’s my rate of return that I’m getting? But they do know what they’re going to get at the end, and that’s the part that people really like about them.

00:07:20:19 – 00:07:38:09
Jon Orr
That’s exactly right. It’s the defined part. It’s one of those black box things. It’s like, I don’t need to know what’s happening in the middle here. That’s the whole benefit of having the defined pension plan is that you don’t have to do any thinking here. Someone’s doing that thinking on your behalf and you’re just saying, I will get that in.

00:07:38:09 – 00:08:02:01
Jon Orr
I am happy with that. You figure out the middle and I don’t have to worry about it. Like it’s the same reason. Like when you go to buy a new car and you are wondering what the interest rate is, or let’s say you’re going to finance the car through the car company and you’re trying to figure out what is the rate you’re going to be borrowing at or you’re wondering what the price of the car is and sometimes those people steer you away from the price of the car.

00:08:02:03 – 00:08:18:02
Jon Orr
They steer you away from what the rate of the borrowing rate is going to be. And they focus on what the monthly payment is going to be. Are you happy with a monthly payment because that you can visualize, you can work into your budget knowing that you’re like, okay, I’m happy with that, but then you don’t know exactly what the car cost.

00:08:18:03 – 00:08:31:03
Jon Orr
Maybe you didn’t think about all of those things. And that’s what’s happening with the defined pension plan rate is like I looking down the future. I mean, yeah, I’m going to get 60% of my salary, my income. I’m happy with that. I can live on that. I’m not going to have a house to pay for. My kids are going to be done.

00:08:31:03 – 00:08:51:18
Jon Orr
You visualize that this defined thing is there and you don’t have to worry about the middle. But we talked about that on that episode that you just mentioned here about creating a pension plan that beats the gold standard is that when you have that, you’re actually missing the growth rate of what’s happening in the middle is like actually you can beat that if you do a little bit of that thinking in the middle anyway.

00:08:51:20 – 00:09:14:07
Kyle Pearce
Right? Absolutely. And I find it interesting, it’s like a human psychology, sort of like conundrum. It’s like a paradox that when you have this defined benefit scenario, nobody asks any questions, nobody has any issues, everybody’s happy. But if you actually take that number and I’m going to encourage people in the show notes, we’ll share the link to our Creating Your own pension plan scenario.

00:09:14:13 – 00:09:40:19
Kyle Pearce
We’re using a very, very, very conservative rate of return because we’re using a very conservative tool that will also guarantee some of what it is. And of course, we’re talking about our whole life in that particular case. But we also have another episode where we talk about looking at bonds and fixed income replacement and also looking for like, could we find a better fit for that portion of your portfolio?

00:09:40:19 – 00:10:06:00
Kyle Pearce
And ultimately what it comes down to and we’ve said it before, I’m going to advocate it again, is that acting on something is so much more important than trying to get it perfect. And I just find there’s so much analysis paralysis that every day, month, year that goes by before taking action is you’re losing the most important part, which is the time factor for compound interest to take place, right?

00:10:06:00 – 00:10:30:04
Kyle Pearce
We need the compounding effect to actually take place. So we’re going to be kind of today talking a little bit about those two episodes, the pension episode was, I believe, episode 63, and then the bond replacement episode was somewhere around there. So we’ll dig it up here. Maybe we’ll pull it out after. But what I want to talk to people about is just we’re going to move away from real estate for a second.

00:10:30:04 – 00:10:55:12
Kyle Pearce
We love real estate. We think it’s great. But let’s talk about something that people can do easily and essentially efficiently and they can actually do it basically today, you can make this choice to start doing this thing. Now we are talking about just the typical markets. We’re going to talk about the S&P. We’re all Canadians here. Okay, I love Canada, but I don’t necessarily love the returns over the long term.

00:10:55:12 – 00:11:18:08
Kyle Pearce
And with our new budget, I’m not anticipating that our economy is going to be the one that’s going to be leading ahead of, say, the U.S. versus Canada or really leading many economies out there. So we’re going to talk a little bit today about S&P. We’re going to talk about the traditional sort of 6040 split on a portfolio like you’re today on sort of approach to retirement.

