# Annuities - who are they suitable for?



## jargey3000 (Jan 25, 2011)

As I quickly approach the "3 score & ten" mark, I'm wondering more and more about the pros & cons of purchasing annuities (which I don't & never have owned). Seems to me, over the past little while the general attitude towards buying annuities has become a little more, shall we say, ...positive?
I'd appreciate comments from knowledgeable forum members- when and for whom do they make sense? 
And where's a good place to get more information? Thanks!


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## fireseeker (Jul 24, 2017)

Suggest reading Fred Vettese's takes on annuities. His latest book is very worthwhile.

https://www.moneysense.ca/save/retirement/retirement-income-for-life/


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## RBull (Jan 20, 2013)

Another book to consider is 

Pensionize Your Nest Egg
by Moshe Milevsky
newer version 2015


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## OnlyMyOpinion (Sep 1, 2013)

Jargey, It will depend on your personal circumstances (including spouse). If your retirement income is sufficent and certain enough that 'longevity risk' (risk of outliving your income) is moot, then you probably don't need an annuity. It's the 'what will you do if you live till 100' question. 
If your CPP/OAS and a solid pension are sufficient to cover your nondiscretionary living costs, and those of a surviving spouse then you are golden. Or if you have such substantial assets that providing sufficient income for an extended life will never be a problem. 

Online there is:Guaranteed income is a no-brainer—just don’t call it an annuity, and Annuities: Your DIY pension plan
And some current payouts here: Best Annuity Rates in Canada


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## jargey3000 (Jan 25, 2011)

....appreciate concise comments...
no pension...but appreciate OMO calling me "golden", I think....
annuities? hah! who needs annuities!!...

will continue to investigate, however...


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## humble_pie (Jun 7, 2009)

RBull said:


> Another book to consider is
> 
> Pensionize Your Nest Egg
> by Moshe Milevsky
> newer version 2015



there's a co-author there. Alexandra MacQueen. She carried an equal load.


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## agent99 (Sep 11, 2013)

See my discussion with ltr in another thread. (Annuities are for the addle minded??  ) Maybe not, but after looking at them at various stages of our retirement, never saw them to be even slightly of interest. You can keep your money and have equal or higher cash flow without much risk.

In that other thread on GIC rates, I compared use of perpetual pfds with an annuity. I just did a search, and find that others have considered a similar approach. This 2010 post in Prefblog is along similar lines: http://prefblog.com/?p=10109 Good analysis and many good links and comments at the end.


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## Mukhang pera (Feb 26, 2016)

humble_pie said:


> there's a co-author there. Alexandra MacQueen. She carried an equal load.


Yes, but I thought she authored Pt. II of the book: Nesteggize Your Pension.


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## lonewolf :) (Sep 13, 2016)

For getting deferred annuity rates go to immediate annuity.com it is a US website cant really find anything similar in Canada. Though Canadian annuities would be somewhat similar. The site allows you to easily plug in different ages & number years to defer payout for one or 2 people of different ages.


Swiss annuities is one of the safest ways to preserve wealth as they can be purchased in various currencies including gold plus Swiss annuity companies are more financially sound then in North America. @ some point it is on my to do list to go to Switzerland to purchase


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## humble_pie (Jun 7, 2009)

Mukhang pera said:


> Yes, but I thought she authored Pt. II of the book: Nesteggize Your Pension.



no she was the co-author throughout

it's a She-Too situation


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## Mukhang pera (Feb 26, 2016)

And not a "He said, she said" situation.


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## RBull (Jan 20, 2013)

humble_pie said:


> there's a co-author there. Alexandra MacQueen. She carried an equal load.


Yes, thanks for that, and IIRC there was much made of the two of them contributing.


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## lonewolf :) (Sep 13, 2016)

Deferred annuities are the least purchased annuities so do the opposite of everyone else


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## OptsyEagle (Nov 29, 2009)

Annuities are great for your minimum basic expenses. Actually they are a must, in my opinion. Very little alternatives are the same. Some come close but usually fail on the "bulletproof" aspect, which is the only reason you should want them. Hence keep them to the minimum.

So figure out what you and your wife consider is your minimum income required. This is everything that is "extremely" important to you. So if a trip, once a year, to visit the grandkids meets that test, add that in. Subtract any guaranteed income already like company pensions, CPP and OAS. That is how much income should come from a life annuity.

