Annuity Case Study

5 Reasons why an Annuity is a good retirement investment

By Martha Kovacs
5 Reasons Why an annuity is a good retirement investment
Figure: 5 Reasons Why an annuity is a good retirement investment

My introduction to annuities

Martha Kovacs
Figure: Martha Kovacs, photo has been withheld to protect her privacy.

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:

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.

market fluctuations bar graph

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.

Ivon T Hughes

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Ivon T. Hughes

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