Episode 114: Beyond RRSPs: How One Family Turned $6000/year into a Lifetime Renewable Asset

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How a Canadian family turned $6,000 a year into a lifelong safety net.

Are you ready to uncover how Canadian income tax strategies and smart investment planning can create a legacy while fueling your financial growth?

In the complex landscape of Canadian income tax and wealth management, many individuals and entrepreneurs struggle to find the right balance between optimizing their investments and securing their future. This episode unpacks a real-life case study of a listener who wanted to diversify their portfolio, manage tax liabilities, and leave a meaningful legacy for their family—without creating a silver spoon scenario.

Whether you’re an investor, entrepreneur, or someone seeking smart strategies for wealth management, this discussion sheds light on how permanent insurance policies can play a dual role in tax-efficient investment strategies and long-term financial planning. From understanding policy funding flexibility to exploring leverage opportunities, we guide you through actionable insights tailored for Canadians looking to maximize their financial potential.

• Gain valuable insights into Canadian income tax strategies and how they intersect with smart investment planning.
• Explore flexible options for permanent insurance policies that align with your entrepreneurial goals or personal wealth management needs.
• Discover how to create a tax-efficient financial plan that supports both current investments and future legacy planning.

Don’t miss this episode—unlock practical strategies for optimizing investments, managing Canadian income tax, and building wealth. Visit CanadianWealthSecrets.com to listen now and take control of your financial future!

Resources:

• 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 cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Are you ready to optimize your investments, manage Canadian income tax, and build a lasting legacy? In this episode, we explore a real-life case study showcasing smart investment strategies, flexible permanent insurance options, and wealth management insights tailored for entrepreneurs and investors. Discover how to balance current growth with future security while leveraging tax-efficient tools to maximize your financial potential. Listen now at CanadianWealthSecrets.com and take the first step toward financial freedom!

Transcript:

Hey, hey, Canadian wealth secret seekers. Welcome to another Friday secret sauce episode. And today we’re going to continue with another case study here for you. We’ve got a listener who actually reached out to us through one of our clients. So was a referral who was interested in digging into diversifying their investments and having a review of what they have going on.

And today in our episode, we’re going to highlight another case where there’s a scenario where the permanent insurance policy may be a good fit. So let’s dig in here. We’ve got a, once again, a listener who is about just about 40 years old, turning 40 this year, and says, thanks for all the great information and that they are T4 employees, he and his spouse.

They have two children, seven and three, and they wanted to see how they could diversify what they have going on to see if this is a good fit and also consider leaving a bit of a legacy for their two children. However, they were clear to mention they’re not looking for any sort of silver spoon situation. So we’re not talking about, you know, just making it an easy life by any means, but rather to help their children understand the value of hard work, but also at the same time be able to leave something

behind. So let’s dig in here. basically this individual is actually in a border city. So we’re here in Windsor. They’re in this local area and this individual works in the United States. So they’ve got the RRSP thing going on here in Canada. They’ve got a tax free savings account going on, RESPs, and because he’s in the US, he’s got a 401k going on. Okay. So again, nothing sort of, you know,

no issues around that or anything like that. And they’re just looking to diversify a little bit. And we chatted briefly about the idea of participating whole life insurance. They wanted a better understanding of how it works and what it might look like in their world. As a starter, they were looking to contribute about $6,000 a year.

That’s about $500 per month into this policy. So we designed them a policy that could accept up to 6,000 a year, which left them with a minimum contribution amount of about $2,300 a year. Okay. So we’re only looking at a minimum of a couple hundred dollars a month, all the way up to a maximum of about a thousand dollars a month or sorry, $500 a month here. That’s $6,000 a year. So

Some questions though came back and I want to address them because there’s a lot of people that struggle with this. This idea, they’re wondering, it’s a permanent insurance policy and typically the way we set them up traditionally is through what we call a life pay option. There is the opportunity to set up a policy where it’s 10 pay, 20 pay or what they call a life pay. With all of these options, there are opportunities to do what they call an offset, which is turn the premium off

early, meaning you stop funding this policy earlier on in the process. That’s exactly why we tend to lean on a life pay over say a 10 pay or a 20 pay except when there’s a specific scenario where it does truly make sense to go 10 or 20 pay. So this individual is looking at a life pay and they’re wondering they’re saying, do I actually have to pay this thing for life? What if they’re about 40 now? What if they want to retire at 55 and they don’t want to pay premium?

Is there an option to only pay for 10 or 15 years? And they also threw in this idea of maybe having a goal on death benefit of this policy. So they were saying a death benefit of close to $200,000. Now, the other piece that they were looking into, they were saying they feel like they have enough term insurance or they have enough death benefit coverage through work. So they’re not looking to add what we call a term rider on this policy.

