# annuities



## asker1 (Jan 22, 2017)

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


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## lonewolf :) (Sep 13, 2016)

Susy Orman website has some info though American


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## stantistic (Sep 19, 2015)

For an overall discussion of Canadian annuities see
http://www.finiki.org/wiki/Annuity.


For a discussion in this website see 
http://canadianmoneyforum.com/showthread.php/101785-Annuities-HUH-what-are-they-good-for


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## jargey3000 (Jan 25, 2011)

annuities. who (whom?) are GOOD for? who (whom?) are they NOT GOOD for? when do they make sense ? when not?
I'd be interested in comments from cmfers.
(hope i didn't hi-jack your thread, asker1)


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## wraphter (Sep 21, 2016)

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


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## jargey3000 (Jan 25, 2011)

thanks wraphter.
another question/ topic: what are the do's or don'ts regarding considering converting (is that the right word?) RRSPs to annuities on turning age 71?


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## asker1 (Jan 22, 2017)

thanks everyone
we do not have to leave an estate, so live well die broke is an idea


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## GreatLaker (Mar 23, 2014)

jargey3000 said:


> annuities. who (whom?) are GOOD for? who (whom?) are they NOT GOOD for? when do they make sense ? when not?
> I'd be interested in comments from cmfers.
> (hope i didn't hi-jack your thread, asker1)


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.


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## naysmitj (Sep 16, 2014)

Just google "Jim Otar's book Unveiling the Retirement Myth", and there is a pdf available.

Cheers


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## Eclectic12 (Oct 20, 2010)

Here's another article with the basics ...
http://www.moneysense.ca/save/retirement/annuities/everything-you-need-to-know-about-annuities/


Cheers


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## asker1 (Jan 22, 2017)

retirementoptimizerdotcom and yes i have written to jim.

thanks everyone. LOTS to read and learn.

on this forum i seem to have to enter the verification several times. hope they remove it soon. nobody else has them.


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## Spudd (Oct 11, 2011)

asker1 said:


> on this forum i seem to have to enter the verification several times. hope they remove it soon. nobody else has them.


Once you have built up enough posts it stops asking.


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## balexis (Apr 4, 2009)

Asker1: you might also be interested in the book "Pensionizing your nest egg" by Milevsky & Macqueen (our own MoneyGal), see here: http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0470952288.html

A full chapter is dedicated to annuities.


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## jimbob.seeker (Sep 12, 2013)

GreatLaker, thank you for your excellent reply on 2017-01-22 to this thread. Your synopsis really helped me.


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## MrsPartridge (May 15, 2016)

Here's another article about why annuities are a bad idea.

http://wealthyretirement.com/how-to-create-your-own-annuity/Create your own annuity

_ Currently, the average annual fee is around 2.28%. That’s astronomical. And a lot of it has to do with the fact that annuity salespeople receive high commissions._


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## NorthernRaven (Aug 4, 2010)

MrsPartridge said:


> Here's another article about why annuities are a bad idea.
> 
> http://wealthyretirement.com/how-to-create-your-own-annuity/Create your own annuity
> 
> _ Currently, the average annual fee is around 2.28%. That’s astronomical. And a lot of it has to do with the fact that annuity salespeople receive high commissions._


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.


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## Nerd Investor (Nov 3, 2015)

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 )


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## olivaw (Nov 21, 2010)

balexis said:


> Asker1: you might also be interested in the book "Pensionizing your nest egg" by Milevsky & Macqueen (our own MoneyGal), see here: http://ca.wiley.com/WileyCDA/WileyTitle/productCd-0470952288.html
> 
> A full chapter is dedicated to annuities.


+1. Excellent book.


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## GreatLaker (Mar 23, 2014)

jimbob.seeker said:


> GreatLaker, thank you for your excellent reply on 2017-01-22 to this thread. Your synopsis really helped me.


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.


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## ian (Jun 18, 2016)

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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## olivaw (Nov 21, 2010)

Rino Racanelli, managing partner at MRH Financial Services suggests that annuities are most appropriate for those age 70 and up.

https://www.theglobeandmail.com/glo...ings-to-know-about-annuities/article23342537/


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## JackJac (Mar 13, 2017)

olivaw said:


> Rino Racanelli, managing partner at MRH Financial Services suggests that annuities are most appropriate for those age 70 and up.
> 
> https://www.theglobeandmail.com/glo...ings-to-know-about-annuities/article23342537/


I think it's most appropriate for each person to make decisions based upon their unique financial situation, and a whole host of other factors.


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## olivaw (Nov 21, 2010)

JackJac said:


> I think it's most appropriate for each person to make decisions based upon their unique financial situation, and a whole host of other factors.


Fair enough. I think Racanelli was offering a "rule of thumb". Like any other "rule of thumb" it needs to be adjusted to reflect one's personal situation. 

_Pensionize Your Nestegg_, talks about Retirement Sustainability Quotient. If your RSQ is too low, you risk outliving your savings (what Moneygal refers to as longevity risk). You can increase your RSQ (decrease your longevity risk) by converting a portion of your assets to an annuity. Each situation is unique and depends upon factors such as age, portfolio size, desired withdrawal rate and desired legacy. IMO, the calculations are not excessively complex but those who don't enjoy math might consider hiring a fee-only financial advisor to help. .


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