# Need some advice on best way to invest proceeds from sale of house



## carverman (Nov 8, 2010)

Hello forum friends,

I have a declining health issue since 2005, and although I have managed to live in my own home (no mortgage), my health is declining steadily, primarily it's my mobility (extreme leg weakness and lack of balance leading to falling very easily.)

I have been "living out of a wheelchair' since the beginning of 2012. Tthere is no cure and no treatment for my affliction. The Ottawa Hospital doctors gave up on me in 2012, telling me.."sorry, there is nothing we can do for you." 

Recently, I have had some major issues with daily routine, shower, etc and even getting out of bed.

I registered with CCAC a month ago, and they are finally responding with a personal care worker (PSW) coming to my house once a week (for now) to assist me. 

While this allows me to continue living in my own home with some basic assistance, it is not on a 24/7 basis, so I need to explore my options as to what I need to do in the
coming year(s). Obviously, at some point, I may not be able to continue living in my home, and have to sell it, move into expensive assisted living accommodations where
the residents are monitored/assisted 24/7.
These are privately run "for profit" organizations and it takes M-O-N-E-Y to be able to stay in one of these for any length of time..until it's "time to go" as they say.

I found one in my area of Ottawa which I prefer to stay run by REVERA.

Currently (according to online sources) its about $3365 per month for assisted living there, that means with inflation over the next 10 years plus of expected life, it wil cost
me, estimated $480K to stay there.

My house at the current market in my area, is (estimated) about $289,900 if I were to sell it today.
With 5% real estate fee, HST on real estate commission, Legal closing, Hst on that, and moving (estimated $2000), I'm estimating that I will have about $265K to $260K net.

I need to find a SAFE NO RISK (Not locked in) investment vehicle, (besides a savings account to access this "supplement fund" for the expected shortfall
between what my current fixed pensions provide (Net $2400 a month) and what it will cost to live in one of these assisted living retirement residences. ($3400 currently).

The investment vehicle has to be:
1. Accessible to withdraw a specified monthly supplement to my pension (say $1000 a month for starters)
2.Be very safe
3.Generate interest higher than the current savings interest in a savings account or TFSA, which is limited to only $10K contributions per year anyway.

I'm thinking LIF, but open to other ideas.


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## houska (Feb 6, 2010)

Carverman - 
1) bummer
2) make sure to persevere with CCAC. Have now helped two relatives who needed home care, and there ended up actually a lot being available that was quite helpful. It's just a mess to navigate, and a war of attrition to get what you need (not through anyone's ill will, but the CCACs are underfunded with fixed budgets and variable and growing needs, and are just overwhelmed).
3) Re your investment questions, I am sure more knowledgeable people will chime in with the pros and cons of various options. But as a "book end" to frame your thinking, I quickly looked up nonregistered annuity payouts at http://www.lifeannuities.com/annuity_rates/singlemale0yrnonregistered.html 

For $250k of funds, you might be able to get about $1000/mo if age 55, up to $1750/mo if you were age 75 (don't know your age). In this case, someone else would be taking the market risk and longevity risk; however you would lose the ability to draw chunkily on the principal, of course, and your estate would get nothing on your passing. If something like this is of interest, you should definitely shop around and get expert advice on annuities since the devil is in the details. If you don't want an annuity, it's nevertheless a bookend for what a really conservative investment might bring as cash flow -- bearing in mind that an annuity provider can diversify longevity risk over a pool of people. But also you might be willing to take a bit more risk than an annuity provider.

I think these payouts are non-indexed. Inflation indexing might be important in your case.


Non Registered: No guarantee
Monthly income based on a premium of $100,000.00 of funds. Payments will commence in one month. (Click on institution or age column to sort up or down.)

Single Premium Immediate Annuity
Institution	Age55	Age60	Age65	Age70	Age75
Canada Life	$402.39	$447.00	$505.18	$578.05	$653.81
Empire Life	$415.80	$460.31	$519.35	$595.21	$685.83
RBC Life	$403.15	$450.00	$524.12	$612.97	$720.92
Standard Life	$384.82	$427.40	$483.94	$558.06	$633.35
Sun Life	$399.97	$454.67	$534.84	$621.31	$715.61
IMPORTANT: Life annuity survey prepared on June 30, 2015. 
For up to date annuity rates please request an annuity quote.


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## gardner (Feb 13, 2014)

Consider using an RDSP to shelter up to $200K. TD's product is fully self directed and you could hold most anything to generate tax free income.
I'm not an RDSP expert, but I believe that if you eschew the grants and bonds, the result basically works like a TFSA with 200K contribution limit.


