Chiropractic + Naturopathic Doctor

Financial Adjustments

By Paul Philip CFP CLU   

Features Business Finance

This edition of Financial Adjustments is by Paul Philip.

This edition of Financial Adjustments is by Paul Philip.

In 2003 I attended a financial conference in the United States that changed the way I think about financial planning and building wealth. As I listened to the financial strategies being presented that week something clicked. Could the people presenting really be on to something? As they proceeded to unveil what they called an innovative wealth replacement strategy, I became intrigued. As I began to understand fully what was being proposed, I realized the impact this concept could have on my own personal financial situation, and also that of my clients.


Upon returning from that conference I found myself spending many more hours trying to understand why this wealth-building approach was so powerful and different from anything else I had learned. It was certainly contrary to the traditional plain vanilla advice provided by most financial institutions and investment companies.
To my surprise and good fortune, I learned a life-changing wealth strategy that has since benefited my own family – increasing my overall wealth and future retirement income by more than 35 per cent – and many of my clients and friends. I made a change to my financial plan that will:

  • Protect my investment portfolio from inevitable stock market dives and volatility such as we just experienced in the financial crisis of 2008.
  • Allow me to spend my investment principal in retirement instead of living off only interest, as is most common for many in their retirement years. This strategy enables me to safely enjoy a higher income while I am around to benefit from it.
  • Increase my retirement savings simultaneously.
  • Erase the fear that many of us have, that my money will run out before I die; and
  • Provide a sizeable, tax-free, guaranteed death benefit to pass along to my wife and children and ultimately my children’s children.

This wealth replacement strategy is actually a very creative use of an old, conservative financial vehicle, the original purpose of which was to protect, financially, from premature death, act as income replacement for a surviving spouse, provide instant liquidity to pay for debt and taxes and fund children’s educations, buy/sell agreements and other important obligations.

The concept centres around guaranteed permanent life insurance. When integrated within a retirement plan, this effective tool will serve as a wealth replacement strategy that will provide me with three key benefits while I am alive: flexibility, financial freedom and peace of mind. Prior to hearing about this innovative strategy utilizing permanent insurance, a common insurance strategy was to “buy term and invest the difference.” However, drawing from several years of experience in the field, I have seen firsthand how mediocre, at best, the results of this concept actually are. The reason for this mediocrity is that most people don’t invest the difference – they spend it. (Anyone who actually did “invest the difference” in the last 10 years probably wishes they hadn’t, after 2008 happened.) The biggest challenge with term insurance, however, is that the policy itself usually expires or is left to lapse, due to very high costs as one gets older, leaving no benefit whatsoever. Statistics show that less than two per cent of all term insurance policies sold ever pay a death benefit.
Before we take a further look at this concept, consider these current statistics:

The population of Canadians over age 65 is expected to double by 2030. This is certain to put pressure on governments to raise taxes and limit benefits as costs for health care continue to skyrocket.

The second fastest growing age group in Canada is the elderly, people over age 80. The number of Canadian centenarians has increased by over 50 per cent since 1996. This clearly shows we are living longer – and makes running out of money a major concern for retirees;

Many Canadian seniors are living with disabilities, largely due to heart disease, arthritis and other chronic and debilitating conditions. Many will need long-term care or assisted living, draining retirement income substantially;

Add to that the volatility of the future stock market and interest rates, inflation threats, the global financial impact of war, ever-increasing taxes, especially for higher net worth individuals, and the often unforeseen maintenance expenses for future vehicles, homes and other necessary items;

The bottom line is that we are all facing many challenges in the future that we will have to deal with. Those of us who prepare properly and effectively will weather the storm and be able get the most out of what life brings.

Now, back to my own personal situation – here is what I did.