Not doing it is like not being able to swim and getting into a small boat without a life jacket. That is just crazy. I have had a tin fishing boat for over 20 years. It has never sank and I have never fell out of it, into the water, but would I go in it, if I could not swim, without a life jacket. No, because I am not stupid.

The main reasons, in my opinion, why annuities are not very popular is that they don't pay advisors as much as mutual funds and fee based accounts. There are many alternatives for investors that beat mutual funds but mutual funds are still big sellers, because they pay the advisors a lot more. The other reason they are not popular is the permanent nature to the decision. A lot of people hate making decisions and some people virtually cannot make permanent decisions. Certainly not decisions they feel they can put off. They keep doing this and although one of the books cited says that an annuity is best bought after age 70 or 75, I can't remember, that is ridiculous. Mathematically, that may be correct but if a person can make it for 10 or 15 years in retirement without one, they will probably decide to go the distance and not bother at all. An annuity is best purchased when you have a deficiency of guaranteed income to cover your basic needs of life.


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## pwm (Jan 19, 2012)

Not interested in annuities. What about inflation? Take the guy who paid $100k in 1970 to get a whopping $500/month for life which paid all his living expenses at that time. What did $500 buy 10 years later?


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## agent99 (Sep 11, 2013)

pwm said:


> Not interested in annuities. What about inflation? Take the guy who paid $100k in 1970 to get a whopping $500/month for life which paid all his living expenses at that time. What did $500 buy 10 years later?


There are likely indexed annuities, but they would provide a smaller cash flow. 

Another concern, especially for those who need income to cover basic needs, is that the capital they saved is all of a sudden gone - to an insurance company. 

If they later need capital, say for medical reasons or to enter a retirement home, they no longer have it. So annuities do have risk - maybe more than the low risk of keeping capital and investing it. Different kind of risk and maybe something to think about. You have to be sure you will never need that capital for another purpose. Even if that is leaving something for the kids.

I imagine GICs would provide as much income as an indexed annuity? But haven't checked that. Both would be fully taxed as opposed to dividends from equity or pfds.


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## like_to_retire (Oct 9, 2016)

pwm said:


> Not interested in annuities. What about inflation? Take the guy who paid $100k in 1970 to get a whopping $500/month for life which paid all his living expenses at that time. What did $500 buy 10 years later?


But what about a very conservative guy that has a nest egg of bonds, and calculates monthly requirements would be satisfied by the interest generated, plus sales of a portion of the capital each year. This calculated stipend would unfortunately only last the person 20 years though. Yes, inflation also is hurting this person over time, but the biggest fear is that they would be penniless in 20 years.

Would the perpetual nature of an annuity not be a better choice?

ltr


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## andrewf (Mar 1, 2010)

humble_pie said:


> no she was the co-author throughout
> 
> it's a She-Too situation


I would be careful with that turn of phrase. Makes it sound like there was an unfortunate situation between Mcqueen and Milevsky.

From reading the book, I get the impression that Alexandra did the heavy lifting on it with input from Milevsky's academic work.


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## Beaver101 (Nov 14, 2011)

What interest rate (average) is an annuity based on these days? Also, I wonder what the commission rate is for these products, just curious?


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## agent99 (Sep 11, 2013)

like_to_retire said:


> Would the perpetual nature of an annuity not be a better choice?
> 
> ltr


What I once looked at, was how long it is before you actually get any new money from the insurance company. In the example in the GIC thread, it would take $100,000/5600 = 17.85yrs. 

If the 70 yr old was to put the $100k in a HIS or GICs averaging 3.5% (assume similar risk to annuity) and withdrew an equivalent amount, they would still have almost 1/2 their original capital left after 17.85 yrs. They would be 97 before they ran out of money. But with CPP&OAS and maybe GIS as well as low spending in 90s, they probably would have cash in bank still if they last that long. Of course, we don't know what interest rates will be on HIS/GIC so I would prefer an investment with a more certain return. Long term bonds or perp pfds from secure companies of govs.


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## andrewf (Mar 1, 2010)

Seems to me that OAS and CPP can cover a large part of your longevity risk/annuity needs, especially if you are maxing cpp contributions and are pretty young (so on track for the expanded CPP benefit).