00:11:18:08 – 00:11:36:15
Kyle Pearce
Now, again, if you have a pension, you don’t even care about any of this stuff because you’re like, I’m pretty good, but maybe you have tax free savings, maybe you’ve put some into our spouse, or maybe you have an unregistered account as well that you’re looking to sort of upsize your returns a little bit and live a little bit more comfortably into retirement.

00:11:36:15 – 00:12:16:14
Kyle Pearce
So in this particular case, we’re going to take a $200,000 salary. Now, this could be one person. It could be one household. It’s really up to you. We’re just picking a number here and we’re going to be a little aggressive on how much we’re recommending that you actually invest. All right. Because as you’ll know from the pension episode, educators, for example, who we always call that sort of one of the gold standard pensions educators in as they work their way up the grid, they are paying about 12% of their salary, and that’s being matched by the employer or the government with another 12%.

00:12:16:14 – 00:12:36:15
Kyle Pearce
That’s like 24% going into this pension. So if I’m thinking I’m only going to save 10%, you might see advertise someplace, save pay yourself first, save 10%. We’re going to say that that’s going to leave you not feeling so happy in the long run, or at least it’s not going to make you feeling as comfortable as you probably want.

00:12:36:15 – 00:13:01:00
Kyle Pearce
So the number we’re using here today is we’re actually going to use 20%. However, John, you and I tend to contribute more to our investments. Now we’re more real estate. But again, we try to live our lifestyle in the way we choose, but we are also selective in the things we buy. So we’re going to assume here we’re taking 20% of this $200,000 income.

00:13:01:02 – 00:13:24:12
Kyle Pearce
All right. Now, again, the higher the better, of course, like anything, the higher the better. But in this case, we’re going to assume that’s about what’s that going to be, $40,000 in total. So you’ve got 200 coming in. You’ve got $40,000. Now, again, that would assume that this is going to be after tax dollars here. Okay. So we’re just going to use simple scenario.

00:13:24:12 – 00:13:57:15
Kyle Pearce
We’re not telling you 20 percents the number, I would say as much the highest percentage as possible is going to be the best number. Right. Of course, is investing more so that you don’t have to do more later. Right. You can invest or you can retire earlier. You can choose those things. But in this case, that’s going to leave us with that $40,000 now in a 6040 split that’s going to put $24,000 of that 40 going into equities and it’s going to leave the remaining 16,000 going into more of your bonds, fixed income side of the portfolio.

00:13:57:15 – 00:14:23:08
Kyle Pearce
Okay. So this is pretty typical, pretty standard textbook. We have an episode where we talk about what’s the best split, right? So Warren Buffett thinks 9010 is fine for life. Others say take a hundred and subtract your age and that gives you your equity bond split. But we’re going to use the 6040 because it’s the most common. And some would even argue that as you get closer retirement, it should even become more like 50, 50 or even less than 50% in equities.

00:14:23:08 – 00:14:55:02
Kyle Pearce
We don’t necessarily believe that. But what we want to talk to you about is just this idea of how equities and fixed income actually work, because they’re supposed to be uncorrelated, as we’ve discussed previously. But in reality, when things are bad, oftentimes they become more and more correlated, right? So especially in those black swan events, the ones that we’re really trying to protect ourselves from, we’re actually not seeing sort of the opposite happening.

00:14:55:02 – 00:15:07:01
Kyle Pearce
We’re not seeing equities go down in fixed income popping up immediately. Right? Oftentimes we see that they become quite correlated and you might see everything go down. But tell me about some nuance here, John. Well, I.

00:15:07:01 – 00:15:26:21
Jon Orr
Was just thinking is it makes sense, like to split your the whole point of the 6040 split in my mind is to safeguard on those events. Right. Like if all of a sudden the market does a downturn, it’s by a pullback, it’s doing a correction. We’ve got a good chunk of our assets in the bond which aren’t fluctuating as high as, say, the equities are going to be fluctuating.

00:15:26:21 – 00:15:44:04
Jon Orr
Since the whole reason we move from saying having high equity, like you said, is like you do the age subtraction method where by the time you’re a little older, you’re getting close to retirement, you don’t want that fluctuation, you want it more in a stable fixed income kind of set of assets in that bond market. So that makes sense to me.

