Episode 136: A Costly Canadian Retirement Planning Myth & How To Avoid It

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Are traditional Canadian retirement planning strategies (RRSP, TFSA, RIF, ect) setting you up for success—or failure? What if the research shows that strategy isn’t enough—and that a smarter, more resilient asset mix could ensure a stable, worry-free retirement?

Many investors rely on the classic stock-and-bond investment portfolio, believing it’s the safest way to ensure a stable retirement. However, market volatility, inflation, and economic downturns can leave even the most disciplined savers vulnerable. When the market crashes, emotions take over, and many investors make costly mistakes—selling low, hesitating to buy, or failing to adapt to changing financial conditions.

But what if you could create a Canadian retirement plan that minimizes risk while optimizing returns? This episode explores Ernst & Young’s research on integrating insurance products into retirement planning and why the traditional “buy term and invest the rest” strategy may not be the most effective path to financial security.

You’ll learn: 

• Discover why permanent life insurance can act as a volatility buffer, protecting your investments from market downturns.
• Learn how combining high early cash value whole life insurance with investments can outperform traditional stock-and-bond-only portfolios.
• Explore strategies to maximize retirement income while preserving a greater financial legacy for your heirs.

Tune in now to uncover the research-backed strategies that can help you build a more resilient retirement plan—one that stands strong no matter what the markets do.

Description:

Are you relying on the traditional mix of stocks and bonds to secure your financial future? What if the research shows that strategy isn’t enough—and that a smarter, more resilient asset mix could ensure a stable, worry-free retirement?

Resources:

• • How Life Insurers Can Provide Differentiated Retirement Benefits [Ernst & Young Article]
  • Benefits of Integrating Life Insurance Products Into a Retirement Plan [Ernst & Young Study]
  • Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
  • Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
  • 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!
  • Dig into our Ultimate Investment Book List
  • 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. 
    

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.

Traditional retirement planning often relies on RRSPs, TFSAs, and RIFs, but market volatility and economic downturns can put your financial freedom at risk. This episode explores how integrating insurance products like permanent life insurance and annuities into your asset allocation can provide asset protection, wealth optimization, and long-term financial security. Whether you’re focused on net worth growth, passive income, or early retirement, we break down research-backed investment strategies that balance rate of return with risk management. Learn how business owners can leverage compound interest, tax implications, and capital gains to build true wealth, and why understanding your time horizon is crucial for financial independence. Don’t miss this deep dive into personal finance, financial education, and the strategies that can help you achieve the F.I.R.E. (Financial Independence, Retire Early) lifestyle!

Transcript:

Retirement planning is broken, or at least the way we’ve been taught to think about it is, our neighbors in the US are facing a staggering $240 trillion retirement savings gap by 2030, and relying on traditional stock and bond investment strategies may not be the best approach to securing your financial freedom. So what’s the smarter way forward? Well, in today’s episode, we’ll break down the research back.

asset mix that delivers the most favorable outcomes reveal how you can adjust your asset allocation to not only reach your retirement goals while minimizing volatility. And most importantly, we’re going to explore how Canadians can take control of their wealth building journey to ensure a stable, reliable retirement without letting your portfolio and more importantly, your emotions to get crushed.

when markets perform poorly. Let’s dive in. All right, my friends, it’s Kyle here for this secret sauce episode here on a Friday. And I’m excited to dig into some research here with you today. Now, if you’re with me on YouTube, you will see on the screen, I’m on the Ernst & Young website. Now, for those who don’t,

or haven’t heard of Ernst & Young, basically, they are a consulting tax strategy law, you know, big, big firm across North America. And they released some research on optimizing retirement portfolios. So we’re going to be digging into something that they had shared recently. And it’s actually research based and it’s called benefits of integrating insurance products into a retirement plan. Now,

you know, for those who are sticking around to try to figure out like how like, what’s this going to be all about and so forth, you know, I’m letting the cat out of the bag through the title of this report. But basically, it really does a great job highlighting why insurance products in a retirement plan have their place. And, you know, they have a great summary. It’s an article that summarizes the full report, I encourage you to read both. But today, we’re going to dig in.

we’re going to look at a couple of the things that they had found. they were looking at a few different things. So first off, they were looking at five different strategies that they wanted to compare. So I’m going to blow this up on the screen. You’re going to see the five up on the screen. The first and the easiest, I think, that we all know is this investment only strategy, right? So this is where you’re using

a mix of stocks and bonds here. It’ll say that they’re assuming they’re following the Morningstar’s moderate glide path asset allocation strategy. However, they did look at some various asset locations through this this research. The second one was using term life insurance plus investment. So some people say, listen, just like by term invest the difference and you know, and everything will be fine. Now, no