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## carverman (Nov 8, 2010)

gardner said:


> Consider using an RDSP to shelter up to $200K. TD's product is fully self directed and you could hold most anything to generate tax free income.
> I'm not an RDSP expert, but I believe that if you eschew the grants and bonds, the result basically works like a TFSA with 200K contribution limit.


Can't do the RDSP. I'm going on 70, so the time for these RRSPs/RDSPs is over for me. I'm trying to find a way to take care of myself financially for the next 10 years (if I make it
even to 80), so any investment has to be ZERO RISK, ie: no way I can lose the principal or the interest the invested amount will generate.
Once I'm gone, the residual has to go to my estate. I have two grown children, although they are are far away to be of any help to me financially or otherwise.

I'm now single (divorced for 18 yrs) and have been living alone. My Nortel pension is in the process of being WOUNDUP, it is a Defined Benefit and since Nortel went bankrupt in
2009, no further contributions to the pension fund. it is still paying me, but I don't know what will happen once it is wound up next year or the year after or whatever year
they finally settle on who should get their share of the 9 billion assets, and how much.

So the only guaranteed pension, I get is OAS and CPP. The Nortel pension once it is finally wound up, will be probably a lot less than what I'm getting now, as they will
actuarize (sp?) a lump sum in my DB pension plan that is still available to me, and give me an option to select to invest that lump sum..an annuity or some kind of LIF, not sure.
I will get the papers to select the investment vehicle once that happens, so there isn't really any major decision to make there.

The decision I do need to make for next year, is where to put the proceeds of the net sale of the house, so I can draw on this "living fund" in the final years of my life
on a monthly basis.

Because as we all know..if you don't pay the asking monthly rent in these assisted living places..($3400 currently), they will move me into some gov't funded hospice where I will sit in my wheelchair, ignored most of the time, and basically waiting to die. If my daily pain gets worse, requiring morphine injections, they will find a way to 'speed you on your way" with an accidental overdose..because it's government run, and even though they don't admit it on the surface, they want to get rid of the terminal cases to make room for the next case(s).


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## carverman (Nov 8, 2010)

houska said:


> For $250k of funds, you might be able to get about $1000/mo if age 55, up to $1750/mo if you were age 75 (don't know your age). In this case, *someone else would be taking the market risk and longevity risk;* however you would lose the ability to draw chunkily on the principal, of course, and *your estate would get nothing on your passing.* If something like this is of interest, you should definitely shop around and get expert advice on annuities since the devil is in the details. If you don't want an annuity, it's nevertheless a bookend for what a really conservative investment might bring as cash flow -- bearing in mind that an annuity provider can diversify longevity risk over a pool of people. But also you might be willing to take a bit more risk than an annuity provider.


No this is definitely NOT what I am interested in. It has to be ZERO RISK! 

If I want to gamble with my life's savings (equity of my home), I can play the lotteries or the casinos..(in my wheelchair of course).
There is no shortage of people out there that want to take your money..and run..in some cases. Investment fraud etc. 



> I think these payouts are non-indexed. Inflation indexing might be important in your case.
> 
> 
> *Non Registered: No guarantee*
> ...


Can't do the annuities angle..not enough to supplement the difference between my total pensions (currently $2400 a month net) and what it will cost me in privately run assisted living, currently around $3400 a month , and that is bound to increase every year for inflation. 

I need at least $1000 a month I can draw from the invested say $250k.
Less than that, I WILL have financial problems.


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## OnlyMyOpinion (Sep 1, 2013)

Carverman, Sorry to hear of your challenges. My folks (85 and 87) went through this earlier this year. They put the house proceeds into laddered GIC's, but they didn't need as much. You need to be getting 4.8% after tax to have $1000/mo from $250k. You won't get that without some risk.

They also wanted to preserve an estate to pass on to us but we finally convinced them that the money is theirs after a life of hard work and saving, that we are now independent (thanks to them), and that they need to focus on their quality of life remaining - not on leaving something for us.

As Houska suggested, an annuity would provide this - a single male,non-registered, no guarantee annuity from $250k would provide you with $1,527/month. 
If you kept $50k of the house proceeds and only bought a $200k annuity, you would get ~$1,222/month. You are at the so-called 'sweet spot' age for buying an annuity (not so sweet though I know).
http://www.globeinvestor.com/servlet/Page/document/v5/data/rates?pageType=annuity&guarantee_term=0&survey_type=SL&sex=M&fund_type=N&province_of_residence=ON

You could also take an annuity with a guarantee that would pay to your estate if you passed away before the guarantee period was up, but it would reduce you monthly income. For example, a 15 yr guarantee on a $250k annuity would pay you ~$1,327/mo.

