Decumulation /de-cumulate-shun/

Noun:

  • Income streams for retirement
  • A holistic view of accumulated wealth
  • Tax efficiency

Verb:

A way to live your best life.

About decumulation

One of the most pressing issues today is a looming retirement crisis, driven by an ever-growing savings gap among house-rich/cash-poor seniors and an increasing life expectancy rate.

With an increasing number of baby boomers at risk of outliving their money, a major shift in focus from accumulation to decumulation of wealth (de-accumulation of wealth into a reliable income stream that will last throughout retirement) is required.

A fresh perspective

Our approach is simple: Consider all the assets in a portfolio, not just those with immediate liquidity. Equitable Bank offers innovative credit solutions that unlock real estate and cash surrender value equity that have traditionally been difficult or impractical to access.

For many, these assets represent a meaningful portion of their financial wealth, and to Equitable Bank, it only makes sense to make them a part of retirement planning.

Canadian retirees need safe and innovative solutions—solutions that access equity in low-risk, tax-efficient ways. Equitable Bank’s decumulation suite of solutions offers just that.

  •  
    Extend retirement income at lower cost of borrowing than traditional unsecured credit options
  •  
    Unlock cash from illiquid assets to improve quality of life, or provide next-gen support now
  •  
    Optimize tax efficiency through asset-based funding, deferring withdrawals from registered products or other income sources
  •  
    Realize longest-term goals, no matter your client’s wealth status

Accumulation and Decumulation of Wealth

Accumulation and Decumulation of Wealth chart

Other statistics:

  • 65+ age group expected to reach 22% of Canadian population by 20251
  • 74% of current pre-retirees have less than $100,000 in financial wealth2
  • A 2017 Allianz Life study found that 63% of those in or approaching retirement are more afraid of running out of money than they are of dying
  • 19% of Canadian seniors aged 65 and over are carrying a mortgage

Decumulation Product Suite

Reverse Mortgage

A reverse mortgage is a mortgage loan that is secured against the value of the borrower’s home. Unlike a traditional mortgage, no ongoing payments are required and interest capitalizes until the mortgage becomes due. Available in ON, AB, BC, and QC, and to those 55 years of age or older.

Reverse Mortgage Case Study

What your client’s Equitable Bank Reverse Mortgage could look like

Below are scenarios of how your client may decide to use their money over the span of 20 years. These numbers are based on an initial home value of $500,000 with an interest rate of 4.99%.

Initial advance

  • One-time advance of $100,000
  • At Year 10 $671,958 Home Value
$508,256
Remaining Equity
$100,000
Mortgage Principal
$63,702
Interest

Single Advances

  • Initial advance of $25,000 and 3 single advances of $25,000 at Year 5, 10, and 15
  • At Year 10 $671,958 Home Value
$574,046
Remaining Equity
$75,000
Mortgage Principal
$22,912
Interest

Recurring Advances

  • Initial advance of $25,000 and $7,500 annually for 10 years
  • At Year 10 $671,958 Home Value
$536,023
Remaining Equity
$100,000
Mortgage Principal
$35,935
Interest
Please note that these charts and figures are for illustrative purposes only. The actual remaining equity of your client’s home at the end of 20 years will depend on several factors, including the increase in the value of the home, changes in interest rates, the amount borrowed, the amount of any prepayments and applicable fees or charges.

CSV FLEX Line of Credit

The CSV FLEX Line of Credit is a revolving line of credit secured against the cash surrender value of whole life insurance policies. Since the facility is structured as a revolving line of credit, no principal payments are required and interest is allowed to capitalize in perpetuity (provided the LTV remains below 95%). The credit limit is determined based on the projected growth of the policy, and therefore no financial underwriting is performed on the borrower.

CSV Case Study

Enjoying retirement

Jill’s a 73-year-old retiree. She’s financially comfortable, but feels she’d be happier if she could increase her monthly spending. She decides to obtain an Equitable Bank CSV FLEX LOC to supplement her retirement income, so she can enjoy the lifestyle she wants, while still providing for her family in the future. By taking advantage of the interest capitalization option, she doesn’t have to worry about ongoing payments3.

Illustration

Policy CSV at LOC approval: $300,000

Credit limit:

$215,000

Interest rate:

CSV Prime + 1.25%

Payments:

No ongoing payments. Interest is capitalized with the full amount of the outstanding balance on the LOC deducted from the death benefit.

Result

Jill draws $1,000 from her CSV LOC every month until she’s 90 years old. She doesn’t make any principal or interest payments and allows the interest to capitalize onto the line of credit.

Throughout the life of the LOC, the cash surrender value of her whole life insurance policy grows at the pace anticipated by her policy inforce illustration. It maintains a steady buffer of value over the outstanding loan balance. When the death benefit is paid out 27 years later, ~$330,000 is passed on to her beneficiaries.

CSV case study chart CSV case study chart legend

Secure Savings

Equitable Bank offers a wide range of deposit products, including short-term, long-term, and cashable GICs, and tax-free savings accounts (TFSAs). Our high interest savings account (HISA) is also available from selected authorized investment advisors through the FundSERV network.

Making it easy for everyone

As Canada’s Challenger Bank™, we have big-picture ideas, flexible boutique service, and creative credit solutions.

We’re a true asset-based lender, supported by a team of experts—resulting in simple and streamlined application, adjudication, and underwriting processes.

Equitable’s decumulation strategy promotes comfort and confidence for you and your clients, with access to niche expertise, practical tools, collaboration, minimal administration, and dedicated support when and where you need it.