RRSPs with Segregated Funds
We all know that a Registered Retirement Savings Plan (RRSP) is an effective and practical way to save money. RRSPs are ideal for those who are looking to ensure that they have adequate savings with which to retire, as well as those who are intent on growing a nest egg to benefit their family in the event of their untimely death. Together with a financial professional, a plan can be put into place, taking into account the individual’s capacity to save, as well as their future financial goals, providing financial peace of mind. RRSPs, however, are an investment, and as such, they are susceptible to unpredictable market forces. One may save with the discipline necessary to meet their set financial goals, only to see their efforts undone by a declining market. Through no fault of their own, they will find themselves with a diminished level of savings, which is inadequate to meet their needs.
An effective way to protect against such an outcome is to utilize segregated funds in your RRSP portfolio. A segregated fund is a type of mutual fund that guarantees its value, even in the wake of declining market conditions. Essentially, segregated funds are protected by insurance, ensuring that your principle RRSP investment is never eroded by declining markets.
It’s important to note that with segregated funds, if your investment grows, the proceeds of that growth will be yours. Those who choose this type of protection are free to gain on their investments, but protected from loss.
Of course, given that this is a valuable form of insurance, segregated funds are subject to insurance fees. Additionally, your investment will be locked in for a ten-year period, although, in the event of death, your investment will be freed from this time commitment. At the conclusion of this time frame, the investor may choose to re-commit their investment, thereby extending their insurance, or exit the arrangement, freeing up their savings.
A further benefit to segregated funds is their protection from creditors. In the event of bankruptcy, these funds are shielded, ensuring that your financial problems will not be compounded by disappearing savings.
Several years back, tragedy struck a client of Ken’s during an international hiking adventure. Needless to say, the family was grief-stricken. The individual had an RRSP savings plan in place, but the investment had suffered losses due to the global financial crisis of 2008. Fortunately, he had protected his investment through segregated funds, ensuring that his dependents would receive the full value of his savings. This individual’s prudent decision spared his family from incurring those significant losses and served to ease their financial burden in the wake of such a tragedy.
Obviously, segregated funds are an effective way of removing a huge X-factor from your RRSP plan. Given that retirement savings are a cornerstone to a solid financial plan, being cautious with these funds is only a matter of practicality and good sense. For those who don’t wish to gamble with their financial future, segregated funds are an essential component of their saving strategy.
Ken Steele, CLU, CH.F.C
Insurance and Financial Advisor
Suite 230, 1210 – 8 Street SW