I'm certainly not an expert in the field, but under the conditions you have described I would look into an annuity. You need to make up your own mind though, and it would be good if you have a knowledgeable trusted family, friend or adviser you can bring in for their opinion - please beware of 'salesmen' trying to push you into a product, especially something with more 'bells and whistles' that gives you less and them more .


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## Davis (Nov 11, 2014)

While your personal situation is not good, your financial situation is excellent. If all you want is $1000 per month, and you have $260,000 available to you, you could actually put your money into zero-interest chequing accounts at three different banks (for deposit insurance reasons - you want less than $100,000 at each bank), and draw out $1000 per month for 260 months, which is over 21 years. Let's hope that your condition improves and you live to 91.

You could do better by putting your money into CDIC-insured high interest savings accounts and GICs, and then earn some interest so that you could increase your withdrawals over time to cover inflation. 

That would be no-risk, and last you a very long time. Good luck.

For the record, an annuity is also a no-risk option, and it would pay you a lot more, but you seem to have made up your mind against it, so I guess the money will go to the beneficiaries of your estate.


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## gardner (Feb 13, 2014)

carverman said:


> Can't do the RDSP. I'm going on 70


Gotcha, sorry. Yeah you can't put into an RDSP after age 59.


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## houska (Feb 6, 2010)

carverman said:


> No this is definitely NOT what I am interested in. It has to be ZERO RISK!
> [...]
> Can't do the annuities angle..not enough to supplement the difference between my total pensions (currently $2400 a month net) and what it will cost me in privately run assisted living, currently around $3400 a month , and that is bound to increase every year for inflation. I need at least $1000 a month I can draw from the invested say $250k.


Carverman, I think we misunderstood each other. I meant that with an annuity, you take significantly less risk, since the provider (typically a major insurance company) will pay out for the rest of your lifespan -- they, not you, take the "longevity risk" that you might outline the lump sum, and they not you take any market risk to generate the returns. I carefully say "less risk", not "no risk", since there is never "no risk". As you've seen with with the Nortel debacle, risk can come from unexpected angles -- but the risk of RBC Life or Sunlife or similar going belly-up is pretty small.

I do think it would be enough. You've now mentioned you're (around) 70 years old. So, without the guarantee option OnlyMyOpinion mentions, you could likely buy an annuity for about $160-170k that would pay you about $1000/mo, increasing your income from $2400 to $3400, and leaving a cushion of $80-90k in the bank if you have any unexpected needs, or to leave for your heirs. (It might cost $190k instead of 160-170 or so with the guarantee option OnlyMyOpinion brought up, using his numbers). 

I know given what you've been through, you're probably very loath to give up control. I understand that. However, in situations like yours, it can be very helpful to do so, for the following reason: However you invest on your own, self-directed, you need to plan to not run out of money not only for your *expected* lifespan, but for a *plausibly much longer* lifespan. You don't want to be lucky and end up living longer (and hopefully healthier, but maybe not) than you expected, but run out of money. By buying an annuity, the payment is set based on your *expected* lifespan only, because for the annuity provider, people who live longer than expected are compensated for by people who live shorter than expected. Of course, the annuity provider takes a fee for this, but where people have a real and acute concern of outliving their money, it can be worth it.


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## OnlyMyOpinion (Sep 1, 2013)

I agree that Davis' suggestion could also work - if you remain uninterested in an annuity, and can decide that you don't necessarily need to leave anything to your estate.

(For illustration purposes only), my spreadsheet indicates that you could build a 5 yr GIC ladder, initially $50k into 1,2,3,4,5 yr maturities, keep what you need when each year matures and roll the balance in for another 5yrs, then repeat.
This would take you out to approx. age 90 assuming very poor (posted bank) 1,2,3,4,5 yr compound GIC rates of 0.8%, 0.9%, 1.1%, 1.3%, 1.5% - you can do better than this. It also assumes that you increase your spending by 2%/yr for cost of living. So next year you spend $12k but at the age of 90 you are spending $17.5k per year.
You do use all of you money in this scenario. With better GIC rates you would leave some money at age 90 (or could live longer with some funds remaining).


