Annuity Case Study
5 Reasons why an Annuity is a good retirement investment
My introduction to annuities
My introduction to annuities came two months ago, at the age of 60.
The passing thought was that I needed to take stock of my assets before I turned 65 - or earlier if I was not employed. As a single mom in the early years, I developed a passion for crunching numbers to make ends meet. That lead to buying my first condo at age 38 and selling it 12 years later at a small profit. I did the buy- and-sell-at-a-profit twice more over the next 10 years, thereby accumulating a small nest egg.
Concurrently, I invested in dividend-bearing stocks, bonds, and GICs, depending on going rates. I couldn’t make sense of the more advanced investment terminology: “market cycles”, “hedge funds” or “capitalization” - but my investment knowledge kept growing.
Fast forward to September 2018, when a colleague at work mentioned the word “annuities”. At the time, I had a vague sense of the concept. Over the next two months, I immersed myself in the subject matter.
Searching for a good primer on the basic concept of annuities, led me to this very website, which includes a free annuity e-book download.
So, I needed to get a handle on my retirement! But could I make the “right” investment choices in next few years? When retirement came, would I know how to optimize withdrawing TFSA’s, RRSPs and non-registered funds – to minimize taxes?
Here is the box I found myself in, supported by the facts:
- Did you know that upwards of 43% of women close to retirement, don’t have a plan? At age 60, that was me!
Source bnnbloomberg.ca 32% of Canadians are nearing retirement without any savings: Poll
- Further, up to 90% of Canadians approaching retirement years don’t have a company or government defined pension plan - again, like me!
Source newswire.ca Am I saving enough to retire? Vast majority of Canadians just don't know: CIBC poll
I recognized that as a single senior managing my own savings, despite my above-average understanding of investments, I’d have to have a near perfect return on my investments. There would be no “make-up” years left.
Decades ago, I didn’t worry about market fluctuations. Approaching retirement, I do now.
My immediate question was:
WHY should I invest in an annuity?
I needed compelling advice that made sense to ME, given that I didn’t have a defined benefit plan. The evidence came with a good dose of pros and cons, (as is the case with any investment).
5 good reasons – the pros:
- A monthly cheque makes for easy budgeting
- An annuity will reliably supplement your CPP and OAS
- You can potentially outlive your annuity, receiving lifetime benefits
- You can index your annuity to the cost of living
- If a guaranteed term annuity, your beneficiaries receive the balance if you pass away before the end of that term
Important consideration points - the cons:
- You can die before receiving the entire amount you put away
- If you don’t take a guaranteed term option, your beneficiaries receive nothing
Today, I don’t own property. And, with all my assets at one bank, I need to diversify funds - and institutions. I need to supplement the CPP and OAS I will receive at age 65. I need to feel safe if the fiscal outlook dims. Finally, I don’t want the stress of having to chase the market or settle for decades-low interest rates.
Investing in annuities resolved these issues.
Just months after my initial research, it calms me to think of my future. In four years’ time, my annuity -- although quite modest -- will arrive as a regular, lifetime monthly cheque.
And, it will ensure that my basic needs of shelter, food, and clothing, are met.