A Savings Plan for Men and Women

KENNETH R. WILSON December 1 1933

A Savings Plan for Men and Women

KENNETH R. WILSON December 1 1933

A Savings Plan for Men and Women



Hundrodi of thoui.'inds of dollars arr loot annually In Canada through cartlets Investment. Fraudulent and wort hie«* »ecurities are doing ronstantly poured on to tho market to trap the unwary. A general obaervance of thl» »imple maxim will astiot In the reduction and elimination of this economic waste—


DON'T BE BROKE at sixty-five.

Not a very polite admonition but one that bristles with good advice. And it is advice that has been heard with increasing prominence in the past few years.

Prior to 1929 very few of us worried about what would happen when we got to be sixty-five years old. Most of us were too busy making “paper” money out of stocks. If we did look ahead ten, fifteen or twenty years, it was probably to visualize what a : nice time we would have living on our stock market profits.

But much has happened since 1929 to change all that. Many who are up in years are worried about what will happen when they cross the ‘‘sixty-live” line. Those who are younger and this applies equally to women as to men are looking out for a really “safe” investment or savings plan that will he pnx>f against stock market holocausts. A few who still have some money to invest are equally concerned about finding an absolutely plan of making financial provision for old age.

Mtxlent life insurance believes it has a plan ideally suited to these problems. The plan in its present form was developed about ten years ago by one of the largest Canadian companies. 'This company devised what was called Pension Investment Bond to meet the savings and investment needs of young, unmarried business women. Since then, practically all companies have j intnxluced the idea in some form or another although it is calk'd by many difj ferent names, such as Pension or Retirement Bond. Retirement Income Bond. Retirement or iVferred Annuity and so forth.

The technical or actuarial name for the plan is Deferred Annuity an age-old actuarial device whereby thrifty persons make regular deposits during the days when their : earning power is good, and in return are ! guaranteed a specific sum each year as long as they live, commencing at any desired age between fifty and seventy. What modem life insurance practice has done is to dress this simple idea in many attractive forms and to give it a flexibility which makes it much more attractive than the old and rather rigid annuity contract.

Take, for example, a young business woman thirty years old. By ‘‘watching the pennies” she finds no difliculty in saving $250 a year. But she is faced with the constantly recurring problem of how to invest it profitably. Even if she is one of the I few who can achieve success in this respect over the next twenty-live years she will still have a mighty big problem on her hands, for with the $12,500 she has accumulated (at live [XT cent compound interest) she will lx* a mark for every salesman and promoter. Instead of enjoying to the full her wellearned “holiday,” she will be rightfully concerned as to how her savings may best j lx* safeguarded during the remainder of her ’ lifetime. What can a life insurance company do for this young woman?

hirst of all, it will collect her $250 regularly each year. Usually this is done once a year, but if desired she may make her deposits quarterly or even monthly.

Assuming these payments are made regularly, the company will guarantee that when she wishes to retire she will receive a regular income as long as she lives.

That is the essence of this plan -a definite savings deposit during working years and in return the gilt-edged assurance of a guaranteed monthly income for life.

Even as it stands, this plan has unquestioned advantages, for it is a contract hacked by the institution of life insurance one ol the very few institutions whose promises to pay have been consistently worth one hundred cents on the dollar in Canada in spite of the ravages of wars, epidemics and depressions.

Meeting New Problems

BUT THIRTY years is a long span of time and many men and women are loath to enter into a contract of this sort unless provision is made for the many contingencies that may arise in the meantime. Thus sickness, unemployment, total disability or an entirely new set of financial and personal problems may arise which diange the picture materially.

What life companies believe is that they can meet any or all of these problems by the use of a more flexible contract than the old deferred annuity. If cash is needed in. say, live, ten or twenty years, guaranteed cash values are provided throughout the entire lite of the contract. These values increase regularly from year to year, and when retirement takes place there is the option of taking the whole sum in cash rather than in the form of monthly income. During the period when the savings deposits are being made, a death benefit can be obtained which is at least equal to all the moneys deposited. Money may also be borrowed on the contract just as in the case of a regular j life insurance policy. If desired, provision j can also be made so that in the event of death shortly after retirement, the company will return at least the amount that has been paid by way of deposits.