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## peterk (May 16, 2010)

andrewf said:


> Seems to me that OAS and CPP can cover a large part of your longevity risk/annuity needs, especially if you are maxing cpp contributions and are pretty young (so on track for the expanded CPP benefit).


Then the risk is that official inflation is <2%, and actual inflation is >2%, diminishing the Real value of government payments.


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## andrewf (Mar 1, 2010)

But annuities don't help with that. Most are not indexed, and those that are indexed are also indexed to CPI.


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## ian (Jun 18, 2016)

There are so many pros and cons depending upon your personal situation...health, financial situation, comfort with handling your investments etc. You need to be careful with indexed annuities and read the t's and c's. Some are indexed, but the indexing only kicks in after the COL increases by 2, sometimes 3 percent. I looked at a few when considering whether to take my DB as a annuity or take the commuted value.

One thing for certain....it may be prudent to wait until interest rates have increased. As interest rates increase, the price of an annuity decreases.


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## james4beach (Nov 15, 2012)

andrewf said:


> But annuities don't help with that. Most are not indexed, and those that are indexed are also indexed to CPI.


Interesting. So perhaps in that respect, market-based investments (balanced/diversified portfolios) are better because of the ability of securities to keep up with inflation and look a little past the government-published number?

With annuities, what's the situation with the counterparty risk? To what extent is there government protection in case the insurance company goes bankrupt? I would want to see some extra return to compensate me for this credit risk.



ian said:


> One thing for certain....it may be prudent to wait until interest rates have increased. As interest rates increase, the price of an annuity decreases.


It would be great to see higher interest rates, but it's also possible that interest rates won't increase going forward.


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## Thal81 (Sep 5, 2017)

I find that annuities usually don't make sense financially compared to investing and managing that money myself.

But I'd rather not have to manage investments when I turn 80 years old, so I'm keeping my options open.


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## ian (Jun 18, 2016)

I seem to recall that in Canada annuities in Canada were guaranteed for something like payments of $2K per month. It has been 6 years or so since I looked at them. 

A very good reason to split your business if your monthly payout will exceed the maximum insurable monthly amount.

I second Pensionize Your Nest Egg as a good read. I found the data interesting but also the psychological benefits as they relate to feeling freer to spend or to splurge retirement monies if you have an assured monthly lifetime income. I had never considered that perspective.


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## OptsyEagle (Nov 29, 2009)

pwm said:


> Not interested in annuities. What about inflation? Take the guy who paid $100k in 1970 to get a whopping $500/month for life which paid all his living expenses at that time. What did $500 buy 10 years later?


What does that have to do with someone who does not have enough income to cover their basic needs.

These are the things that distract investors and why annuities rarely are acquired. Let me see. 

No indexing 
Low interest rates
Commissioned salesperson
Permanent
When is the best time

Those are all distractions. The main issue is do you currently have enough income to cover your most basic needs. If you do. Great. If you have a suitable alternative. Great.

If you don't, buy an annuity.

By the way. They do have indexed annuities but the cost for that feature is usually too great of reduction in income for anyone to want it. If CPP/OAS and your work pension offered this choice you would decline it as well. Have you ever wondered how much your CPP would be, right now, if they did not index it to inflation. They let you deal with that in another way. Probably twice as much. It will be a heck of lot of years before indexing will ever get you to the number you would have received, right away, had the indexing feature never been offered.


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## DenisD (Apr 19, 2009)

> Annuities - who are they suitable for?


Someone who wants to die broke?


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## james4beach (Nov 15, 2012)

I actually can see the appeal of an annuity. The psychological benefits are significant and should not be discounted. The ability to turn a chunk of capital into a steady annuity payout is quite nice. There's a lot of value, for many people, in that steady payment.

It's true than an investor can accomplish the same things with a well diversified portfolio and good money management skills, and may even do a better job of it. However, that assumes that a person has excellent self discipline and the ability to carry out long term strategies. Not everyone can do this. It can also be very frightening to manage your own portfolio during periods of market turmoil and mistakes can easily be made. For example, rebalancing during the most frightening times. How many people can comfortably sell their bonds at the depths of 2008 and buy more stock? That takes nerves of steel.

The annuity insulates a person against all of this. It might even protect someone from their worse enemy... themselves and their own emotions.