00:15:44:04 – 00:16:07:02
Jon Orr
And if we have that split and we have that say downturn, then we’re safe. I feel safer now. I think you’re suggesting and saying is when we have a black swan event like we’re talking about what happened at COVID, if all of a sudden we have a huge pullback, a huge correction, maybe we’re on a recession and the market is going down, you’re saying that equities are fluctuating, they’re heading on the downward trend here.

00:16:07:02 – 00:16:25:09
Jon Orr
And then also bonds are going to be going down as well because this is a black swan event. We’ve got this event that’s kind of pulling everything down. And I think what I’m thinking about right now is the bonds are supposed to protect us so it doesn’t go down as much. But they’re going down some, They’re going down some.

00:16:25:09 – 00:16:47:10
Jon Orr
And I think the interesting idea, maybe the idea that’s maybe flawed in a way from our thinking and maybe maybe this is potentially why Warren saying 9010 as a rule is that your bonds aren’t in growth mode. This fixed income asset here is not in growth mode. So when the markets are on an upward trend, when they are in a bull run, your bonds are dragging you down a little bit.

00:16:47:10 – 00:17:04:09
Jon Orr
In a way, it’s not allowing you to grow as much as if you had a 9010 split and you were on a 6040 split. And if we have that downturn, it’s like, okay, well, they’re going down too, but they’re not going down as much. But it’s like, Well, what happens if we didn’t have the bond part and where we would have gained more than we lost?

00:17:04:11 – 00:17:17:23
Jon Orr
There’s an interesting idea right there to say why you might want to go 9010, but I think we’re not a 6040, but I think 9010 for us, too, in say, the stock market is tough when there are other methods to kind of protect yourself and also not have this drag on.

00:17:17:23 – 00:17:44:06
Kyle Pearce
What’s happening? I 100% agree when I look at that, when I see that, of course, in any market downturn, right. Regardless of what happens, whether they do come on, that correlation sort of gets closer together or not, is that at the end of the day, it’s markets will come back. But the challenge becomes is when you get to that place in your life where you start wanting to pull income from this money that you’re putting aside.

00:17:44:06 – 00:17:45:17
Kyle Pearce
Like, here’s the other interesting part.

00:17:45:17 – 00:17:51:14
Jon Orr
So retirement time, right? We’re not accumulating anymore. We’re now pulling from these investments to live our life.

00:17:51:14 – 00:18:12:17
Kyle Pearce
And people in general struggle to. You’ve spent all this time and effort and you’ve committed this capital that you’ve been earning to building up this stockpile. And I think a lot of times we lose sight of why we were doing it becomes a habit, which is good, but then it becomes you go, Wow, like, look at that. I’ve built up this little mountain of capital.

00:18:12:19 – 00:18:41:19
Kyle Pearce
But then people really struggle with actually starting to spend it right. But in reality, we only have so much time here on this planet. So the real question has to be is how do I ensure that? And when I say ensure, that’s probably the wrong word, how do I put myself in a better position? So like you’re saying, and like Warren Buffett would say, I would say staying more aggressive on the equity side makes sense when you have other buckets that you can pull to in those down years.

00:18:41:19 – 00:19:04:02
Kyle Pearce
And I think that’s one of the secret sauce ideas that we’re hoping to share and sprinkle with everybody here today is this idea that rather than say, especially early in the accumulation phase, in the accumulation phase, I don’t necessarily need my fixed income portfolio, that part of the portfolio to really be doing the thing because it doesn’t really matter to me right now.

00:19:04:04 – 00:19:29:10
Kyle Pearce
So I could be a little bit more growth focused, but there’s going to be a time later where I’m going to start using this money, be it retirement, be it. I want to take a one year off and go travel the world or I just want to work less. It’s totally up to you what you decide. But ultimately, at the end of the day, what we want to have is some flexibility that we can pull from different buckets depending on the situation in the market.

00:19:29:10 – 00:20:04:23
Kyle Pearce
So rather than me looking to say this retirement bucket and if the markets are down, be it the equity is be it fixed income, it doesn’t matter. Let’s say the average is a negative that year. I want to be able to look to other places to be able to not only see a positive happening and it can be a conservative positive happening, but I want to be able to use that money in those years so that those equities can return back to the way they were right to try to get back on track, recover from those losses.

