Life Annuities Can Help Meet Retirement Goals

Here's Dan's story:

When Dan and his wife Carolyn retired just months apart in 2011, they honestly weren't sure they had enough saved to retire. Dan had worked as a photojournalist, while his wife managed a popular Toronto bakery. When Dan met with his financial planner, though, he learned that millions of Canadians have retired on even less.

His lesson? Life annuities can help meet retirement goals.

Retirement Dreams

My father worked a farm, and only retired when he was no longer able to physically do the work. From that point on, he was forced to rely on my sister and I for financial support. He eventually sold the farm, and moved in with my sister. I watched as he began to feel more and more dependent on us for his basic needs. I have long known I didn't want this for myself, my wife or my two daughters. I needed to find a way to ensure I wouldn't run out of money before I died, and to support my family even if I passed before my wife.

I always had a goal of saving enough to meet retirement age with a solid savings plan and peace of mind that I would never have to ask my daughters Sarah or Beth for financial support. In fact, I hoped we could support them if they needed it.

Over the years, we had attempted to build a nest egg. There was the back injury in 2002, a new roof in 1996 and a few years off from work for Carolyn while the girls were little. It seemed that every time I felt like we were on track something else would happen, and we would have to dip into the savings.

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Investing in a Life Annuity

We knew we wanted a guaranteed income stream to sustain us for the rest of our lives, no matter if we needed long term care or if we remained independent until we were 110 years old. At retirement, we had managed to save a little more than $150,000. Many people have much more than this saved, and some have less.

As an example, if a man places $150,000 in a life annuity in partership with his wife, they will receive an income for both their lifetime to meet basic expenses.

They offered payout options that included quarterly or monthly payments, but we opted for monthly payments. This was similar to the monthly pay I had been receiving when I worked, and required the fewest household budgetary changes.

I was hesitant only because we don't have a large stash of cash in case of an emergency that requires a immediate payment. We would no longer have control of our savings, and could not dip into it if we needed to help our youngest daughter make a down payment on a home or buy a new car. We decided the benefits far outweighed the drawbacks, though, and have opened a new savings account as an emergency fund.

Other Benefits of a Life Annuity

There is no doubt that the peace of mind that comes from knowing we will receive a payment each month is by far the biggest benefit of having a life annuity. There are other benefits, though.

These include:

• It covers both of us. An important choice for our family was that we chose a joint life annuity. Life annuities are sold as either a single life or joint life annuity. In a single life annuity, the payments are only guaranteed until the death of the holder. With a joint life annuity, payments are made until my wife passes as well. This was vital to me, as my wife doesn't currently suffer from any major medical issues while I have diabetes.
• It's guaranteed. It is comforting to know that our investment is safe. If something happens to both my wife and I before we are paid out the entire $150,000 we invested, our daughters will receive the benefits until our entire investment is recovered.

Annuities Today

According to financial planners, a life annuity is one of the most popular ways to fund retirement in Toronto, where we live. There are a number of insurance companies offering annuities, and the competition brings with it great rates that far exceed the expectations of many. We didn't choose the company because they had the best rate, although it was very competitive. Instead, we did research and considered their customer rankings and consumer protection ratings. Because we would count on them for the rest of our lives, I also wanted to choose a well-known company with a long history.

Either money from a traditional savings account or from a tax-sheltered account can be used to fund a life annuity. The taxes charged on payout can get confusing, though. Tax-sheltered funds are fully taxable, while only the interest from saving funds is taxed when it is withdrawn. This is because taxes have already been paid on the capital in a traditional savings account. We met with a prominent Toronto financial planner to help us determine the best plan for taxes and retirement before we made the decision to invest in a life annuity.

Annuities Provide Peace of Mind

Today, we have a peace of mind in knowing that all of our hard work over the years is being rewarded with a guaranteed income stream. We know that the payment will come each month, on time and without question. If there ever is an issue, the annuity agent is never more than a phone call away, and can help us sort out any problems we may have. An agent also helped us set up our annuity, and ensured it met our retirement savings objectives.

We want to see more of the world than just Toronto. We want to help our daughters as much as possible, and have money left over to go on vacations with our grandchildren. A life annuity granted me all of these things.