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## OptsyEagle (Nov 29, 2009)

OnlyMyOpinion said:


> I agree that Davis' suggestion could also work - if you remain uninterested in an annuity, and can decide that you don't necessarily need to leave anything to your estate.
> 
> (For illustration purposes only), my spreadsheet indicates that you could build a 5 yr GIC ladder, initially $50k into 1,2,3,4,5 yr maturities, keep what you need when each year matures and roll the balance in for another 5yrs, then repeat.
> This would take you out to approx. age 90 assuming very poor (posted bank) 1,2,3,4,5 yr compound GIC rates of 0.8%, 0.9%, 1.1%, 1.3%, 1.5% - you can do better than this. It also assumes that you increase your spending by 2%/yr for cost of living. So next year you spend $12k but at the age of 90 you are spending $17.5k per year.
> You do use all of you money in this scenario. With better GIC rates you would leave some money at age 90 (or could live longer with some funds remaining).


Or $25,000 in GIC's separated by only 6 months (10 GICs). Or $12,500 in GICs separated by 3 months (20 GICs). All laddered, going out for 5 years. Keep what you need and reinvest the remainder of any matured note in a new 5 year GIC. Use a GIC broker like Scrivens and tell them you don't want anymore then $100,000 in any one institution and all must be CDIC insured. Done.


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## carverman (Nov 8, 2010)

OnlyMyOpinion said:


> Carverman, Sorry to hear of your challenges. My folks (85 and 87) went through this earlier this year. They put the house proceeds into laddered GIC's, but they didn't need as much. Y*ou need to be getting 4.8% after tax to have $1000/mo from $250k. You won't get that without some risk.*
> 
> They also wanted to preserve an estate to pass on to us but we finally convinced them that the money is theirs after a life of hard work and saving, that we are now independent (thanks to them), and that they need to focus on their quality of life remaining - not on leaving something for us.
> 
> ...


Thank you for your opinion and suggestion OnlyMyOpinion. That is why I am taking time to seek advice from others that do have not have vested interest in future funds and can
advise me based on what they think is the best thing to do. I have no close trusted family friend that is knowledgeable enough in these matters to advise me, although one is the
executor of my estate. I am also aware of pushy salespeople, even from the chartered banks and money institutions, pushing to get sizeable deposits for them, but getting into a locked in situation that at this point I definitely am not in favour of, as I will need to withdraw some of it from time to time. 


I have one of these "ladder GIC" schemes opened in Jan 2014, with PCF, $10K GIC x 5 (ranging from 1 year 1.20% to about 2.5% for the last one over 5 years to get that elusive higher interest these days. 
PCF wanted to roll these over, but I said NO, as they have to be redeemed each year from 2015 to 2019, at which point I will be 73 by the time the last one matures.

When each GIC matures, I roll it into my TFSA, which as of this year allows contributions of $10k and any withdrawals from the previous year,
I'm planning to use this $10K for my personal care and extraordinary expenses such as expensive dental, each year.

I have no dental or medical insurance. Can't get any either now due to my pre-condition,
and probably what I could get at my age and medical condition would be at a exorbitant premium which wouldn't cover my needs in the first year or two. 

So with my declining health issues, I don't want to get into any long term investment scheme, and a certain portion of the investment, (up to 20% if need be) must be available for supplementing my assisted living expenses when the time comes, but the annuity seems like a plausible option, as I will need about $1500 a month to cover the shortfall between my 2 gov't pensions and the underfundedn " soon to be wound up" , Nortel DB pension which at that point has two options..an annuity or a LIF.

*What about these Certificates of Deposit?* They have a fixed interest rate, although there are penalties in place not to withdraw money early, but they earn more interest than just unregistered savings accounts. In my case, I wouldn't want to withdraw ALL of it early, but some of it, ($10K for example) and put that into the TFSA to use for the monthly shortfall.


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## carverman (Nov 8, 2010)

Davis said:


> While your personal situation is not good, your financial situation is excellent. If all you want is $1000 per month, and you have $260,000 available to you, you could actually put your *money into zero-interest chequing accounts at three different banks *(for deposit insurance reasons - you want less than $100,000 at each bank), and draw out $1000 per month for 260 months, which is over 21 years. Let's hope that your condition improves and you live to 91.


Ack! Zero interest? NOT GOOD FOR ME
That means that MY $260k money deposited and drawn from over x years would be worth less and less each year in terms of buying power, without even the benefit of the current pittance interest of 1% (or less). they pay.

I can always put the money into a savings account, at least it can pay the interest pittance, and I can transfer the required funds into my checking account electronically as need be.