00:20:04:23 – 00:20:21:18
Kyle Pearce
Because if I take a loss and then I take income, I’m making that loss worse in that given year. Right. So it’s like I took my principal, which we assume every year back at the beginning of each year. You’re like, well, that’s how much principal I have. I don’t care what it was last year or the year before that.

00:20:21:18 – 00:20:36:23
Kyle Pearce
It’s like, this is what I’ve got. I’m going to take X number of dollars out. It’s like I’m going to now have less principal, which means I would prefer a greater return so that I can either replace the money I’m taking or at least stay consistent.

00:20:37:00 – 00:20:54:24
Jon Orr
Totally, because it’s like, think about it this way. This is why those last years, those down years hurt more, especially like you’re saying, if you’re taking money out because the growth of returning to those same positions has to be massive. Let’s say we have a 50% downturn. All of a sudden you’ve lost 50% of the portfolio moving backward.

00:20:54:24 – 00:21:12:04
Jon Orr
You have to have 100% gain on the new money to get back to where you just were. Right. So it’s like when you think about it in the long term and in, let’s say the first year you retire, you start pulling money and it’s in a down year. It’s like, yeah, you’re pulling money that you’ve lost some money, now you’re pulling money.

00:21:12:04 – 00:21:29:11
Jon Orr
Now you have less money to still make up that, say, 100% gain to get back to where you were if you had that kind of 50% drop. So it hurts a lot more if you pull from that that bucket versus another bucket if you pull from the bond bucket, it’s maybe still down, but you’re still hurting that way.

00:21:29:11 – 00:21:45:18
Jon Orr
But you’re talking about let’s create a bucket that doesn’t have a downturn and it’s like, let’s pull from that bucket instead because it’s always on the up. It might be conservative, but it’s going up. Let’s pull from that bucket in place of pulling from the market bucket on those down year.

00:21:45:21 – 00:22:03:13
Kyle Pearce
Right, Right. And I’ll share the screen here. I’ve got two very you know, they’re general scenarios, general cases. But for those who are a little more visual and they want to see the numbers here, you know, up at the top, we’ve got our 24,000 each year going into equities. And again, we’re just talking index funds. We’re not promoting the idea of stock picking.

00:22:03:13 – 00:22:23:01
Kyle Pearce
Hey, if you like to do that rock and roll, just make sure that you’ve got your plan in place because, hey, guess what? Unless you’re a really good stock picker, the index might do better than what you’re up to. And then over here, I’ve got our fixed income bucket. So we’re using two average rates of return. On the equity side, I’m calling in the 8% on average.

00:22:23:01 – 00:22:39:23
Kyle Pearce
Some people might say you might be able to bump that up a little on average bonds, we have like three and a half percent ish. But again, we’re looking at average rates of return. And if we could guarantee that it’s 8% every year and three and a half percent every year, then there wouldn’t really be a question here.

00:22:39:23 – 00:23:04:15
Kyle Pearce
Like we just say, okay, this is what’s going to happen. That’s great. Now you’ve got a defined pension, which is awesome. You can punch in numbers here. I put in, Hey, what if I pull 60 out of this bucket and ten out of that bucket? This person’s 41. Oh, so am I. And is contributing this much to these two buckets over 15 years and plans to start pulling them in year 16, which puts that person at 57.

00:23:04:17 – 00:23:08:07
Kyle Pearce
And you could see, you know, these two buckets have accumulated quite nicely. Pretty good.

00:23:08:10 – 00:23:08:20
Jon Orr
Pretty good.

00:23:08:21 – 00:23:33:14
Kyle Pearce
Yeah. It’s like 725,000 in the equity bucket, 335 in the fixed income bucket. But again, we’re assuming that nothing bad has happened here. But when we look at, say, even just the S&P returns, for example, we could look at 1973. And if, you know, if you start off your retirement with a 17% loss, followed by a 29% loss, that’s going to be hard.

00:23:33:14 – 00:23:54:00
Kyle Pearce
That’s a tough one to come back from, even though in the third year there’s a 31% gain, you have not recouped those first two years that you have. So if you start taking income and you had those losses, you’re now going to need a much greater return in order to sort of repeat or replicate some of those pieces.

