Annuities

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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Shakespeare
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Re: Annuities

Post by Shakespeare » 16 Dec 2011 18:18

Ottawa closes door on banks selling annuities
Finance Minister Jim Flaherty said Friday that the Conservative government will introduce legislation to prevent banks from offering financial products that function like life annuities.
So much for competition in the annuity business. :evil:
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Re: Annuities

Post by Insomniac » 16 Dec 2011 20:06

Shakespeare wrote:Ottawa closes door on banks selling annuities
Finance Minister Jim Flaherty said Friday that the Conservative government will introduce legislation to prevent banks from offering financial products that function like life annuities.
So much for competition in the annuity business. :evil:
Would this also apply to Credit Unions?

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Re: Annuities

Post by Shakespeare » 16 Dec 2011 20:10

Only lifecos are supposed to sell annuities.
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Re: Annuities

Post by brucecohen » 21 Dec 2011 20:28

brucecohen wrote:Benefits Canada, a pension industry magazine, published this article about annuities today. The author, a pension consultant, says that DC pension members who buy annuities through their group plans pay a 3% sales commission.
Tonight I printed out this article and read the hard copy as opposed to reading scanning it on screen. The consultant said retail advisors typically get a 3% sales commission for selling annuities to individuals. She said DC pension plan members often avoid this cost as their plan administrators deal directly with the insurers.

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Re: Annuities

Post by zinfit » 02 Jan 2012 12:10

This is a bad decision. Keeping banks out of this business limits my choices . The power of the insurance industry is strong.

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Re: Annuities

Post by BRIAN5000 » 24 Jan 2012 17:05

For those who have bought or thinking of buying Annuities are you thinking of Insured Annuities? If you are, are you prebuying your insurance now and planning on buying the Annuity when your older?
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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Re: Annuities

Post by ghariton » 24 Jan 2012 19:33

BRIAN5000 wrote:For those who have bought or thinking of buying Annuities are you thinking of Insured Annuities? If you are, are you prebuying your insurance now and planning on buying the Annuity when your older?
I've been looking at annuities for while now, but I've never been interested in insured annuities. In my case, I don't want insurance so as to pass on a legacy. I'd rather give money away while I'm still alive, when it will do the beneficiaries the most good. They can use the money to pay down mortgages, etc, thus earning a much higher after-tax return than I could, even with the life insurance dodge.

If you want to use life insurance to leave a bequest, so as to take advantage of our tax system, I suggest that you check out how much it would cost to buy the insurance and the annuity separately, as well as bundled together in an insured annuity. I suspect that the two components are more competitive as stand-alones, and so would cost less. But it is worth checking.

My suspicion is arousewde by the marketing materials that a quick Google search turns up. For example, from CIBC Wood Gundy:
If you are considering an insured annuity, ask yourself the following questions:

Do I want to maximize my income for retirement?
Am I concerned about guaranteeing the safety of my retirement income?
Am I concerned about the safety of my capital for the eventual transfer to my heirs?
How long am I willing to hold my investments?
Would I like to increase my after-tax guaranteed retirement income?
I wonder how many people would answer No to these questions.

(Pretty slimy marketing. If they are pushing these products so hard, they are probably a bad deal.)

YMMV.

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Re: Annuities

Post by Shakespeare » 24 Jan 2012 19:59

I suspect that the two components are more competitive as stand-alones, and so would cost less
A back-to-back has to be bought from two different companies, i.e. as stand-alones.

Added: I thought from earlier discussions (possibly at TWB) it was "must" but Google now suggests "should" is appropriate so I changed finiki accordingly. :oops:
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Re: Annuities

Post by Flights of Fancy » 15 Mar 2012 15:43

How quickly do annuity companies adjust payouts based on changes in interest rates? Here's a study which provides a review based on the evidence:

http://papers.ssrn.com/sol3/papers.cfm? ... id=2021579

The Annuity Duration Puzzle

Narat Charupat
McMaster University - DeGroote School of Business

Mark J. Kamstra
York University - Schulich School of Business

Moshe A. Milevsky
York University - Schulich School of Business


March 14, 2012

Abstract:

We test whether life-contingent annuity prices promptly and fully adjust to changes in interest rates; a standard assumption made implicitly or explicitly in a growing annuity literature. Using a unique database consisting of over 3 million U.S. annuity quotes, we find that prices do not move as one might expect. Rather, prices adjust gradually and over a period of several weeks and often months, in response to certain -- and not necessarily riskless -- interest rate changes. In particular, we find that changes to the 30-year U.S. mortgage rate provide a better fit and indication of where annuity payouts are headed, compared to the 10-year swap rate, for example. In addition, we find that the sensitivity to interest rate changes (a.k.a. annuity duration) is asymmetric. Annuity prices react more rapidly and with greater sensitivity to an increase in the relevant interest rate compared to a decrease. Overall our findings are inconsistent with a financial economic view of a life annuity as a risk-free bond-like instrument, plus mortality credits. We believe that we are the first to examine the dynamic microstructure of annuity prices and that our results have implications for a wide swath of existing literature. This includes portfolio choice at retirement, the optimal timing of annuitization, the money's worth ratio, the inference of mortality expectations from insurance prices as well as the valuation of pension liabilities.

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Re: Annuities

Post by adrian2 » 19 Sep 2012 14:02

Your Clients’ Toughest Retirement Decision: The Debate Between Systematic Withdrawals and Immediate Annuities
Wade Pfau wrote:Want to trigger an impassioned debate? Ask a group of advisors about the choice between systematic withdrawal plans (SWPs) and single-premium immediate annuities (SPIAs). Fee-only advisors are loath to cede control of client assets to an insurance company that might someday default, while annuity advocates fire back that only their strategies provide a lifetime income guarantee.