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## jargey3000 (Jan 25, 2011)

james4beach said:


> I actually can see the appeal of an annuity. The psychological benefits are significant and should not be discounted. The ability to turn a chunk of capital into a steady annuity payout is quite nice. There's a lot of value, for many people, in that steady payment.
> 
> It's true than an investor can accomplish the same things with a well diversified portfolio and good money management skills, and may even do a better job of it. However, that assumes that a person has excellent self discipline and the ability to carry out long term strategies. Not everyone can do this. It can also be very frightening to manage your own portfolio during periods of market turmoil and mistakes can easily be made. For example, rebalancing during the most frightening times. How many people can comfortably sell their bonds at the depths of 2008 and buy more stock? That takes nerves of steel.
> 
> The annuity insulates a person against all of this. It might even protect someone from their worse enemy... themselves and their own emotions.


well put,james


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## agent99 (Sep 11, 2013)

james4beach said:


> How many people can comfortably sell their bonds at the depths of 2008 and buy more stock? That takes nerves of steel.


James, 
The people that might consider an annuity don't likely have a portfolio of bonds and stocks. They more likely have their money is savings accounts or GICs. Probably at a bank or credit union. 

They can beat an annuity by just keeping those savings where they are and drawing what they need. Only discipline would be to not overdraw. Older people close to us have done just that and in fact hardly spent their meager savings as they aged. Things like OAS and GIS were almost enough for them. When you are 90, there is not much to spend money on!


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## latebuyer (Nov 15, 2015)

Assuris is the one that guarantees the annuity, you are right it is up to $2000

http://www.assuris.ca/

I agree with James about the psychological benefits. I am looking forward to my pension for that reason. Many people don't want an annuity as they want to leave money for their kids but the way i view it with my pension providing a stable income i can be more aggressive with the rest of my investments.


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## james4beach (Nov 15, 2012)

agent99 said:


> The people that might consider an annuity don't likely have a portfolio of bonds and stocks. They more likely have their money is savings accounts or GICs. Probably at a bank or credit union.
> 
> They can beat an annuity by just keeping those savings where they are and drawing what they need. Only discipline would be to not overdraw.


Wow, I'm surprised. For a given amount of money, does just keeping it in GICs while drawing your "regular payment" really get _that_ close to an annuity?


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## latebuyer (Nov 15, 2015)

Wouldn't it depend on interest rates? In a falling rate environment you'd probably be better with the annuity if you bought it at its peak. It seems like interest rates are going up but i'm not sure.


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## like_to_retire (Oct 9, 2016)

latebuyer said:


> .......... the way i view it with my pension providing a stable income i can be more aggressive with the rest of my investments.


Alternatively, you could also view it as an option to take less risk. Many have to take extra risk and reach for yield to supply their income requirements. A pension alleviates that need.



james4beach said:


> Wow, I'm surprised. For a given amount of money, does just keeping it in GICs while drawing your "regular payment" really get that close to an annuity?


I'm skeptical.

ltr


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## OnlyMyOpinion (Sep 1, 2013)

If the 'sweet spot' for buying an annuity is ~age 70, you've already gone some distance through retirement, particularly if you retired before 65. 
You're likely to need another 15-30yrs of income. You should have a better understanding of what your go-forward non-discretionary costs will be and whether your income sources will be sufficient. And you should have a good understanding whether you have the discipline to stick with a FP (or a POA ready in lieu of).

Like many, you will have to get your RRSP (soon to be a RRIF) in a position to begin prescribed VPW withdrawls. So you'll need to manage that anyway (or have it simplified to some form of 'auto-pilot') and I don't see an annuity completely eliminating that need. You still need to decide at 70 whether your assets/income are sufficient to cover longevity risk or whether an annuity would be prudent. But I don't think an annuity should be taken solely on the basis of simplifying things. 

The link I provided earlier shows that a 70 yr old couple (joint annuity) could get from $436 to $483/mo (up to $5796/yr) from a $100k annuity. 
So you need to decide whether you can keep your $100k, draw it down at $5796/yr and have it last for X years. 
My back-of-the-envelope indicates that you'd need to earn 2% each year on your depleting $100k to have it last until age 89, earn 3% to have it last until age 92, 4% to last until age 96, and 5% to last until age 98. 
Of course if you have more than $100k available to pull the $5796 from, then ror requirements will decrease.