00:23:54:00 – 00:24:25:14
Kyle Pearce
Now, the term I’m going to use here is called sequence of returns. And this is the part that is really difficult for us to be able to plan in freely for any financial advisors out there. They can’t predict exactly what’s going to happen, but we can use probabilities and that Monte Carlo simulation approach will take every possible scenario based on all the historical data, based on whatever the benchmark is that you’re playing with, and it’ll kind of give you a chances of running out of money under certain circumstances.

00:24:25:14 – 00:24:53:19
Kyle Pearce
So, I mean, if your sequence of returns started like in 82, where you went for almost a decade of green, followed by one small red and then more green after it, you’re going to be off to the races. You probably have a ton of cash going on, but we don’t know what is going to happen. So really what we want to be able to do is we want to put ourselves in a scenario where how can we take advantage of something like this can be the S&P, it can be another index, it could be real estate.

00:24:53:19 – 00:25:12:02
Kyle Pearce
Like it really just depends on what you want to pick. But whatever that is, we just need to make sure and those who are looking on the screen, you can see the sequence of returns really matters. And if we knew when to put the money in and when not to put money in then or when to take it all out, then this would be an easy game.

00:25:12:02 – 00:25:33:23
Kyle Pearce
We just don’t have that. So imagine a world where we create a scenario where instead of dealing with the ups and downs, now the S&P is going to go way up and way down in some years and the income, fixed income bond market is going to go up some years and down some other years, and it’s going to be a lot tighter to the middle to zero.

00:25:34:00 – 00:26:00:24
Kyle Pearce
So that’s reducing some risk. But imagine if you could get like bond like returns or fixed income like returns and have that bucket there that’s basically accumulating with the option of accessing that capital in those down years. Right. Imagine that world where you could allow, let’s say in 1946 where we were down about 12%, the next year was at 0%.

00:26:00:24 – 00:26:26:07
Kyle Pearce
So maybe we still don’t pull from there. And then in 48, it was almost about a half percent down. But then we have three, four green years in a row and it’s like once we have those green years, we start pulling from that bucket again and stop pulling from this other bucket that’s waiting there consistently. And for those who did listen to some of those previous episodes, there is something we can do.

00:26:26:09 – 00:27:02:14
Kyle Pearce
There is instead of maybe taking those $16,000 and putting them in to your 40% fixed income bond like portion of your portfolio, you can allow some of the best bond managers in the world do this for you and also guarantee that it will not go down and it will not go backwards. It will only go up. And that is the insurance company in there participate ing whole life investment pool, because that investment pool is operated and it is grown much like a pension fund manages their pension.

00:27:02:16 – 00:27:33:08
Kyle Pearce
So imagine a world. We had an episode where we talked about recreating your pension using this one tool, and then we had this other world where we talked about, Hey, instead of maybe bonds and fixed income, maybe a policy takes its place. Imagine if you get kind of somewhere in the middle where you can still get massive upside from the equities market and then you sort of don’t worry so much about the fixed income bond part and whatever you were going to put into that portion, you start funding a policy.

00:27:33:08 – 00:28:01:23
Kyle Pearce
And in this case, I took the same 16,000 on the same 41 year old individual and funded it for 15 years and then stopped. And we’re actually at in this particular policies case, in this particular individual’s case, that bucket has grown to about 369,000, whereas that bond bucket was at 363,000. This bucket, it’s a little better. So we’re again, we’re not looking to like blow it out of the water here.

00:28:01:23 – 00:28:25:23
Kyle Pearce
But one thing I do know is that this bucket is here and it has other benefits. So it is tax free growth and you’re also getting a death benefit alongside it. So in year one, we added about $325,000 of death benefit. Not massive, but not that bad. My bond portfolio doesn’t do that for me. Right. I get the bonds and that’s it here.

00:28:25:23 – 00:28:31:09
Kyle Pearce
I’ve contributed a tiny bit and I get a big bit if I’m fortunately were to pass.

00:28:31:11 – 00:28:55:09
Jon Orr
Yeah. And what I love is and you know this from listening to our episodes on utilizing participating whole life policies in the past that in year ten, let’s say in your ten Kyle, you’ve got that bucket and it’s grown to $219,000. If all of a sudden you had a real estate opportunity to buy a piece of property or put a down payment down, you could take a loan out against that collateral.