However, I’ll argue that in some cases it can make sense because it’ll actually increase the amount of optional paid up additions that you can add in. So in some cases it makes sense to add a term rider. However, it’s not a necessity by any means. Now, there are some other questions that I’m gonna come to afterwards, but I wanna address this one first around how we can pay the policy. So what I’m gonna do is I’m actually gonna bring up on YouTube, I’m gonna bring on the screen.

the policy that I ran for this individual, a male who is 40 or turning 40 just I think next month or so. And we’re gonna look at this policy and it is the same policy. We’re gonna look at different scenarios and see how these scenarios might play out based on how we can illustrate based on the current annual dividend. So if we look at this thing, you can see on the screen again, that minimum amount that they can fund is about 22 or $2,300 per year.

up to a maximum of $6,000. Now what we’ve done in this particular scenario is we’re actually assuming that they’re gonna pay $6,000 for the rest of this individual’s life. So from age 40 to age 100 is what this is assuming here. And what you can see is three different things that are impacted by that. We have the annual dividend based on the current dividend scale. We have the total cash value.

and we have the total death benefit at the end of each of these years from now he’s looking at the end of year one, the end of year two and so forth. And you’ll see in year one, by the end of year one, that $6,000 premium is going to mean about $125,000 total death benefit and about a $5,000 cash value just north of $5,000.

And you’ll note that every year as we start funding this thing, $6,000 each and every year, that the cash value will increase. We’re gonna hit that break even point as we typically do with this style of policy, the way we design it at about year five. So he’s at $30,170 of cash value. That death benefit has grown to $181,000 and it will only increase from there. So as you’ll see this policy as they fund $6,000 each and every year,

they see their cash value continuing to increase. They also see their death benefit increasing, but that means that by year 10, the death benefits at 255, they’ve already gone above that goal of $200,000 and their cash values at $72,000. And that continues to grow from there as well. Why I’m sharing this, even though they might not have plans to continue contributing past age 50 or maybe age 55 is because even if

we put in say in year 11, we put 6,000 in cash premium, we could pull likely much more than 6,000 against this policy as an opportunity bucket or an opportunity fund all the way through. And essentially you’ll notice at about 95, they’ll run in some problems trying to pull $10,000 out. So if they put $6,000 in, they could pull out.

$8000 it looks like fairly easily from age 51 all the way to age 100. So why I share that is this idea that if we do continue to pay policy premiums, the longer we choose to pay policy premiums, the more money we can actually leverage against that policy. So it’s like this idea or this philosophy of printing money, right? So if I’m able to put six in, I can get eight back. So imagine if I have $6000 sitting here,

and I fund my policy and then out the other end, I actually just borrow eight. I basically turned 6,000 into $8,000 by continuing to fund the policy, right? So just something worth noting. But I did want to show with the exact same policy we can offset after I say any number of years, it’s gonna have to be after at least year five. And typically we aim for at least year 10, but

Here I’m showing what does it look like if they were to offset after 15 years. So now that’s at age 55 for this individual. So he’s funded this thing, he’s funded 90,000 total into this policy. By year 15, the cash value is at about 125 and the death benefit is above that $200,000 goal of 335. And you’ll notice.

Again, cash value and the death benefit are going to continue growing from there. So even though they don’t put any money in age 56 onward, by age 70, that $90,000 of premium turned into about $253,000 of cash value and about $424,000 of death benefit. And of course it continues to grow from there. Now, if we offset after 10 years, again, same policy.

different scenarios. So we’re just looking at what if, what if, what if we’re just changing when they turn the premium off, which is again, what we call the offset. You’ll see after 10 years here that we get to the same place we did in all three other scenarios by year 10, we get to that $72,000, we get to about 255 in death benefit, but then you’ll see something else starts happening here. You’ll notice that we turned off the premium and therefore

the actual cash value will continue to grow. However, the death benefit will kind of stall out for a couple of years at about that 255 level. And then by year 15, you’ll notice it’ll start to grow again. And that’s basically just the dividend trying to essentially fund the minimum base premium, that $2,300. You’ll see that by about year 13 in this case.

It’ll take between year 12 and 13 for that dividend to be able to fully fund the minimum. you’ll notice the death benefit was sort of stalling out there at about 255, but then it will continue to grow from there. And by age 70, there’s 300,000, so still more than that goal. All the way to age 90, there’s about half a million. This is really important, because that 200,000 you’re thinking about today,

Also with inflation is not gonna be worth as much or as valuable as you might think it will be 30, 40 years down the road. So that’s a really important thing for you to be thinking about. if 200,000 is the goal, then offsetting after 10 years with this specific policy would be not a bad move. And you now have this additional bucket growing that I like to consider to be more of my fixed income type.

part of my portfolio, noting that as you get closer to retirement, people tend to want to at least increase their more, less, we’ll call it risk off type assets. And this would be a very, very good risk off type asset for that portion of your portfolio. Now out of curiosity, the same policy as of today’s dividend rate looks like you can offset as early as year five. Again, not my favorite move to do.

