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annuities

9K views 22 replies 17 participants last post by  olivaw 
#1 ·
i got some quotes but when i reminded them i needed the indexed one and what was the inflation limit.
all i got was in an email was
"maybe give me a call – as the short answer is yes it is – but done via what we call a “prescribed annuity” which is more tax favorable – and addresses your question – best to chat live – email will miss out on some key points."
mealy mouthed?

is there a good website for annuities info?
thanks
 
#8 ·
Annuities are an insurance product that gives protection against outliving your money (longevity insurance). If you are not worried about outliving your money you don't need an annuity. IMO the following people don't need annuities:
  • Wealthy people that have enough funds they can never envision outliving their money even under the worst economic conditions.
  • Lower income people for whom (not for who :)) govt pensions (CPP/OAS/GIS) provide all their non-discretionary expenses and their savings are for discretionary expenses only.
  • People that have good, well funded DB pensions (especially indexed) that cover all their expenses, typically govt employees or public service union members.
None of the above people have to worry about outliving their money.

People that should consider annuities are the in-between wealth people that depend on their savings for non-discretionary expenses. An annuity can be used to build a layer on top of CPP/OAS, DB pension money etc so all the retiree's non-discretionary expenses are covered for life. Another benefit is it removes some of the risk of mismanaging your money if age related dementia sets in.

Need to find that elusive balance between guaranteed income from annuities vs. keeping your own funds invested. I plan on considering it around age 70-75.

Jim Otar's book Unveiling the Retirement Myth has extensive information on annuities, unfortunately it is a bit hard to find.
 
#5 ·
A 'prescribed ' annuity is one where the the ratio of taxable income to non-taxable income is the same for the life of the annuity.
The taxable amount is fairly low but has recently increased. Annuities outside of RRSP are considered tax advantaged.

Interest rates have been quite low for a long time and may well continue to be in the future. This works against the annuitant
as his monthly payment will be correspondingly low.

Your longevity expectations are very important. The longer you live the better. If you do not think you will live a long time,do not get an annuity.

I do not know if an indexed annuity is easily available in Canada. For sure it is in the US.

There are different varieties. I am familiar with the kind that are outside the RRSP.
A single life no guarantee is the simplest. It is for one person.If this person dies the day after buying the annuity
he will receive no monthly payment.The payments for this type are the highest.

The guaranteed type provide for a payment to the estate for a certain number of years.

There are also spousal annuities. After one person dies, the spouse will receive the annuity until the end of her/his life.

There is also the question of at what age one should annuitize. The older, the higher the monthly payout
 
#19 ·
Glad you found it helpful.

Couple more quick comments. Shop carefully. As others have said, agents will push variable annuities that track stock indexes... these tend to be very lucrative for the agent and full of fine print that in many cases are best avoided. I was referring to simple annuities where the insurance company takes a lump sum and commits to paying a fixed monthly payment for life, optionally with a survivor benefit. These are sometimes known as a SPIA (Single Premium Immediate Annuity) although that may be a term that is more common in the USA. With annuities you lose control of your money in return for guaranteed lifetime income... make sure you can live with that.
 
#16 ·
That's an American blog, and presumably talking about some sort of variable or equity annuity, which I believe are more common down there than in Canada. A vanilla fixed annuity takes an initial payment, and pays a defined income stream, but the risk and profit between the two belong to the annuity issuer and their mortality guesses. They will set the rates in their favour, and may be paying the originating agent something from their end, but the concept of an "average annual fee" being sliced off the top of annual returns of a portfolio as in a variable annuity don't really apply.

As mentioned, if one is lucky enough to already have a lot of annuity-like income (CPP, other work pensions, OAS, etc) then including annuities may not be necessary. But if one just has an investment portfolio, turning some of that into guaranteed income without the worries of providing a steady cash flow in the face of market gyrations and other adverse conditions can be useful.
 
#17 ·
One potential use I've seen is to help bridge the gap for those dreaming of living on dividend income while also filling in for the "fixed income" component.

Say you have $1,000,000 and you want $50K (on top of any government pensions) per year in retirement at age 65 while still preserving some capital. If your portfolio is going to yield 3.5% in dividends, it's going to fall short. But if you take half of it and buy an annuity which has an effective yield of 6.5%, you now get $32,500 from the annuity and your remaining portfolio can generate dividends of $17,500 while letting you preserve your remaining capital.

Those numbers were somewhat arbitrary to make the example work by the way (before anyone argues with me over the yields ;))
 
#20 · (Edited)
Annuities can be advantageous for some. Milveskys book Pensionize your Nest Egg provides some good examples.

We have looked into annuities. Not for us at the moment. Perhaps later. But we do not care about management fees. We only care about how much guaranteed dollars we would get each month. Yes, there is an implicit ROI and management costs built into that. I sometimes look at the Hughes trustco site to see what the competitve rates are.

Read an article that suggested one way to overcome an objection. Buy term life insurance. Buy the annuity. You could win here IF the comparison holding the money in a GIC. There are tax advantages to this. There is potential that your net after tax cash flow could be higher and you still have whatever life insurance policy amount you select at time of death.

http://business.financialpost.com/p...h/preserving-income-through-insured-annuities
 
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