00:28:55:09 – 00:29:12:00
Jon Orr
You don’t interrupt any of the growth on that bucket. The bucket still grows year to year, the same way as if you had not touched it and you get to say, go buy that property. And then let’s say a few years later, you refinance, you pay back that line. It is I said line of credit, but it’s like a line of credit.

00:29:12:00 – 00:29:31:07
Jon Orr
You pay back your policy loan and boom, you’re back on track and you now have a property that you don’t actually have any of your actual dollars into. And you can then, hey, at year 15, you’re back on track to say, I can start withdrawing from this. And what I love is that you don’t need to withdraw like it’s in this case, like in those bad years.

00:29:31:07 – 00:29:52:11
Jon Orr
That’s the nice part about this tool is if we have a bad year and we’re in the withdrawing stage of our retirement age or lifestyle, that if I decide that there’s a down year on the market, I don’t pull from the equities bucket, I go because of the reasons we said we go over to this new bucket and we pull from there, but we don’t pull from there because we don’t want to interrupt the growth.

00:29:52:13 – 00:30:08:11
Jon Orr
We actually just take a policy loan from there and then we pay. There’s going to be interest on that. But you know what? Here’s the thing that I like to think about is people have a hard time with like, wait a minute, I have to borrow that money. And then I say, wait a minute, I have to pay the interest on that.

00:30:08:13 – 00:30:30:12
Jon Orr
Well, you could pay the interest on that. But what’s happening, right? Like, think about it like this. If you withdraw in the other scenario, you take money from your bond account or your equity account, you’re not gaining the gain that year on that money. Right. So it’s like you’ve lost the potential gain and interest on the money that you’ve invested or you’re paying the interest like the interest is somewhere along the way.

00:30:30:13 – 00:30:47:24
Jon Orr
That’s the nature of the money market that we’re in, is that the interest is either your gaining or investment income or interest or you’re paying the interest. And in this case, if you borrow against this asset, you pay the interest, but just you’re factoring that in instead of set of loss. In one way, it’s like the way we’ve talked about it too.

00:30:48:00 – 00:31:05:17
Jon Orr
If you’re also when you’re pulling stage withdrawal stage, it’s possible because the huge flexibility of a policy, long as you don’t have to pay that back in year one, if you don’t want to, if you want to pay it back in three, year three, let accumulate. You know what? If you look at your numbers and you do and if you have, you know, I would recommend you talk to someone about this.

00:31:05:17 – 00:31:21:10
Jon Orr
But if you talk to your, say, wealth architect who set this up for you, they can look at the projections to go look at. You might not ever have to pay that interest back because when you die, that deathbed, if it’s going to pay it all off and leave you money for your family in your estate. So I like this approach.

00:31:21:10 – 00:31:37:18
Jon Orr
Cal It’s a huge secret sauce in thinking about like, you know, the typical standard. Let me go just make sure I have a good balanced portfolio and I’m going to balance between stocks and bonds. And now it’s like, wait a minute, I don’t even need to have bonds because I get the same benefit, the same growth benefit as bond.

00:31:37:18 – 00:31:44:16
Jon Orr
But if I use a policy and I have way more flexibility in the meantime and that thing’s going to grow, even if I take money out.

00:31:44:20 – 00:31:59:23
Kyle Pearce
I know I love that on the screen here. I’m just kind of goofing around as you’re talking because that’s exactly in my mind. Again, you get to decide how you utilize the tool, right? Like you, as you mentioned, you can take loans early and pay them back. If you want to buy real estate, you want to do other things.

00:32:00:00 – 00:32:26:18
Kyle Pearce
That’s great. But if we just pretend for a second that this policy is only to replace that portion of your portfolio and that’s part of your retirement plan and that’s it, I’m not going to touch it because I wasn’t going to touch the bonds and the fixed income until retirement. And you think about it rebalancing. So if three years in a row we have a read S&P 500, I might take, you know, in this case on the screen, I’m taking 78,000 from my policy each year.

00:32:26:18 – 00:32:45:01
Kyle Pearce
And it’s not from the policy. I’m getting a loan of that amount for three years and I just don’t touch my equities. And I let the equities start a ride. Maybe it was like maybe I do it for a fourth year because in the fourth year the equities market had its first good green year and you’re like, okay, great.