But for this individual, if you look here, you’ll see that the death benefit gets to 181 by year five. And then you’re gonna notice it decreases for a number of years afterwards. why that is is because we’re actually cashing in some death benefit to help with the dividend to pay the minimum guaranteed premium of $2,300. So you’ll notice that it sort of goes down and it dips all the way down to about

$145,000 in about age 60 to 65, but then you’ll notice it starts increasing again. So by that point, you’ve noticed the dividend has now been able to start fully covering the base premium, that minimum premium amount. And therefore, that death benefit will start increasing again. By age 80, there’ll be $172 or $73,000 of death benefit.

You’ll note though the entire time the cash value was continuing to grow that will never go down. Once it’s assigned, that cash value can only go up from there. So that’s something nice to note. So for their specific case, if we offset after seven years, you’ll see that by year seven, you’ll be getting to a place where there’s $210,000 of death benefit, which is the goal they were after. You’ve got about $45,000 of cash value and

you’ll notice that there will be that little dip that we were talking about because of the dividend needing to fully fund the minimum base premium. And you’ll see that eventually it dips down just below 200,000 for a number of years before it starts increasing again at age 63. If they live an average age of about 85, he’ll have $303,000 of death benefit with 245,000 in cash value.

And if they live all the way to a hundred, they’ll be just shy of half a million dollars of death benefit, which is equivalent to the cash value of $459,000 and change. So in this particular case, we’ve taken one policy and we’ve actually looked at five different variations of how it could be funded for how long and what the actual net benefit will be to the actual policy holder. And

The one question that I have for this particular individual is to start thinking about that idea of leaving something because I heard two different things going on here. If you’re planning to leave something, the question is, what is that something and what are you hoping it will look like and sound like? having $200,000 can be very helpful as a death benefit down the road, but also think about the capital gains taxes that you might be.

bringing on if you have unregistered buckets, if you have other assets that are going to be taxed down the road. And then finally, think about what are you going to need and want in terms of spending? One thing I know for certain is that quite a few individuals get into a place where they have, let’s say an RRSP, which will eventually convert into a RIF and

they’ll slowly drain these buckets down over time. And the unfortunate part is if you don’t live a long life, there might be a significant amount of money left in those buckets, which will be taxed at a very high, or not an interest rate, but a tax rate down the road. having a policy as a place where you can not only help from a legacy standpoint could be helpful, but it can also help to cover some of that taxation.

that you may unfortunately realize if, let’s say, you live a shorter than expected length of time on this earth. So these are really important pieces. And the last part he asks about is, how do I access this cash later? And you’ll notice that through our show, our podcast, we’re often talking about leverage strategies. Leverage does require interest to be paid. Typically, if you’re right from or borrowing right from the insurer,

And if you’re using an insurer, that’s a mutual company, like for example, equitable life here in Ontario, they actually try to set their borrowing rates similar to the dividend scale. So that basically you have your asset growing and the actual dividend pool isn’t suffering by them giving you money as a loan. So that’s a really important thing to think about is, is how am going to utilize this tool down the road for my lifestyle? And for us, it’s through leverage strategies.

If we actually withdraw cash value, there is a chance anything above the cost basis, the adjusted cost basis is going to essentially be taxable, right? So that’s a problem unless it’s paid out through the death benefit. And then finally, he’s asking about fees. There are fees, there is management fee, all of those things are going on. But when you look at illustrations, just like we did here, those are already included. So we’re looking at the net result.

after all of those fees are taking place. If I pay all of my premiums upfront, there are no more additional fees. However, there will be additional fees if let’s say I pick a monthly option or if let’s say I pay the base premium on the anniversary date and I choose to spend the extra paid up additions throughout the rest of the year, there will be a little bit of an additional fee on top of that. So that’s really important to note as well. However,

When we’re looking at these illustrations, assuming that the full premiums paid on the anniversary date, you’re seeing everything net of all the costs in the background. All right, so that’s a really important thing to think about. Like we’re not gonna be taking anything off of this afterwards. It’s already baked in and it’s all happening in the background. So hopefully that’s really helpful when it comes to the ideas of fees and all of these MERs and so forth that’s going on.

that’s already being taken care of before you see that illustration. So after hearing this episode, the secret sauce episode, my question for you and the listeners is, think about what is it that you need in your world now and where should your additional funding go towards? Whether it’s an investment, what kind of investment buckets should you be filling up? Have you already been taken…

taking advantage of those tax free buckets or those tax deferred buckets like RSPs or the tax free savings account. And now you’re looking to grow other assets that will result in capital gains. If that’s the case, then you may want to start looking at a high cash value policy, just like we explored here today in order to create an opportunity bucket or what we call a pass through structure.

by putting money through the policy, you’re not only helping yourself to deal with any future taxation you’re going to create through purchasing of additional unregistered assets, but you’re also going to be creating a nice stable fixed income like asset in just the policy of in and of itself. So if you’re interested in digging in and having us look at your scenario, make sure you reach out to Canadian wealth secrets.com forward slash discovery and

We’ll set up a call to have a conversation, look at what’s going on in your world, and determine whether now is the right time you might want to explore a policy that’s gonna be permanently with you for the remainder of your life. All right, my friends, take care, and we’ll see you in the next episode.

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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