Defined benefit pension plan (DBPP)
Disability Insurance
Long-Term Care Insurance
They have something in common over the last decade. Can you guess? They are all disappearing! Where did they go, and should we bring these policies back?
Pensions
Pensions are not likely to come back since there are major costs associated with those benefits. Defined Benefit Pension Plans (DBPP) provide a guaranteed retirement income and do not depend on the success of the stock market. If the benefit pool decreases below the promised benefit amount at retirement, the employer must top up the difference. This can be costly, the primary reason we do not see them around as much.
Defined Contribution Pension Plans (DCPP) are more readily available than DBPP and can be a good option to save for retirement. The employee is responsible for their investment decisions and the stock market directly impacts your pension. Although there are some drawbacks, there are employer matching opportunities for contribution within DCPP and you choose the investments within the plan.
If a pension plan is not available, you have your RRSP and TFSA where you can contribute.
RRSPs provide a tax deduction when you deposit and taxed when withdrawn – typically at a lower rate in retirement. Similar to the TFSA, the investments grow in value within the account. The money in your TFSA can be withdrawn tax-free. The First Time Home Buyers Savings Account will open in 2023, which is another tool to save for the big things in life.
Individual Pension Plans (IPPs) can provide more contribution room than the RRSP and can be beneficial for individuals over 40 and business owners. Watch this for more information on IPPs.
Insurance
Manulife Insurance will be exiting the Disability Insurance Market in September 2022. There are still some insurers providing disability coverage, but this is a growing trend in the insurance market. We have seen this with Long Term Care Coverage (LTC) which can be difficult to purchase for yourself. Read more about long-term care and if it's worth it.
Long-term care is not a cost we think about. To protect our income during our working years and have money in retirement, LTC is an important factor in your financial plans. Talk about your income plans during each life stage with your financial advisor.
Critical Illness coverage is still being offered by insurers and has a return of premium. RBC insurance has the option to convert the Critical illness policy into Long Term Coverage, but cannot you buy a standalone LTC policy. As Disability and Critical Illness Insurance are still available, review the coverage you will need before it isn’t available.
Although some of what we have known is disappearing, it is not entirely gone. There are alternatives to grow your retirement income and protect your income in your working earnings through living insurance benefits, RRSPs, and TFSAs. Review your coverage through your employer and individually to make sure you and your family are protected long before you retire.