00:32:45:01 – 00:33:04:13
Kyle Pearce
I still don’t want to touch that because I’m trying to make up for that loss over there. It’s like rebalancing and I could choose if it makes sense, if there’s a bunch of green years in a row, I could choose to pay off that loan balance. Or if I don’t, as you mentioned, let’s pretend I did it for four years in a row and let’s say I had to do it again in five more years.

00:33:04:13 – 00:33:21:16
Kyle Pearce
I had to do it for two years in a row and then I had to do it, I don’t know, maybe one more year I had to do it like when I am 83. Now, mind you, we’re taking 78,000 here. And when I do that and I’m doing this over and over and over again, I’m taking a massive amount of that bucket.

00:33:21:21 – 00:33:42:02
Kyle Pearce
What I’m doing is I’m allowing my equities bucket to go to the moon. So it’s like you’re utilizing this other bucket here which was supposed to protect you. It still does. And I was able to allow my equities bucket to do its thing in the most efficient manner so that I’m not stunting its growth in a down year.

00:33:42:04 – 00:34:07:23
Kyle Pearce
And then I look down here and if I make it to age 100 or 99, in this case, I’m still without paying any of that loan off, I’m still going to leave $278,000 of tax free death benefit after that, loans paid off. And my according to this, S&P growth at a standard rate of about 8%, we’re looking at 3.7 million from that bucket over there as well.

00:34:08:03 – 00:34:29:23
Jon Orr
So huge when you were like, oh, I’m going to leave $200,000 to my family, like, hey, we left some. And every year you spent at least $78,000 to live. And it sounds pretty good, especially in those last 20 years. You’re like, Well, is it likely that you might spend 78,000? Maybe, Maybe. But then you’re saying, Oh, and we got 3 million over here.

00:34:30:02 – 00:34:36:00
Jon Orr
Yeah, because I didn’t touch that bucket for a long time. It makes a ton of sense. Secret sauce, folks.

00:34:36:00 – 00:34:52:04
Kyle Pearce
It is all about what makes sense. Now, we can get into the nuances, too. Like, let’s be honest, if all that equity money is taxable money, right? So if it’s equities and you’re paying capital gains and we know now capital gains inclusion rate is going to be going up from 50% to two thirds.

00:34:52:04 – 00:34:53:15
Jon Orr
If we didn’t even mention the.

00:34:53:15 – 00:35:18:07
Kyle Pearce
Tax free that stuff, we’ve got the tax free death benefit over there, which is great, super helpful. But even on the equity side is that in earlier years, if your equity portfolio is getting kind of ballooned out of control in a good way, that’s a good problem to have. Might make sense in certain years to take more income in order to chop down that loan a little bit more just because there’s no reason not to.

00:35:18:08 – 00:35:46:19
Kyle Pearce
Because, again, you have to picture it as one big bucket, but you’ve segmented it into two spots and you want to take from the bucket that makes sense at the time and use it as a tool to better your situation or your position. So for me, whether you’re a 9010 person, a 6040 person, if you’re a 5050 person, I don’t care what you are, you should at least be considering this as an option and determining whether there is a role there.

00:35:47:00 – 00:36:07:19
Kyle Pearce
And what is the role for your fixed income bond portion of your portfolio? If you’re not sure, then taking a deeper dives probably get fit. And I would be more than happy to do that with anyone who’s listening. If you want to go down the rabbit hole of your situation, whatever index funds you’ve got or mutual funds or whatever it is that you’re doing, let’s go down the rabbit hole and let’s get an understanding.

00:36:07:19 – 00:36:27:04
Kyle Pearce
So by no means are we saying that you want to do one or the other. We’re saying that whatever your split is, that there is an efficient way to do this and a way that can actually reduce and mitigate the risk even more. So while you to still maximize growth that you can get from the equity market.

00:36:27:06 – 00:36:44:13
Jon Orr
I love it. I think there’s a few secret sources here. I don’t think they even hidden. We said outright these buckets, I think make a load of difference in seeing the numbers. You know, I think we are big numbers, people. And if you’re listening right now and you’re like, man, I got lost in the numbers go and watch it on YouTube, go watch and rewatch that part.