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## fireseeker (Jul 24, 2017)

I'm skeptical, too.
Current five-year GICs top out at roughly 3.5%. An annuity at age 65 is currently paying out at about 6%. 
https://www.cannex.com/index.php/services/canada/annuity-products/income-annuities/

Staying in 3.5% GICs and drawing 6% a year will deplete the portfolio in roughly 20 years. 
Living past 85 could be a problem ...

Adding to James's list of annuity attributes, I'd add one more: As we age we become less adroit at managing our assets. An annuity takes care of that.

(Added: OMO offered more refined calculations even as I typed. The annuity figure above is single life, male.)


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## AltaRed (Jun 8, 2009)

An annuity takes care of longevity risk. There is nothing wrong with taking a portion of one's portfolio at age 70 or 75 and annuitizing it to cover rent and food forever as a hedge against portfolio collapse. All posts so far fail to take into account, black swan events which can devastate a marginal well before one's expiry date. Is this because of the 10 year business expansion? Would members here feel differently if their portfolios were going nowhere, or where it took 10 years to fully recover from March 2009 lows? 

The primary risk I see of a standard non-indexed annuity would be several years of major inflation, i.e. the same crisis as those with non-COLA'd DB pensions faced in the high inflation 70's and had to get by with much reduced purchasing power thereafter.


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## lonewolf :) (Sep 13, 2016)

Annuities are one of the best investments during deflation if the insurer can meet the payouts. 

For inflation & currency crises some gold & silver is good to have, As one gets older less gold & silver is needed to be held as one has less years of survival so less money is needed. As one ages they could scale into converting some of their gold & silver into an annuity & make more money a month then if converted @ a younger age plus by converting @ an older age the extra gold & silver held is more insurance against a currency crises. 

An annuity will let you spend your money & enjoy. Most can not afford a gold annuity as the min is about 300,000 US. A deferred annuity will grow @ a faster rate then using GICs & converting to an annuity @ a latter age. Unless interest rates rise very fast & the person is young


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## OptsyEagle (Nov 29, 2009)

There are very few alternatives that work the same way as an annuity. The GICs are dependant on an "unknown" interest rate going forward and an "unknown" date of death. Very difficult to spend both the interest AND capital with GICs. Most other investments will fall short on one or another of the above, if they don't also fall short on the guarantees.

I would probably suggest keeping annuity payments below $2,000 per month but even above that amount assuris does provide some guarantee (I think 85% of the amount above but I am going by memory). Anyway, use two insurers if you need more income.

There is "no sweet spot" with buying an annuity. A sweet spot would imply that you are getting more return on your dollars, at some specific age. It really doesn't work like that. Any sweet spot would be absorbed by a competitive market, since you can assume all insurers would be aware of it.

The investment account that seems to scream annuity are LIRA (Locked in retirement account). The owner cannot simply withdraw all the money anyway so lost access to the capital is less important. The money in a LIRA came from a program (pension) where an annuity was going to eventually do all the work anyway. An annuity will usually provide a higher income then the maximum LIF payment would. At least at the beginning, when you would prefer the income. Obviously if you do not need the income and you have heirs, then keeping a LIRA and eventual a LIF is fine, but if you need income and lack heirs that you care to enrich, LIRA's and annuities go together quite well.

Again, these are best used to cover an income shortfall. Not for your entire RRSP or financial net worth. An extra $800 or $1,500 per month to add to your CPP/OAS. As another poster said, keep the rest in stocks. You can sleep better now with your stocks when you are not as dependant upon them for income. The stocks should take care of inflation and can be used to leave that big bequeath or give you access to capital if required.


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## agent99 (Sep 11, 2013)

OptsyEagle said:


> There are very few alternatives that work the same way as an annuity.


That is part of the problem with them.

If you die soon after you take out the annuity, your spouse and/or heirs get nothing. 
- If a concern, the seller suggests you get a term certain annuity. But then the payments are reduced.
- Or you get a joint life annuity so spouse continues to get income. But then the payments are reduced.

To see the effect of these options, this site provides an excellent summary: https://lifeannuities.com/articles/2018/2018-best-annuity-rates-canada-20180101.html

If you want to see an alternative to an annuity. Try this calculator: https://www.mycalculators.com/ca/retcalc1m.html

For a 70 yr old expecting 25 years of retirement (7 more than life expectancy) try entering 0, 25, 3, monthly, 0, 100,000, 0 . Calculator says you or your spouse could draw about $5600/yr. Approx same as an Annuity (especially if interest rates rise), but part of capital is available as you age and if you die early, the capital is intact. 