I should also mention before we go on, like when we’re talking about insurance strategies, we’re usually looking at using the insurance while we’re in the accumulation phase to help us accumulate more assets. So we use a lot of leverage strategies, whether it is you as a T for income earner, and you’re looking to, you know, build an opportunity fund or, you know, to optimize your investments, like that’s what we’re doing while we’re working and accumulating. However,

we do look to our policies later in life to help us on the back end so that we can smooth our retirement income over time. None of that is being considered in this research. Like we’re just looking like apples to apples here of like where you might be putting your money and not actually using leverage against any of these insurance policies and so forth in order to reinvest. So some might find it interesting that the term life and investment approach

was actually not coming in very strong here. So a lot of people say buy term, invest the difference. That’s sort of like a Dave Ramsey strategy. A lot of people, it’s like just cancel the term when you’re done. For those who ever, ever gotten to the end of a 10-year or a 20-year term policy for life insurance, you would see that the insurance premiums jump quite significantly. So what they’ve done is they’ve given you a nice smooth number for 10 or 20 years. It’s kind of like having a nice low interest rate on your mortgage.

And then suddenly it’s like the rug gets pulled from under you and boom, the numbers just popped right through the roof. So those who are renewing their mortgages over this last year probably felt the same way. Well, here with term insurance, we know that’s coming. So you getting a nice cheap amount for a specific period of time with the idea that you’ll probably cancel. it doesn’t really make much sense to keep term life insurance going. So it’s not surprising to me that using term life plus the investment strategy isn’t coming in.

pretty strong. Now, where things are very interesting is the three other strategies. You’ll notice up on the screen, they say PLI, that’s for permanent life insurance. And the specific type of insurance is high early cash value, whole life insurance. That is what they’re using. They’re not using any other type of permanent insurance in this study. The other acronym you see here is a deferred indexed annuity.

They also have IIP, which is essentially where your income could increase over time through that deferred indexed annuity investment. And basically what they did is they went through each of these and they tried to figure out like, where do we see benefits? And something you’re gonna note as you go down here, they made five, sorry, six different notes here.

and I have them up on the screen for those on YouTube here. The first one here was that the permanent life insurance plus investment strategy outperforms investment only and term life and investment strategies. So basically what it’s saying is that you actually tend to get, it says, tend to get superior returns over fixed income in long run scenarios while the term premium acts as a drag on portfolio performance.

So permanent life insurance loans act as a buffer against market volatility as well improving returns since investors do not have to sell and realize losses on investment. So this speaks to some of what we’ve shared in the past that when you have the flexibility of a policy that only goes up, it’s not going to go down. So when markets are not doing well, your insurance policy is going to continue steady Freddy.

moving along its course, its trajectory. So it provides an opportunity for you to essentially use a policy loan in order to be able to supplement your income in a year where you don’t want to be selling other assets that are down. The same is true for bonds. So even though bonds are tend, you know, tend to be that thing that’s supposed to offset your stock portfolio or your equity portion of your portfolio,

The problem is there are some conditions specifically when GDP is decelerating and inflation is decelerating when those two things are happening in market environments. It creates such an environment that where both go down right and this is usually where we see most market crashes happening when markets crash everything is going down. Well insurance does not go down so it creates that volatility buffer.

that you might be wanting to use or look at. So cash wedges and so forth. This is a really, really helpful strategy. they also say, like, you can even supercharge this further by having a permanent insurance policy investments and also having a deferred indexed annuity. So what they’re saying is, listen, if you have your equity portfolio,

at some point in the future, having some form of annuity, which is also an insurance product, can be really helpful for your portfolio. I tend to look at permanent insurance as sort of like my annuity that I get to control, plus I get a payout at the end, or at least my estate does, whereas an annuity oftentimes, you know, if you do go early, you’re sort of losing out on some of the future benefit, right? The same’s true for a pension, right? A pension’s just an annuity.

You’re just in it with your employer or the government if it’s a government pension, right? So they’re basically, once you pass and once your spouse passes, there’s no big lump sum being provided to your family, right? Which is why we tend to lean more on permanent insurance. But they are saying there’s some benefit here in doing so. Now, something that’s interesting, they say that integrated strategies, including using permanent insurance in your investment allocation,

are more efficient than investment only strategies. And they said, for example, a strategy allocating 30 % of annual savings to permanent life insurance and 30 % of assets at age 55 to say an annuity with increased income potential produced 5 % higher retirement income and is 19 % more legacy.

than the investment only strategy. And that’s because of the actual death benefit on the back end. Now, when we look at this, they also talked about investors with higher risk appetites. And I think that’s people who listen to this podcast, to be honest, where usually, you know, whenever someone from the podcast reaches out for a discovery call, I’m talking to people who are like going down the rabbit hole here. You’re not just doing typically a set and forget sort of strategy. You’re trying to find ways to optimize. So

This is for you. It said we performed the same exercise described above except that we calculated the retirement income and legacy values based on the amount that the investor can sustain in over 75 % of the market return scenarios, reflecting that expectations of an investor with higher risk and that income and legacy do not improve as much yet as.