00:36:44:13 – 00:37:01:21
Jon Orr
Because that part, seeing the numbers in that spreadsheet and seeing that when I pull from this bucket and I don’t pull from this bucket in, pulling from that bucket in a way where you’re borrowing, it’s not just tax free money. You didn’t have to pay tax on that way. If you pull from the other bucket, you’re going to pay tax because you’re going to pay tax on the gain that you had in that investment account.

00:37:01:21 – 00:37:17:04
Jon Orr
So it’s huge to kind of think about this. It’s and it’s huge to kind of like implement it. And I think the important part is what we said at the very top of the episode is that there are a lot of strategies out there. Pick one, pick one that you think is the most important for you. Stick with it.

00:37:17:06 – 00:37:30:00
Jon Orr
And I think this is a great long term secret sauce type of strategy that a lot of people aren’t using because they’re doing the 6040 split. But you could come out way ahead if you’re planning for the future this way.

00:37:30:02 – 00:37:59:04
Kyle Pearce
And the secret sauce said, I’m going to give we didn’t even talk to our incorporated business owners, investor friends. But if you are blowing up your wealth plan inside in a good way, blowing up meaning you want to scale up your net worth inside your corporate structure, I’m going to argue that there is a even greater reason why you might consider if you’re using this tool, you want to have a closer to 5050 split.

00:37:59:06 – 00:38:32:19
Kyle Pearce
And I would love to chat with more business owners about this. And the reason why is because that death benefit will pay out through your capital dividend account tax free your estate. So if that matters to you, then it makes more sense. And at the same time you’re actually incorporating more safety for yourself and when you think about the tax incentive of active income inside of a corporation, you could be buying the same policy that someone who’s in a 40% bracket is buying that policy.

00:38:32:19 – 00:39:11:03
Kyle Pearce
So when we looked at this example on the personal side, that person’s putting $16,000 of after tax income, meaning they had already paid 30, 40% taxes on a higher amount. And that’s what they’re left with as a business owner, those first 500 thousands of profit, you’re paying with 88 cent dollars. So you’re getting a super charged policy, same policy, but you get to pay with more of your money and less money has gone to tax and you get that beautiful death benefit piece that’s going to help allow you to take more capital out of the corporation without personal taxation.

00:39:11:08 – 00:39:47:15
Kyle Pearce
And of course, we do have some advanced strategies for those who do have a significant amount of retained earnings that we can assist you with as well. So that’s the secret sauce for our business owners. But again, regardless of who you are and where you are in this journey, there’s reasons why paying attention to some of these secret sources can put you in a position where you have more confidence going into that time freedom and allows you to have the flexible ity that you can deal with those market downturns so that you’re not in a panic and you don’t feel like many of those articles are signing, right?

00:39:47:15 – 00:40:13:24
Kyle Pearce
People feeling like they don’t have enough money to live the lifestyles that they want. So reach out to us over at Canadian well secrets dot com forward slash discovery and hop on a call It’s always free We use a free model which is all about just helping you get to the next step in your journey. And if we help you to do that, then there will be opportunities for us to, of course, assist you in that journey at a later time.

00:40:13:24 – 00:40:18:11
Kyle Pearce
So get on a call Canadian while secrets dot com forward slash discover.

00:40:18:13 – 00:40:36:03
Jon Orr
Hey, we encourage you to share this episode with someone you think will find value in it. So if you think of someone who’s thinking about retirement, think about planning for retirement because you’re doing that at any stage. Take a moment, hit the share button, grab that link, share it with them in a way that maybe you found this episode or you found the podcast.

00:40:36:05 – 00:40:54:12
Jon Orr
You could share it by texting a friend, you could share by email, you can put it on social media, Share this podcast, we put out a new secret sauce episode every single Wednesday, share it, and so that we can grow the podcast and help other wealthy entrepreneurs and business owners and people just like you plan for their wealth.

00:40:54:14 – 00:41:37:10
Jon Orr
All right, Canadian wealth, Secret seekers. See you next time. Just as a reminder of the content you heard here today is for informational purposes only, you should not go through any such information or other materials legal tax, investment, financial or other advice. Jon is a mortgage agent with Brick’s mortgage license number. m23006803. Kyle Pierce is a licensed life and accident and sickness insurance agent and VP of Corporate Wealth Management with the Pan Corp team that includes corporate advisors and Pan Financial.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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