Problem may be to get the 3% interest rate. At the moment few HISAs pay that but GICs do. There may be other products that do.
I could see a couple perhaps taking out a joint life annuity to compliment CPP/OAS. $100k would be needed to get the extra $460/month. Hard to do if that $100k represents a good part of savings.


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## OptsyEagle (Nov 29, 2009)

agent99 said:


> That is part of the problem with them.
> 
> If you die soon after you take out the annuity, your spouse and/or heirs get nothing.
> - If a concern, the seller suggests you get a term certain annuity. But then the payments are reduced.
> - Or you get a joint life annuity so spouse continues to get income. But then the payments are reduced.


Your issue seems to be that there are too many options. You're not supposed to have your cake and eat it too. As for the money being lost after death. Everything is lost after death. For many of us, we would prefer to be guaranteed more in life, especially if they only took the payment for it, at death. That is an annuity.

As I said. If your ambition is to make your heirs wealthy, then annuities are counter to that. If your ambition is to spend as much money as you can and hopefully not do anything stupid to reduce what is left to the heirs, then an annuity works very well with that. Remember, you are going to spend what you spend. Does it matter if you use up the entire contents of a $100,000 account or you spend the interest off multiple accounts in the amount of $100,000. I am pretty sure in either case that the heirs will end up with the same amount of money. Now, one will say "what if a person dies too soon", the heirs will not inherit as much with the annuity. I then say, "what if a person dies too late", the heirs will not inherit as much without the annuity.

So, the question really comes down to, who do you really want to protect? Yourself in retirement or your heirs in the estate? Plus, when you add the certainty of your future income to the issue, it should allow an investor to perform better or invest more aggressively with their remaining assets. Most likely the heirs will do better, with the annuity, when that is accounted for. But this last part is determined more by the investor then the investment products, but for many, an annuity would help them be a better investor.


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## agent99 (Sep 11, 2013)

OptsyEagle said:


> So, the question really comes down to, who do you really want to protect?


Well, definitely not the insurance companies or their commissioned salepeople.


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## OnlyMyOpinion (Sep 1, 2013)

OptsyEagle said:


> ...There is "no sweet spot" with buying an annuity. A sweet spot would imply that you are getting more return on your dollars, at some specific age. It really doesn't work like that. Any sweet spot would be absorbed by a competitive market, since you can assume all insurers would be aware of it.


I wasn't clear. I didn't mean an 'actuarial' sweet spot, but a 'life cycle' sweet spot, akin to _"Many experts say the “sweet spot” __for buying annuities these days is about age 70. Milevsky recommends you start then and gradually annuitize over three to five years. For example, if you plan to annuitize $300,000, you might buy $100,000 of annuities at ages 70, 72, and 74. This timing works out well for retirees, since they must convert their RRSPs into either RRIFs or annuities by the end of the year they turn 71, so many will find it convenient to annuitize some registered money at that time."_(2013)

On the other hand, Milevsky (2018) has gone ahead and bought 30% of his planned annuities beginning at age 65:
_While many pundits recommend waiting till your 70s to buy annuities__, especially as interest rates are still low but gradually starting to rise, Vettese sees it differently. He says the “math works wonderfully” annuitizing as early as 65, if that’s the age you plan to stop working. It’s true that mortality credits get better the later you wait, but those worried about overvalued stock markets and a harsh correction in the next few years may not be able to afford to wait. “I’m not predicting that but one day there will be a big correction and bear market and you’re kidding yourself if you don’t plan for it,” Vettese said. Again, this is for people without DB pensions. “I tried 40% and 20% but 30% is the sweet spot at 65.” Then you would add another 20% or 30% in annuities around age 75, he said. “It may make sense to do some at 70, but if you want to keep it simple, do it twice in your life. Most are not doing it at all so once or twice is better than nothing.”_

His book is well worth the read.


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## AltaRed (Jun 8, 2009)

agent99 said:


> That is part of the problem with them.
> 
> If you die soon after you take out the annuity, your spouse and/or heirs get nothing.
> - If a concern, the seller suggests you get a term certain annuity. But then the payments are reduced.
> ...


