[...] Variation. If the bond investor is planning to use income from RRBs for his monthly expenses, then he would be better off with a sufficient emergency cushion to ride out the fluctuations in [...]

Problem is, it simply isn’t possible for somebody in their 30s or 40s to get a good estimate of their day-to-day expenses when they’re in their late 50s or 60s and preparing to retire. For younger people, a percentage of pre-retirement income is as good as a guess as any.

1. living too long (longevity)
2. dying too soon (mortality)
3. getting sick (morbidity)
4. getting disabled (disability)

A fifth risk often gets overlooked: overpaying taxes through ignorance. Few realize how effective life insurance can be when properly structured.

Do you anyone who falls in the 4 risks listed above?

Right now you are focusing on mutual funds. If you get disabled or get sick how does the mutual fund help? What about poor returns when you need the money the most? If you get sick will some one continue to put money in your mutual fund account? What about fees? Are they guaranteed? Or returns are they guaranteed?

This is not to say mutual funds are bad, just limited. I am talking about risk management.

The main issue with universal life insurance is that you have to pay for the cost of permanent insurance. The benefit for ULs can be larger for GIC/bond investors in order to avoid tax every year, but again you can get almost all the benefits without the large insurance cost.

Ed

You need to read “How Annuities work” and “Using Universal life insurance with Corporations”. Life insurance gives more options. If cash flow is very tight then permanent insurance may not work, just like buying RRSPs. Corporate class mutual funds (which I own) are not guaranteed and is like having only one tool… which is not only the answer.

If you are in Oakville, I will see if I can get the book for for you.

cheers,

Brian

Permanent life insurance is not competitive, except for people that already have a permanent insurance need. That means they need to know now that they will need life insurance for their entire life.

For nearly everybody, life insurance is only necessary for income replacement, so you can make sure those financially dependent on you will be okay if something should happen to you.

Very few people actually have a permanent life insurance need, so why pay the full cost of it, just so you can get tax deferral on investment income? There are other ways to get a tax deferral, such as corporate class mutual funds.

Ed

A great book to read is LEAP by Robert Castiglione. If you or your readers want a copy I will try to get one.

One of the topics is (yes, it was written in the US) is 401K’s & RRSPs. all they are doing is deferring taxes into the future. So CRA, IRS wants your money plus interest! In Canada, if you do a good job you your OAS clawed back and the age amount (age 65 see line 303 of your tax return).

What has been taught is markets always go up. Like real esate or the stock market.

Currently there seems to be a trend to go with TFSA vs RRSPs, if you buy into in this, then looking at permanent life insurance (structured right) is a better step!

With permanent life insurance their is almost not limit (allowed by CRA) to have all the same features of the TFSA. In fact if you borrow from your policy to say buy a car and pay yourself back you get all your money plus interest…try that with a TFSA!

[...] Million Dollar Journey: Another Canadian blogger, the frugal trader gives solid investment and finance advice.  Recent post: Early Retirement Series [...]

[...] Million Dollar Journey: Another Canadian blogger, the frugal trader gives solid investment and finance advice.  Recent post: Early Retirement Series [...]

[...] Retiring Early – Part 1 (The Expenses): Learn how to budget for your retirement by reading this blog. [...]

[...] my Retiring Early Series, I determined that we would need around $45,000 / year to live comfortably (in todays dollars). If [...]

[...] written about early retirement before and even about the safe 4% withdrawal rule before which this book touches on.  The [...]

I’ve gone through this a few times, and here is what I came up with for our situation in retirement. (Of course, I went through what we no longer would have to direct money to just like you did – the remainder is to follow.)

In 2008 dollars on an annual basis….

Property Tax – $4,500 (what we currently pay – perhaps we will move to a smaller home or in a less expensive community)

Auto (down to 1 vehicle):
Gas – $2,400
Insurance – $1,200
Maintenance – $1,200
New car fund – $6,000

Home
Insurance – $500
Upkeep/Big Fix Fund – $1,800

Utilities

Internet / Cable – $1,800
Cell phone – $600 (never owned my cell -always got it through work!)
Water Tank – $250
Gas/Water/Elec – $2,800

Vacation – $6,000
Gifts – $2,000
Food – $3,500
Entertainment – $1,800
Clothes – $1,500
Charity – $500

Now, you put down gym membership. That made me think of golfing – something I’d love to do when I retire since I only get out 1 or 2 times per year now.

I’d say there are some big differences between our two lists – food (both groceries and eating out) and miscellaneous spending. (The new car fund was discussed earlier in the follow up comments. If we retire when I’d like, we would be halfway through the life of our car at that point giving us another 5 years to save up for the next one.)

I hope I’m being realistic with my numbers – it will be easier once the kids have grown up and we can see what it is like with just the two of us.

[...] will require and work backwards from there.  If you haven't already, check out my "early retirement series".  I did a number of calculations there that help determine the numbers required to [...]

[...] That is, when you retire, you'll have fewer expenses to contend with.  My early retirement series is based on this conclusion [...]