> You could do better by putting your money into *CDIC-insured high interest savings accounts and GICs*, and then earn some interest so that you could increase your withdrawals over time to cover inflation.
> 
> That would be no-risk, and last you a very long time. Good luck.


Thanks, a high interest savings account is one possibility I want to explore. As I mentioned, I don't want to lock in that amount of money over x years (because of my age and declining health).

I may not even be around between age 70 and 80, but thanks anyway for your good wishes. My mother turned 91, and she got old age problems, but not my condition, which is an auto-immune disease which the Ottawa doctors informed me is RARE, they don't understand what causes it and they have no treatment or cure for it. Thanks to the medical community..NOT!

PCF doesn't appear to be offering any high interest savings accounts. Do you know which institutions do? 



> For the record, an annuity is also a no-risk option, and it would pay you a lot more, *but you seem to have made up your mind against it, so I guess the money will go to the beneficiaries of your estate*.


Well, I'm not yet in favour of it at this point, as I heard that the life insurance companies that administer these annuities take a portion of the money for their administration
so not sure at this point whether there is any interest earned on the deposit->annuity or the administrators just suck up their fees from the principal deposited with them. 

Right now, I'm not really concerned about the beneficiaries of my estate, my married children have good jobs, homes and are middle income. However, they are too far away to look after me in any way, especially my declining health needs, so I need my financial resources now to look after myself. 
If it just so happens that they get anything left over from my estate,that will be a bonus for them.


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## carverman (Nov 8, 2010)

OptsyEagle said:


> *Or $25,000 in GIC's separated by only 6 months (10 GICs)*. *Or $12,500 in GICs separated by 3 months (20 GICs)*. All laddered, going out for 5 years. Keep what you need and reinvest the remainder of any matured note in a new 5 year GIC. Use a GIC broker like Scrivens and tell them you don't want anymore then $100,000 in any one institution and all must be CDIC insured. Done.


Thanks CMF financial gurus for your consensus. BTW; I have $40k left in a laddered scheme with PCF in $10k chunks, maturing each January. The last one matures in 2019 (My age will be 73). I don't want to tie up the equity from my home that way (up to 5 years) at this point in my life, but prefer to have a flexible investment scheme that earns a bit more interest on ($250K) over just plain-jane savings. 

Please tell me more how your SHORT TERM LADDERED GICs will work if I go that route. I would go with TD or some other established charter bank. Not sure if I have to worry about the CDIC $100k deposit insurance here, never had that much in my life to put into a bank.

So it appears that to earn 4.8% interest on $250K, some investment risk will be required.

I'm assuming here of course, of a possible sale of my home taking place as early in the spring of 2016, which is the optimum time
for getting the best price (usually), but that also depends on whether I can still manage in my own home with personal care attendants helping.


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## OptsyEagle (Nov 29, 2009)

Here are some examples of annuity rates. All the fees are built into the rates so this is what you would get for $100,000. About $625 per month. So $1,000 a month would cost you $160,000 as stated upthread. All the fees are built into that. 

http://www.globeinvestor.com/servle...SL&sex=M&fund_type=N&province_of_residence=ON

Put the rest into a high interest savings account.

Also, you should note that most financial institutions do have what is called a "term certain annuity". So you could get a 10 year term certain annuity. Just ask for the different rates for both. I would imagine you could get a $1,000 per month, 10 term certain annuity a lot cheaper then a life annuity, but of course it runs out in 10 years. I think most banks will sell a term certain annuity, since it does not have any actuarial factors within it, although you rarely see them advertised. It is simply a financial product.


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## carverman (Nov 8, 2010)

houska said:


> Carverman, I think we misunderstood each other. I meant that with an annuity, you take significantly less risk, since the provider (typically a major insurance company) will pay out for the rest of your lifespan -- they, not you, take the "longevity risk" that you might outline the lump sum, and they not you take any market risk to generate the returns. I carefully say "less risk", not "no risk", since there is never "no risk". As you've seen with with the Nortel debacle, risk can come from unexpected angles -- but the risk of RBC Life or Sunlife or similar going belly-up is pretty small.


I like your thinking Houska. :biggrin: My biggest nightmare would to wake up at age 80 and not have enough funds left to pay for private assisted living...being tossed out to a gov't run LTC...perish the horror!

Thanks so much. I'm saving all of the CMF and your comments in a computer file that I have opened for assisted living. 
It's good to make informed choices before the closing lawyer hands me the check and tell me "good luck" and I'm at a quandary as to what to do with it. 