So what? As OptsyEagle says, you can't have your cake and eat it too. None of us have any obligation to leave a cent to heirs. If I bought an annuity, it would be a joint last to die annuity because I do care about a surviving spouse. I don't care about an heir (son or dau) who has the capacity to make their own way in life. 

People have to get over the premise that they could leave 'capital' or 'residue' on the table if they die before the calculated date on which the actuaries say one 'might' die. What really matters is one's ability to fund their longevity.

As for any 'sweet spot' being 70 (or I have heard 75), I think it is partly related to having a more clear idea how one's retirement is going, i.e. their spending habits and needs, cash flow generation and health. Clearly those thoughts become more clear for every year one ages, but the primary adjustments will have been made 5-10 years into retirement. I don't think the gov't picked 71 (or 72) for RRIF'ing out of the blue.


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## ian (Jun 18, 2016)

When I looked at annuities some time ago there were many options. One had a guaranteed payout of ten years. Of course, this is not a free option. There is a price for every enhancement to an annuity. 

There can also be tax advantages to doing a back to back, purchasing an annuity and a term life insurance policy.

https://www.advisor.ca/my-practice/conversations/back-to-back-annuities/


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## OptsyEagle (Nov 29, 2009)

In my opinion, the biggest disappointment with annuities is that their does not seem to be a very good DIY market for them. I know it is because most customers suffer from some of the misconceptions listed in this thread and therefore annuities need to be sold...they are rarely bought.

That being said, for an educated investor, it would be nice to be able to cut out the salesperson. They cost about a 2% drag on your income and if I thought I could easily find an advisor that understood them better then I do, I might not mind paying it, but that advisor is not easy to find. Not because of my brilliance but because very few of them focus on annuities. Once I explain what I want, when I want it, how I want it, etc., it is a lot to pay to have a person simply fill out an application, which I would need to review fully to ensure I am actually getting what I want.

Now some insurers do sell insurance products directly to the public but they usually also sell the same product through advisors/agents. It is against regulations, in the insurance industry, to offer a perk to buy a life insurance product, so even if I found a company willing to deal with me directly, they would not be allowed to offer me a rebate or different price. That 2% would be kept by the insurance company. Plus, I can usually do much better then 2% by comparing the price from EVERY insurance company. The variation in income payments for the same capital, is a heck of a lot more then a 2% difference between all insurers, so I would probably still need to use an advisor to get that lower priced product.

What would be nice is if every insurer offered a "direct to market" product but I am not sure if the insurance regulators would find this different enough. The insurance regulators seem to think that Insurance Agents are very useful to consumers. They can do some things, but I don't think useful is the proper word. The best word I can come up with is mandatory, which is the annoyance behind this particular post.

Anyway, other then that, I think Annuities can be very useful for retirees. Not all of us have pensions but all of us could have pensions if we did not get bogged down on distractions.


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## ian (Jun 18, 2016)

When I first started looking I used an on line annuity broker based in Montreal, Ivon Hughes, to see some same rates from various firms. You can adjust on line parameters to see the impact on quotes.


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## AltaRed (Jun 8, 2009)

OptsyEagle said:


> What would be nice is if every insurer offered a "direct to market" product but I am not sure if the insurance regulators would find this different enough. The insurance regulators seem to think that Insurance Agents are very useful to consumers. They can do some things, but I don't think useful is the proper word. The best word I can come up with is mandatory, which is the annoyance behind this particular post.
> 
> Anyway, other then that, I think Annuities can be very useful for retirees. Not all of us have pensions but all of us could have pensions if we did not get bogged down on distractions.


What is needed is what you suggest. An open market for annuities so DIYers could bypass the Insurance Agents like we do full commissioned stock brokers. The insurance industry seems to have a lot on our regulators to perpetuate the status quo and until that changes, the annuity industry will be in a backwater. It wasn't so many years ago that one had to annuitize their RRSP!


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## james4beach (Nov 15, 2012)

Personally I don't like the high level of complexity, and all the caveats. It's tough to analyze something with this many parameters, and in cases like that I feel like (due to information asymmetry) that I am on the losing side of a trade.

I like the marketplace idea though. With some technology, we can probably eliminate all the salespeople and middle men, eliminating yet another sector from the workforce permanently.