So what it says here is, you know, we performed the same exercise as above, except we calculated income for retirement and legacy values based on the amount the investor can sustain in over 75 % of market return scenarios. And basically they go on to say that, you know, if you have a higher risk tolerance, you’re still doing better by having some of this volatility protection through a permanent life insurance policy. So

There’s a lot of information that’s that’s found through this report. They are essentially saying that doing a mix is going to be better than having just a typical invest only strategy or an investment only strategy and equities and bonds. And that is something that is consistent with what we believe. Now, something that they don’t go into in this research that I think is really important. We talk about it on the podcast a lot is the human element of it.

right? The toughest part for us as humans is doing the right thing, especially when things aren’t going well. In your mind, you say that you’re going to do certain things in certain market environments, right? So for example, when the market is down, what do we say you’re supposed to do? You’re supposed to buy when the market’s down, but the vast majority of people don’t, right? We get nervous, we get scared.

when the market’s down 30%, you could expect it to go down another 10 or 20%. So you might hold off. So what ends up happening is we do the opposite. Now, the sad reality is on the way down, oftentimes, when we’ve already had some of the most big drops are the most significant drops, we tend to sell when we’re supposed to actually be buying. Now, some people are good at sort of ignoring what’s happening, or they don’t.

open their portfolio and that is completely fine. If you have a good asset allocation, keep doing that. That is fantastic. But having some sort of buffer there for volatility is really important because it allows you to draw income at times where things are very scary, where things are, you know, stressful, and it allows you to sort of get yourself out of that.

sort of, you know, initial negative mindset that you might be in where you might actually make poor choices. So this is something that is really important for us and our clients. We recognize I know even though I am very, very knowledgeable, I’ve gone down the rabbit holes, I’ve looked at all kinds of research and I understand what I should do in certain times. We know that when we are in high stress situations, we do not make the right choices, right?

You know, and I’ll just give an analogy here as a parent, you know, I always think to myself, I need to be more patient. And you know, when it when one of my children says or does something, if I’m already stressed, if I’m in a high stress scenario for running out the door, we’re late, or, you know, if anything like that is going on, we often do things that we wish we didn’t do. And the same is true, specifically when it comes to finances and our retirement portfolio. So for me,

being that some people would call me riskier than they are in the fact that I used leverage to buy real estate along the way. use leverage for the Smith maneuver. I use leverage for other leveraged insurance strategies. I do all of these different things. The fact of the matter is I still get very emotional. I still get very, you know, squirmy when things aren’t going well. Why?

because we always wonder what if there’s something happening that we’re not aware of or that we wish we knew ahead of time. So we tend to go to the sideline. So rather than doing that, start thinking about what are you going to use in order to create yourself a volatility buffer? We see the research from Ernst and Young here. I will put it in the show notes so that you can link to it and give it a good read and actually see how it might apply to you.

But if you either have a portion of your portfolio that is in fixed income products like bonds, or if it’s in some sort of safe type of ETF that is supposed to replicate bonds, you might want to consider looking at the permanent insurance route for that portion of your portfolio. If you’re an incorporated business owner,

you get two different uses for the same tool where you can use this as the fixed income portion of a portfolio inside of your corporate structure. You also get to purchase it for $0.88 as you’ve only paid 12.2 % if you’re here in Ontario on those dollars in order to purchase that policy. But you also have some pretty amazing leverage strategies that you can utilize to limit the amount of personal taxation you take on.

as well as that wonderful, wonderful death benefit that pays out tax incentivized through the capital dividend account to the shareholders of the business once you move along. So all in all, something worth considering, think about the volatility factor in your world and how things might feel if and when the next market dip comes. It’s not an if, it’s a when the next market dip comes and hopefully,

If you’re interested in exploring this further, you’ll reach out to us over at Canadianwealthsecrets.com forward slash discovery where we can take you down the rabbit hole, run you some numbers and actually see if a permanent insurance strategy is a good fit for you and your family. All right, my friends, that’s it for me. Business owners, if you haven’t yet head on over to Canadianwealthsecrets.com forward slash masterclass so you can get into your business owners masterclass.

to determine how you can most efficiently handle all of those unlocked or locked in retained earnings that you might have in your corporate structure. All right, my friends, we will see you next time and take care. And just as a reminder, this is not investment advice. This content is for information purpose only, and you should not construe any such information as legal tax investment, financial or other advice. And as a reminder,

Kyle is a licensed life and accident and sickness insurance agent. That’s right, I can help you with your insurance strategies, including leveraged insurance strategies. And I’m also the 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.

OPTIMIZE YOUR FINANCIAL FUTURE