Will an insured retirement plan save you on taxes?

Here’s why you should consider other tax efficient strategies

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From the April 2016 issue of the magazine.

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Q: At 60, I’m in the home stretch for retirement. I’m considering an insured retirement plan as a way to add another tax-preferred source of income. What should I look out for? —Scott Windsor, Toronto

A: I love a good “cost-benefit” question. But you should know that I give a lot of weight to simplicity, so a strategy that uses insurance for something other than risk management rarely scores well in my books. The big question: Are the tax savings worth the fees and the cost of the insurance? Jason Heath, a Toronto fee-for-service financial planner at Objective Financial Partners says, “insurance isn’t always a clear winner, and because you’re giving your money to an insurance company to invest you’re giving up flexibility.” Plus, if you don’t actually need the coverage having it “attached to an investment may be a waste,” he says. Instead, consider other tax efficient strategies such as buying swap-based or corporate-class ETFs, or growth stocks that don’t pay dividends so your return is all deferred capital gains. Heath adds a caution: “Insurance policies pay big commissions to agents up front, so get input from an objective third party like a financial planner or an accountant.”

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