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## ian (Jun 18, 2016)

I am not hung up on commission fees. They are the same to me as investment advisor fees, legal fees, or accountancy fees.

I only care about the bottom line benefit to me. So, if I was able to find an annuity that was financially the best option for me given my age and personal circumstances, then I would not be so concerned about the commission. My focus is on what I would get.


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## agent99 (Sep 11, 2013)

AltaRed said:


> People have to get over the premise that they could leave 'capital' or 'residue' on the table if they die before the calculated date on which the actuaries say one 'might' die. What really matters is one's ability to fund their longevity.


We don't have to get over anything. Some us may desire or even need to leave something to our sons and daughters. It's a personal thing and may depend on the individuals involved. Maybe a good reason for us to steer clear of annuities.


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## lonewolf :) (Sep 13, 2016)

In an all weather portfolio around the age of 50 I think using deferred annuities instead of long term bonds would work better. Think GICs would work better then short term bonds also.


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## AltaRed (Jun 8, 2009)

agent99 said:


> We don't have to get over anything. Some us may desire or even need to leave something to our sons and daughters. It's a personal thing and may depend on the individuals involved. Maybe a good reason for us to steer clear of annuities.


Or mix it up - some annuity and some in a portfolio. That may be best for the modest retirement portfolio. Takes care of some longevity risk and yet leaves an opportunity for some residue. 

The point is: annuities should not be made out to be a bad thing just because of personal views/bias on the matter. I understand an actuarial age of about mid-80s is the crossover point between when someone leaves something on the table (dies early) or rides the coattails of others by living longer. That number varies depending on the start date of the annuity and/or provisions like minimum guaranteed term. We'd need an actual actuary here to articulate specifics more accurately.

I agree an annuity doesn't matter much for those with large portfolios that can sustain a lot of abuse and yet protect against longevity risk. But that is a rather small group of seniors.


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## ian (Jun 18, 2016)

You can have an annuity and leave an amount to your nearest and dearest. Just add a term life policy to the equation.


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## Longtimeago (Aug 8, 2018)

Think of it this way. An annuity is the first cousin of a pension.

With a pension, you pay in an amount each month over a period of time with the intention of it being invested and then paying out to you each month after you retire.

With an annuity, you pay in a lump sum with the intention of it being invested and then paying out to you each month in retirement.

In either case, your capital is gone, the amount it will end up paying out is unknown, there is some risk of it all going wrong (ie. Sears retiree pensions). The only difference is in how you paid the money IN.

So annuities to me, suit the same people that pensions do. Those that want an 'assured' income and to not have to manage their own money. That choice is not a financial choice, it is a much more complicated personal choice. Who has the skills, interest and risk tolerance to manage their own funds vs. those who don't? That's the real issue, not which way will end up better for you financially.


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## lonewolf :) (Sep 13, 2016)

I came across a study (not sure where it is now in internet land) that was done comparing using an annuity verses the stock market going back something like 90 years. It covered a fairly large age range of when to start the process. If my memory is correct the annuity came out ahead for something like 65 - 75 age range when started in almost every time period & when stocks did out perform it was not by much. The study did take into account dividends & I think it was on the major US indexes.


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## ian (Jun 18, 2016)

We will have to do something about RSPs and an LIRA within the next six years. Depending on the prevailing interest rates, we will definitely consider an annuity. They are not particularly large sums and are not a large part of our resources but may serve to offset any inflation loss on tens years of my DB amount. Today, interest rates are too low and the gap between inflation and long term bonds is too narrow to make the product attractive.


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## OhGreatGuru (May 24, 2009)

To answer the original question:

People who need income security for life;
People who are unable or unwilling to manage investments;
People who don't need/want to leave the annuity amount to beneficiaries other then spouse (joint annuities address spousal transfer).


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## milhouse (Nov 16, 2016)

+1 to Fred Vettese's Retirement Income for Life book. 
It kind of helped sway me towards considering an annuity, though later in retirement. The specific part for me was him talking about annuities serving as (part of) the fixed income asset allocation side of your portfolio. So you can replace some of the bond/gic component. And if you want inflation protection, you can still hold some equities. But to state the obviously, for many in retirement, a steady income stream with low downside risk is more important than a focus on growth and it's associated risk.


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