If you are afraid of out­liv­ing your money, then an­nu­ities might be for you


If you’re wor­ried that you’re go­ing to run out of money in re­tire­ment, then an an­nu­ity may be some­thing you want to con­sider as part of your fi­nan­cial plan, ex­perts say.

“What it al­lows you to do is pur­chase a guar­an­teed source of cash flow for re­tire­ment,” says Jamie Golombek, man­ag­ing di­rec­tor for tax and es­tate plan­ning at CIBC Wealth Ad­vi­sory Ser­vices.

With an an­nu­ity, you pay an in­sur­ance com­pany up front in ex­change for a prom­ise that they pay you a set amount for the rest of your life or for how­ever long the con­tract spec­i­fies.

The down­side is that they can be ex­pen­sive.

What has been good for home­buy­ers has cre­ated chal­lenges for re­tirees look­ing for a se­cure source of in­come. Low long-term in­ter­est rates in re­cent years have driven the cost of an­nu­ities up.

Crys­tal Wong, se­nior re­gional man­ager at TD Wealth Fi­nan­cial Plan­ning, said the high cost has put off some in­vestors.

“The pre­mium cost is ex­pen­sive in a low in­ter­est rate en­vi­ron­ment,” she said. “They are not as at­trac­tive as some of the other al­ter­na­tive in­vest­ments that we of­fer in­di­vid­u­als that are look­ing for in­come.”

But she said for some con­ser­va­tive in­vestors look­ing for peace of mind, an an­nu­ity might be part of the an­swer.

Steve Krupicz, as­sis­tant vice- pres­i­dent Re­gional Ac­tu­ar­ial and Un­der­writ­ing Con­sul­tants at Man­ulife, says in­vestors may want to look at an­nu­ities for the con­ser­va­tive por­tion of a diver­si­fied port­fo­lio.

“If you’re look­ing for a se­cure, sta­ble in­come to cover your base liv­ing ex­penses and you’re con­cerned about longevity, that’s what an­nu­ities are for,” he said.

An al­ter­na­tive to an an­nu­ity is a sys­tem­atic with­drawal plan that would see you slowly cash in your in­vest­ments and spend the pro­ceeds. How­ever, a with­drawal plan can still carry some risk.

If the mar­ket crashes and you sus­tain heavy losses, you will likely have to make changes to your plan and you could also live longer that you planned and even­tu­ally de­plete your re­sources.

There are down­sides to buy­ing an an­nu­ity.

You won’t have the money in your nest egg to pay for an emer­gency or other large pur­chase down the road and you may also die sooner than you thought, in which case you may have had more money left over for your heirs if you had not bought an an­nu­ity.

Golombek said for those rea­sons, an an­nu­ity should only be a por­tion of your port­fo­lio.

“You want to make sure you’ve got money if the roof breaks on your house or you need to move into a higher level of med­i­cal care or a kid needs help,” he said.

“You don’t want to tie up your en­tire life sav­ings in an an­nu­ity. But I think for a por­tion of your sav­ings, for the right client, it can be a good so­lu­tion.”

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