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Purchasing an Annuity for Retirement for Memories of Apple Pie à la Mode

Published on May 14, 2014

 

Robert is the ideal candidate for considering the purchase of a retirement annuity, but he is concerned about how long he'll live. He could really take benefit from the use of a life expectancy calculator.

 

Oshawa, Ontario Canada"I've been married to Julia for 38 years," Robert said. "We live in Oshawa, Ontario and have two grown children with 3 grandchildren between them, Robert, Amy and little Corey; the joy of our lives. I'm 63, a facilities supervisor at the auto assembly plant. I'm planning to retire at 66 to spend more time with Julia, the kids and the grandchildren. We're relatively healthy and want to take a cruise or two, you know; get out and see the world from a different perspective than a car windshield. I'd like to explore the best rates for a life annuity.

 

"But to use one of Julia's favorite endeavours, she likes to make apple pie and I like it à la mode. We can afford to continue to make apple pie in retirement, but will I have to give up the ice cream?"

 

Robert and Julia's history

Robert & Julia have owned their home for 25 years and will have it paid off ahead of his retirement with more than triple the equity of their original purchase. It could use major renovations to update the kitchen and two bathrooms.

 

They have a large backyard with a play area and trampoline for the grandkids and both a flower and vegetable garden for Julia. Robert maintains a handyman shop in an existing garage extension. He's a talented woodworker, making toys for the grandkids, but he would like to expand the shop to make their own kitchen and bathroom cabinets. These and the travel opportunities are the ice cream in Robert's retirement dreams.

 

They have no plans to sell the home at least until they can no longer take care of it. At that point, with the security of the annuity, they can afford to move to a condo after selling their home at a substantial profit and downsizing. They have already carefully considered a neighborhood of smaller homes that is still near their grandchildren so that they can watch them grow and nurturing that growth with their valuable experience.

 

Robert's pension and OAS will cover their foreseeable living expenses and, with current life and health insurance, they have life and health concerns covered.

 

"I can fabricate the cabinets for the renovations, but Julia is worried about the occasional tremor in my hands. My dad had Parkinsons disease, but Dr. Nelson tells me only 15 percent of people with Parkinson inherited it and he has not diagnosed it in me. I don't smoke or drink, but I am a little on the heavy side. My doctor has noted an increase in weight and I'm feeling pain in my knees.

 

"Julia has noted occasional numbness in her toes. Dr. Nelson has suggested she may be pre-diabetic and has cautioned her about her diet and physical activity. It wouldn't hurt me, either, to eat better and exercise more."

 

Related: Choosing the right life annuity for retirement

 

What is a life annuity?

A life annuity is one in which the amount necessary to fund the monthly annuity required, is contributed all at once; typically from a rollover from, as in Robert's case, a RRSP.

 

The benefit of a life annuity is that the payout schedule can begin as soon as they wish

 

The one downside to the life annuity is that there is no growth rate but which is offset by the higher return.

 

Pros and cons of a retirement annuity

A retirement annuity has several pros and cons and these need to be clearly understood to be certain it is the right investment choice for retirement.

 

Pros:

The typical retirement annuity is a guaranteed flow of monthly or annual income payments.


The payment schedule is a predetermined amount.


If the annuity is funded by after-tax funds, only the earnings above the principle funding the annuity are taxable.

 

Cons:

If the object of the annuity is to provide for heirs, there may be better investment vehicles, but which may have no guarantees.

Based on these factors, and with the use of a life annuity calculator, Robert and Julia are able to calculate rates and choose an optimum annuity option, offering affordable ice cream with their apple pie, until their home renovations and their wanderlust have come to a satisfying end.

"After all," Julia reminded us, "memories made and recalled do not cost anything at all to enjoy them for the rest of our lives, and our return on the most important memories, our kids and grandkids, are dividends of unmeasureable value."

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