> I know given what you've been through, you're probably very loath to give up control. I understand that. However, in situations like yours, it can be very helpful to do so, for the following reason: However you invest on your own, self-directed, *you need to plan to not run out of money not only for your *expected* lifespan, but for a *plausibly much longer* lifespan.*
> 
> You don't want to be lucky and end up living longer (and hopefully healthier, but maybe not) than you expected, but run out of money. *By buying an annuity, the payment is set based on your *expected* lifespan only, because for the annuity provider, people who live longer than expected are compensated for by people who live shorter than expected*. Of course, the annuity provider takes a fee for this, but where people have a real and acute concern of outliving their money, it can be worth it.


Good point, I didn't think about that. ^^^^^^^


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## carverman (Nov 8, 2010)

OptsyEagle said:


> Here are some examples of annuity rates. All the fees are built into the rates so this is what you would get for $100,000. About $625 per month. So $1,000 a month would cost you $160,000 as stated upthread. All the fees are built into that.
> 
> http://www.globeinvestor.com/servle...SL&sex=M&fund_type=N&province_of_residence=ON
> *
> ...



Wow, thanks for that ROB article OptsyEagle. Lots to ponder and think about. Printed that off and saved it in my computer file. 

BTW, some trivia here. I worked for the G&M in the mid 70s up until I signed up with Nortel as a technical electronic systems expert troubleshooter (Newspaper production from reporter terminal inputs to computer data bases to h&J (hyphenation/justification and pagination) right up to the electronic
type setting. It was a very interesting job with G&M and they were sorry to see me go with Nortel., but I wanted to get out of TO, and get back to my roots here in Ottawa.

Probably, If I had stayed with the G&M, I would have had a full DC pension with them now with full pensioner benefits, 
but who in the 80s would think that a company as big as Nortel would fail in 2009 due to mismanagement.

Anyway, From the numbers provided in the link it seems that if I invest $100k for a NO Gurantee annuity with RBC Life Insurance in a 10 year term annuity at age 70, I would receive $616.68 a month. With $200k invested in this 10 year term annuity, at age 70, FIRST year of the 10 year term, it should be approximately double that at $1233.36. 

Going up to $718.58 (per $100K invested at age 75), and then $845.87 (per $100k invested at age 80 last year of the 10 year term).

*Question here;* Now when I die BEFORE AGE 80, what happens to any the residual amount of the initial $200K annuity taken out at age 70 .

Is it paid back to my estate or kept by the annuity company?


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## carverman (Nov 8, 2010)

Ok, Put the rest of the money in HIS.

So far I have found out on the internet that there are 4 companies /banks that offer HIS interest ranging from 1.65 to 1.9%. 
These are: 
People's Trust
Ally Financial
Canadian Tire Bank
Manulife Bank

I know that CTC has been around long enough that it probably won't go bust and neither will life insurance company ManuLife.
Haven't heard of the other two though. Are they worth checking out?


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## Spudd (Oct 11, 2011)

It is kept by the annuity company. They are betting you will die early, kind of the opposite of life insurance. You can buy a "guarantee option" that will give some money to your estate if you die, but this costs more for the same monthly benefit.


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## OptsyEagle (Nov 29, 2009)

carverman said:


> *Question here;* Now when I die BEFORE AGE 80, what happens to any the residual amount of the initial $200K annuity taken out at age 70 .
> 
> Is it paid back to my estate or kept by the annuity company?


It depends on the type of annuity selected. With a term certain annuity or a life annuity with a guaranteed term (these are two completely different products) any value of the annuity that is guaranteed to be paid out (within the guaranteed term) will be paid to the estate.

In a life annuity with no guarantee or after the guarantee period, nothing is paid to your estate. As mentioned above, the only way the insurance company can continue to pay people income, who refuse to die when they are supposed to, is to obtain the money from people who die early.


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## OptsyEagle (Nov 29, 2009)

For reference, I entered your information into RBC Insurance site to quote a term certain annuity to pay for 10 years. The cost to obtain $1,000 per month for 10 years would be $109,115.33 of which $1,088 would be taxable each year.

https://www1.rbcinsurance.com/cgi-b...spx&7APROTOCOL=HTTPS&7ALANGUAGE=EN&LANGUAGE=E

You could always put the rest into a high interest savings account. The interest rate above is not much higher but it would be a little higher (actual annuity interest rate is 1.9% annually) then a high interest savings account and an annuity allows you to average the taxable interest allowing for a small amount of tax deferral. If you know you are going to need $1,000 for 10 years, it is a viable option and would pay any amounts not paid to you, to your estate. The estate payment would be the net present value of the unpaid income payments.