Another important provision found in newer contracts is one whereby the age of retirement need not be selected when the contract is made. This is left optional and leaves the purchaser free to retire at any time between the ages of fifty to seventy. Even if the age of sixty were chosen for retirement at the time the contract was made, this could be later altered if sickness or other considerations made it advisable.

If the purchaser becomes totally disabled for any reason, all companies will provide that the contract continue without the payment of any further premiums or savings deposits. Some companies will also provide for the payment of additional monthly income during the period of disability, and until the regular monthly income as outlined in the contract becomes payable. For the regular savings contract itself, no medical examination or evidence of insurability is required, but where this disability provision is desired the same procedure is followed as in an ordinary life insurance policy.

This type of savings contract has proved to be so well suited to present day needs that it is now being sold in considerable volume to men as well as women. It is of particular interest to three groups of men: First, those who carry adequate insurance: second, bachelors: third, rich men who use this method to guarantee an independent income in their later years. The latter group usually pay all the premiums in advance, and find this a carefree, water-tight investment. A young man of thirty-three, for example, can, by the payment now of about $21,000, guarantee himself $200 a month (plus profits), commencing at the age of fifty and continuing for the rest of his life. Such a payment is free from income tax, and the income he will receive at the age of fifty is exempt under present federal laws up to $1,200 annually from income tax.

For those with adequate insurance, the plan is particularly suited to the needs of professional men: in fact, all those who have a high earning power over a comparatively brief number of years. Since 1929 thousands of professional men have found their life savings and investments cut to a fraction of what they were, and a guaranteed plan such as this has very real attraction. Younger men, by adopting this plan now. are hoping to avoid many of the pitfalls into which their elders inadvertently stumbled.

This naturally brings up the question of how such a plan stands up as an investment. Most, if not all, life insurance companies will oiler this contract on either a "participating” or “non-participating” basis. If the former is chosen, it means that certain values and income payments are guaranteed in the contract and that to these will be added whatever surplus profits the company may earn and distribute in the meantime. A “non-par” contract guarantees higher initial values and income payments but there is no sharing in future profits.

High Interest Rates

TO ESTIMATE the investment return on a participating contract is difficult, if not impossible. During the past twenty or twenty-five years successful life companies in Canada have been able to earn very high interest rates on their investments and have paid proportionately high dividends to policyholders. This has raised the average return on participating contracts to a high level. For the future the probability is that high returns will not be possible, but even if this proves to be true it is probable that the return on insurance contracts will continue to be at least as high, if not slightly higher, than the corresponding return on high-grade Canadian government bonds.

Here, however, is a rough but fairly accurate rule-of-thumb guide to the investment merit of a participating pension bond as far as guaranteed values are concerned. For leading companies the cash surrender value at the end of twenty, twenty-five or thirty years is equivalent to a return on your money of about three per cent eomjxninded annually less one annual premium. This is the value that is guaranteed, and to it will be added surplus profits as distributed, and which will probably bring the net return to the purchaser up to four or even live per cent depending on individual circumstances.

For non-participating policies where the values are fixed and guaranteed, the return on most contracts figures out to about four ix*r cent on the amount invested less one annual premium or deposit.

This is a favorable return when everything is considered. It means that for the amount of an annual deposit say. $250 - the investor can purchase an assured four per cent return on his money during the period of saving and a guaranteed income | from this money as long as he lives. This | is a very reasonable price to pay for the type of financial security that life insurance institutions in this country can offer.

Another factor that makes these contracts particularly attractive at the present time is that the rates currently quoted by most i of the leading life companies were planned several years ago and are based on the asj sumption of higher interest earnings than ] are now indicated for the future. Already j leading life insurance companies have j raised their rates for pure annuities in I Canada because it was felt that the income j return guaranteed to purchasers was higher than companies can hope to earn in the next decade or so. By the same token, it is highly probable that before long similar increases will take place in the price of pension and retirement plans. Indeed, one leading company has already indicated that it plans just such a step and its higher rates may be already in force by the time this article appears.

Thrifty people who are interested in a ¡ systematic savings plan for the purpose of j accumulating an income to be available when they wish to retire, will be well advised to investigate these plans. In addition, if the contract is made shortly, they may be able to take advantage of exceptionally favorable rates which may not be seen again for another decade or more. For in all these policies the values and benefits are guaranteed and will be paid irrespective of what future changes may be made in rates and contracts.