Can i retire off $1Million annuity?

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thedude99
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Can i retire off $1Million annuity?

Post by thedude99 »

So using Sunlife annuity calculator, if at the age of 50 I give them $1Million, I will be paid approximately $43,000 per year until the day I die.

I am planning on retiring around then at about a 3.2%SWR (which is my dividend yield).....but couldn't I just give my money to Sunlife and be better off to the tune of around $10,000 per year???
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Shakespeare
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Re: Can i retire off $1Million annuity?

Post by Shakespeare »

I don't think the Sunlife value is indexed to inflation. Inflation over 40 years at 2% is 1.02^40=2.21 or 221%.
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Re: Can i retire off $1Million annuity?

Post by SQRT »

Agree with Shakespeare. Divs usually grow while annuity payments generally don’t. Also In all probability you would be able to spend more than divs since the portfolio would grow. Thirdly, there would very likely be money left over from your portfolio when you die. This would be available to your heirs or charity. Annuity payments expire when you do. Furthermore income tax would likely be nil on the divs while the annuity would attract some tax (assuming both are in taxable accounts).

I would much rather start my retirement with a 3.25% growing div yield than a 4.3% fixed annuity payment. At a 5% growth rate the divs would exceed the annuity payment in about 6 years.

Don’t let an insurance agent convince you differently. They get a very large commission to sell annuities.
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Re: Can i retire off $1Million annuity?

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$600K in annuity plus $400K in dividend growth stocks (3.25% yid ^ 5% AGR) will meet the requirement of indexing your retirement income stream to 2% inflation over a 40 year holding period without forgoing much in current income.

Not sure I see the wisdom in annuitizing at all at age 50 because you receive nothing in the way of age credits in determining your payout. Either way, $40K + or- isn't a lot of money to try and get by on. Lots of folks do it because they have no choice, but I'm not too sure I'd want to volunteer for it.
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Re: Can i retire off $1Million annuity?

Post by pmj »

$40k + CPP + OAS isn't too shabby. And, as with so many retirement income examples - is this for one person or for two? It makes an enormous difference ...
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Re: Can i retire off $1Million annuity?

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scomac wrote: 20 Oct 2017 08:07 Not sure I see the wisdom in annuitizing at all at age 50 because you receive nothing in the way of age credits in determining your payout. Either way, $40K + or- isn't a lot of money to try and get by on. Lots of folks do it because they have no choice, but I'm not too sure I'd want to volunteer for it.
There is always the opportunity to annuitize some, or all, of a person's portfolio at a much later date such as age 70 or later. The optionality is always there to make those choices.
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Re: Can i retire off $1Million annuity?

Post by brucecohen »

A key consideration: is the money RRSP or non-RRSP? Payments from an annuity bought with RRSP money are fully taxed as income. Non-RRSP money can be used to buy a prescribed annuity which has favorable tax treatment.

OP should check the impact on CPP of retiring so early, assuming he really does plan to stop working as opposed to shifting to seasonal or part-time work.
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Re: Can i retire off $1Million annuity?

Post by scomac »

pmj wrote: 20 Oct 2017 08:39 $40k + CPP + OAS isn't too shabby. And, as with so many retirement income examples - is this for one person or for two? It makes an enormous difference ...
While that is true, you aren't collecting on either CPP or OAS at age 50, so you have to assume that the OP is planning on going out on $40K/yr. Not much for a younger person to live off of and not something I would volunteer to do by retiring early. YMMV
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Re: Can i retire off $1Million annuity?

Post by scomac »

AltaRed wrote: 20 Oct 2017 11:42
scomac wrote: 20 Oct 2017 08:07 Not sure I see the wisdom in annuitizing at all at age 50 because you receive nothing in the way of age credits in determining your payout. Either way, $40K + or- isn't a lot of money to try and get by on. Lots of folks do it because they have no choice, but I'm not too sure I'd want to volunteer for it.
There is always the opportunity to annuitize some, or all, of a person's portfolio at a much later date such as age 70 or later. The optionality is always there to make those choices.
Agreed. I'm not against annuitizing per se, just that it doesn't make sense to me to do so at that early an age.
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Re: Can i retire off $1Million annuity?

Post by kcowan »

scomac wrote: 20 Oct 2017 15:41...you aren't collecting on either CPP or OAS at age 50, so you have to assume that the OP is planning on going out on $40K/yr. Not much for a younger person to live off of and not something I would volunteer to do by retiring early. YMMV
Exactly! To me, committing yourself to a life of subservience is not my idea unless you have no desire to travel, enjoy fine dining, drink fine wine, etc. We have been increasing our spend in recent times and find that $80k represents an acceptable minimum before gifting to offspring and charities. Bro OTOH survived on much less but he had lots of practice and no ambition. No car, no travel, no bad habits. Maybe OP is more like him?
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Re: Can i retire off $1Million annuity?

Post by deaddog »

thedude99 wrote: 19 Oct 2017 22:56 So using Sunlife annuity calculator, if at the age of 50 I give them $1Million, I will be paid approximately $43,000 per year until the day I die.

I am planning on retiring around then at about a 3.2%SWR (which is my dividend yield).....but couldn't I just give my money to Sunlife and be better off to the tune of around $10,000 per year???
This depends on how much you need to live on.

If you can manage on 32K per year then I would go with the dividend income. Having access to your nest egg might come in handy if you have unexpected expenses. I would expect the market and any dividend growth to keep up with inflation.

Where you have your money, registered or unregistered accounts, will also influence your decision. Unregistered accounts will offer tax advantages such as the dividend tax credit. So you have to consider what your after tax income will be.

You might consider managing your own annuity. If you start with 1 mil and withdraw 40K a yr with a 3.2 % yield you will run out of money in 50 yrs at around 101 yrs of age.
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Re: Can i retire off $1Million annuity?

Post by thedude99 »

scomac wrote: 20 Oct 2017 08:07 $600K in annuity plus $400K in dividend growth stocks (3.25% yid ^ 5% AGR) will meet the requirement of indexing your retirement income stream to 2% inflation over a 40 year holding period without forgoing much in current income.

Not sure I see the wisdom in annuitizing at all at age 50 because you receive nothing in the way of age credits in determining your payout. Either way, $40K + or- isn't a lot of money to try and get by on. Lots of folks do it because they have no choice, but I'm not too sure I'd want to volunteer for it.
I should specify; I do have more than that amount currently, I just was thinking if I could park a certain % in an annuity it's so much less stressful than managing a portfolio and dealing with gut wrenching losses when they happen. Just leave it in there and forget about it but yes I concur with all points made so far especially about how highly incentivized sales guys are re: annuities
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