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## Davis (Nov 11, 2014)

oaken.com is offering 1.75% on their savings account as their regular rate, not promotional, but subject to change like all rates. This is in line with the inflation rate, and it is is CDIC insured. 

My chequing account example was just to show that even with no interest, your money is going to last you a very long time. Of course it is better to earn interest. 

Here is a discussion on how safe annuities are in Canada.


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## carverman (Nov 8, 2010)

OptsyEagle said:


> It depends on the type of annuity selected. With a term certain annuity or a life annuity with a guaranteed term (these are two completely different products) any value of the annuity that is guaranteed to be paid out (within the guaranteed term) will be paid to the estate.
> 
> In a life annuity with no guarantee or after the guarantee period, nothing is paid to your estate. As mentioned above,* the only way the insurance company can continue to pay people income, who refuse to die when they are supposed to, is to obtain the money from people who die early*.


Sad. That's basically similar to "Robbing Peter to pay Paul", but except for a privileged few in this life, that is what can happen. So to clarify this no guarantee annuity option;
If I invest $200k of my life savings (house equity) at age 70 and die at age 71-75...that money that was supposed to keep me going will not be paid to my estate (children) but used
by the company offering the annuity for other purposes...I lose big time even if I won't be around to complain.
Hmmm..that's not very good...what about this guaranteed term annuity. What is that all about?


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## carverman (Nov 8, 2010)

Davis said:


> oaken.com is offering 1.75% on their savings account as their regular rate, not promotional, but subject to change like all rates. This is in line with the inflation rate, and it is is CDIC insured.
> 
> My chequing account example was just to show that even with no interest, your money is going to last you a very long time. Of course it is better to earn interest.
> 
> Here is a discussion on how safe annuities are in Canada[/URL].


Reading this article, it seems to me that, at least so far, the big insurance companies have enough assets that they are "too big to fail"..
....of course that was what a lot of investors said about Nortel back in the late 90s. 

Anyway, with SunLife or ManuLife, it seems that I shouldn't have to worry in the time I may have left if I investigate an annuity with them.


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## carverman (Nov 8, 2010)

OptsyEagle said:


> For reference, I entered your information into RBC Insurance site to quote a term certain annuity to pay for 10 years. The cost to obtain $1,000 per month for 10 years would be $109,115.33 *of which $1,088 would be taxable each year*.


Sorry, don't quite understand the tax situation here. Are you are saying is that I have to pay more to the big insurance company to get less..and pay tax on the privilege of having them use my money to pay me a monthly stipend? 

So assuming I'm around for the next 10 years (age 70-> 80) that's 120 payments from the annuity. That $1000 that I'm getting, coming out of my $109,115 is actually costing me..$909.29 per month. 
Ok, so I get $1000, but pay tax on $1008.00. Is this a yearly *one time tax hit from CRA *or pay tax on each $1008 for each monthly payment to me.
This is my home equity savings they are using, so only any interest earned would be taxable. 



> You could always put the rest into a high interest savings account. The interest rate above is not much higher but it would be a little higher (actual annuity interest rate is 1.9% annually) t*hen a high interest savings account and an annuity allows you to average the taxable interest allowing for a small amount of tax deferral*. If you know you are going to need $1,000 for 10 years, it is a viable option and *would pay any amounts not paid to you, to your estate*. The estate payment would be the net present value of the unpaid income payments.


What is going to pay any unused amounts to my estate. The annuity?...... or the HIS, which I understand


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## OptsyEagle (Nov 29, 2009)

OK. So if you don't want to lose the money after you die then you need to purchase a guarantee with the life annuity. That guarantee will cost you in a lower payout. You can see how much in the link I posted above. Simply click on the various 5, 10 15 or 20 year links under the no guarantee option. This lower payout, however, is basically buying life insurance. In your case I would not recommend that. Remember, you lose nothing...because you are dead you have nothing more to lose. Your heirs are the only ones who lose anything and are you willing to take a lower return to prevent them from losing something that was never theirs in the first place? I wouldn't.

The 10 year term certain annuity (not the life annuity) will pay any amounts not paid out to you, if you die before the 10 years is up.