When I learned about this wealth strategy, I purchased a guaranteed permanent life insurance policy equal to my economic life value. In my case, that was a multiple of my income in insurance benefit. Previously, I would reinvest the returns on my investment portfolio each year. Now, rather than pay for this policy completely out-of-pocket, I take part of my investment portfolio return each year to help pay for the policy. This lowers my out-of-pocket cost and has the effect of keeping my “wealth in motion.” As a result, I now have a guaranteed tax sheltered cash value asset with a guaranteed permanent death benefit. The net effect is my wife will get over $3 million upon my death, which gives me “a permission slip” at retirement to choose one or all of the investment alternatives discussed below.
Under most retirement plans, we grow our assets as much as we can until retirement. At the end of our work life, we depend on our portfolio to generate an income. Traditional wisdom suggests you not spend more than four per cent of your portfolio each year in retirement for fear of running out of money, a common concern for most retirees. However, once you have a guaranteed death benefit, you can choose other investment options, such as the following, which will increase your retirement income significantly.

(These alternatives are now part of my own retirement strategy, which I will use when I begin to live off my assets.)

Spend your principal. The most obvious option is to spend down your principal over time, giving you a much higher income to enjoy. The guaranteed death benefit acts as “asset insurance” and gives you the “permission slip” to spend your portfolio because the death benefit replaces the money you spend. If you have a $1-million guaranteed policy, you can spend $1 million of other assets, and upon your death your spouse would have it completely replaced by the life insurance proceeds. The tax savings alone on this strategy are significant.

Buy an annuity. Between the ages of 65 and 70 you could, for instance, invest $1 million in an annuity, which when annuitized, will pay out between $80,000-$90,000 annually, for as long as you live. This bets that you’ll live longer than the 11 years or so it would take to recoup your entire investment. However, you can’t really lose because if you die earlier, the $1-million death benefit kicks in for your spouse or beneficiary. 

Take advantage of tax-free real estate equity. My personal favourite, this feature allows you to take out the considerable equity built up in your home or other properties, completely tax free to spend and enjoy in retirement, and you never have to move or sell the home. Most of us will have significant value built up in our real estate by the time we retire and the property(or properties) will be mortgage free. Financial institutions have no problem establishing a line of credit against a mortgage-free property. The concept here is to supplement your other retirement strategies by slowly spending the tax-free equity in your home(s) via a line of credit. No real estate fees, no worries about selling your home to generate income in retirement and needing another place to live, just tax-free income. If the strategy is executed properly, 15 to 20 years of additional retirement income can be generated tax free. We will all die someday and, if you have purchased a permanent life insurance policy, the tax-free death benefit is used to pay off the line of credit, leaving the home completely debt free and your spouse in a position to repeat the process again if they choose. Wow!

There are several additional advantages to the strategies I have touched on, including being able to pass on an estate effectively and efficiently to your loved ones or favourite charity.

Midway through my career I realized there had to be a better way.  Financial institutions build financial products intended to protect, store, and grow our money. However, contrary to the commercials we all see, it is not the product that makes us financially successful, it is the strategies we use through our lives that make the difference.
Think of it like the game of golf. The key to improving your golf game does not lie in buying the latest set of golf clubs (“financial products”). Improving your golf game lies in improving your swing and management of the golf course (“strategy”).

I must admit that since introduced to this wealth replacement strategy and others, my new professional mission is to spread the word. We need a plan that does not lock us out of our wealth for fear of running out of money. People like me who have adopted this strategy now have permission in life to stop worrying about how they are going to live in retirement. I sincerely believe that during our lifetime a truly successful financial plan should allow us to be able to use and enjoy our wealth for the benefit of not only ourselves, but others and society as a whole. With well thought out planning it really is possible to dream, and dream big. That’s something we never hear on BNN or read in the financial section of our national newspaper.

Paul Philip, CFP, CLU and Nancy Philip, CFP, CLU  are a dynamic sibling team who have been advising hundreds of chiropractors across Canada since 1992.  Their firm, Financial Wealth Builders, is located in Toronto, Ontario.  To learn more about building your wealth, visit their website at or contact Paul or Nancy at 416-497-0008.

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