Now for the tax question. The 10 year term certain annuity, in my example, costs $109,115 and pays you $1,000 per month for 10 years. I mentioned that the internal rate of interest is exactly 1.9%. So if you invested $109,115 in a HISA and found one that would pay 1.9%, you would have a taxable income of $2,073 per year. With the term certain annuity you will get 1.9% interest, but you will only have to pay tax on $1,088 per year. So you will pay 1/2 the tax that you would pay on the HISA, in the 1st year.

This is because with the annuity, they allow you to average the taxable interest. Remember the 10 year term certain annuity is absolutely identical to a 10 year mortgage. In that, each payment is a blend of both principle and interest. With these two products the ratio of interest to principle is highest in the early years and reduces significantly as you get to the later years.

If they pay you $1,000 per month for 10 years, they will pay you a total of $120,000 and your cost will be $109,115. So you will get exactly $10,885 in interest over 10 years ...hence $1,088 of taxable interest, per year. However, as I said above, the actual amount of interest you will get is not the same every year. It is around $2,073 in the 1st year and drops down to almost nothing in the last year (just like a mortgage would).

Anyway, that is how it works. Nothing I said about the taxes should play into whether you take it or not. I just wanted to point out that it does have some tax deferral characteristics that other deposit accounts do not have. Since they price off of the 10 year mortgage (what the bank does with your money) they can pay a much higher interest then for instance a HISA or 1-5 year GICs.


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## carverman (Nov 8, 2010)

OptsyEagle said:


> Now for the tax question. The 10 year term certain annuity, in my example, costs $109,115 and pays you $1,000 per month for 10 years. I mentioned that the internal rate of interest is exactly 1.9%. So if you invested $109,115 in a HISA and found one that would pay 1.9%, you would have a taxable income of $2,073 per year. With the term certain annuity you will get 1.9% interest, but you will only have to pay tax on $1,088 per year. So you will pay 1/2 the tax that you would pay on the HISA, in the 1st year.
> 
> Anyway, that is how it works. Nothing I said about the taxes should play into whether you take it or not. I just wanted to point out that it does have some tax deferral characteristics that other deposit accounts do not have. Since they price off of the 10 year mortgage (what the bank does with your money) they can pay a much higher interest then for instance a HISA or 1-5 year GICs.


Thank you so much for this important piece of advice, OptsyEagle.

I have filed your explanation on my computer file called "Assisted Living" and it will be extremely useful in making that "right" decision when the time comes. 

More than likely with *the Nortel DB pension fund now in the process of being wound up,* my monthly Nortel pension payment, currently $1851.2 will probably not be as much once I go
to an annuity or a LIF. Also, up to now, I'm still paying $300 a month INDEFINITELY, (which the courts assigned to me to pay my remarried EX out of my pension in Nov 2003), when I went officially on pension, as COMPENSATORY support payments for the 22.5 years when we were married,, where I was the principal earner, while the ex stayed mostly at home to raise my two children. 

Besides all the equalization done at time of divorce, plus trnsfers of her share of my RRSPs, the courts still felt that at the time of my retirement in 2002, my pension had grown over the actuarized amount, determined in 1998 at time of divorce. 

Therefore, the judge reduced the $1000 a month "spousal support at time of divorce" while I was still working down, to $300 a month. 

The judge would not accept my argument that these "support payments" should stop at the time of my retirement, *because my pension had grown in the years AFTER I got divorced (1998) and in the 5 years before I retired,*
even though she got ALL THE PROCEEDS from the marital home, in lieu of the pension equalization!

Talk about being screwed over by the courts. Of course the courts didn't buy my lawyers argument that this was "double dipping"...only that my pension had grown and I could afford to still pay her "something". A decision by the courts where both parties aren't satisfied is considered a "fair judgement". 

Now of course, after Nortel's bankruptcy that has all changed..*the DB pension fund is no longer sustainable without Nortel's yearly top ups, and it has to be wound up.*

This leaves me concerned as to what I will be able to afford in assisted living (currently around $3400 per month) if the actualized pension lump sum leaves me with a considerable shortfall as an annuity or a LIF.

The other thing facing me is going back to court on a motion to rescind or reduce the current $300 a month, using the court allowed "material change in circumstance", which really still means a reduced pension payment if I am to be paid from an annuity. Plus.... More legal fees on top of what I have spent already..but I have no choice..I HAVE to survive somehow...in my final years unable to look after myself any more. 

However, I will cross that bridge when I come to it. 

Right now, as long as I can somehow continue to live in my own home (mortgage free and costing me about $500-$600 a month to live there, property taxes et al, I am doing ok.


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