While I’m not taking sides in this feud, I would like to highlight some of the key issues that divide these opposing camps. These include the value of the historical record, the validity of research assumptions, biases in advisor recommendations, the role of fraud and cognitive decline, taxes, and the potential for self-annuitization.

A client following an SWP invests her assets at the start of retirement and withdraws funds over her lifetime. The key determinants of whether such a plan will succeed – meaning that the client will not outlive her funds – are the rate-of-return on the invested assets and the rate at which the client withdraws funds. By contrast, a retiree could instead purchase a SPIA from an insurance company and receive known payments for the rest of his life.
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Re: Annuities

Post by freedom_2008 » 19 Sep 2012 15:14

An article about annuity on the weekend Post, looks like in current market condition, buying annuity may make sense for people who are 70+:

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Re: Annuities

Post by Quebec » 24 Feb 2015 14:08

I apologize if this has been discussed before, but shouldn't the Government of Canada sell annuities? (preferably CPI-indexed annuities)

Imagine this: you retire at age 67 in good health, with substantial private assets, but you don't want to worry about the stock market, portfolio management, and so on anymore. Buying a CPI-indexed annuity would provide a constant real income for the rest of your life, but those (rarely?) offered by insurance companies have several problems, as recently discussed under the "how much is enough 2014” thread. Here comes the federal government with perfect credit, access to professional money management at very low cost (e.g., cppib), and, hopefully, the consumer in mind (rather than the insurance company shareholders), offering just what you need at a reasonable price. Wouldn’t that be nice?

Before someone tells me it’s impossible, considered that the GoC offered annuities (although not indexed I imagine) between 1908 and 1975. I don't know how popular these were though.
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Re: Annuities

Post by Bylo Selhi » 24 Feb 2015 14:20

Quebec wrote:Here comes the federal government with perfect credit, access to professional money management at very low cost (e.g., cppib), and, hopefully, the consumer in mind (rather than the insurance company shareholders), offering just what you need at a reasonable price. Wouldn’t that be nice?
Absolutely!

But before you get too excited, read Finance Minister Joe Oliver's bio: "Prior to his election to Parliament, Mr. Oliver had a career in the investment banking industry. He began his investment banking career at Merrill Lynch, and served in senior positions at other investment dealers and as Executive Director of the Ontario Securities Commission. He was then appointed President and Chief Executive Officer of the Investment Dealers Association of Canada."
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Re: Annuities

Post by brucecohen » 24 Feb 2015 15:54

Bylo Selhi wrote: But before you get too excited, read Finance Minister Joe Oliver's bio
Ottawa's lack of interest in selling annuities predates Oliver by several decades and several changes of govt. Neither PCs nor Liberals have dared take on any part of the financial industry's retail dealings. Consider that if Ottawa wanted the market to provide better annuity pricing, it would have authorized the chartered banks to sell them. The banks tried for that several times but were defeated by intense insurance industry lobbying.

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Re: Annuities

Post by Bylo Selhi » 24 Feb 2015 17:14

brucecohen wrote:Ottawa's lack of interest in selling annuities predates Oliver by several decades and several changes of govt. Neither PCs nor Liberals have dared take on any part of the financial industry's retail dealings...
Fair enough. But given Oliver's career it's even less likely that the current government will break any new ground in this area ;)
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Re: Annuities

Post by Norbert Schlenker » 24 Feb 2015 18:23

Quebec wrote:Before someone tells me it’s impossible, considered that the GoC offered annuities (although not indexed I imagine) between 1908 and 1975. I don't know how popular these were though.
My wife's father had an annuity from the Annuities Branch. (I can confirm it wasn't indexed. The reasonable pension that started in the early 1970s looked pretty meager by 1995.) I never asked him the source of the funds that resulted in the annuity. He worked in both the public and private sector, but it appears that private employers could sign employees into a federal annuity, so it could have originated in either. My wife cleaned up some old files earlier this month; among the paperwork was a government annuity certificate. It reminded me of an old Canada Savings Bond sans coupons.
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Re: Annuities

Post by Springbok » 14 Mar 2015 21:11

Came across these tables on G&M Investor site:

http://www.globeinvestor.com/servlet/Pa ... sidence=ON

I thought I should look at these a little more closely since my wife's family has a history of high longevity (ANNUITY: JOINT LIFE, 10 YEAR GUARANTEE (REGISTERED)), but this still seems to me to be about the worst time to be considering annuities (initial $100k premium only just returned in 15 years for 75 yr old. IOW, when he is 90.

Tables don't include indexed annuities.
http://www.michaeljamesonmoney.com/2015 ... ities.html

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Re: Annuities

Post by OptsyEagle » 15 Mar 2015 09:08

The problem with the federal government doing anything is eventually a great idea gets ruined by something we call politics. Right now annuities are basically based 100% on mortality and interest rates. They have worked successfully due to the fact that they are happy to discriminate everyday between males and females, they have absolutely no concern to where the annuitant came from, or compassion to the problems they had in life and their current financial situation at the time...and the fact that each annuitant is allowed one vote in every federal election.

Now add a politician to that game and see where it all goes. It would be nothing but a tax drain in 10 years and wealthier people (those not getting GIS) will see today's pathetic annuity income significantly reduced. Hey, it's only fair...isn't it.

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Re: Annuities

Post by Bylo Selhi » 15 Mar 2015 09:29

OptsyEagle wrote:The problem with the federal government doing anything is eventually a great idea gets ruined by something we call politics... It would be nothing but a tax drain in 10 years and wealthier people (those not getting GIS) will see today's pathetic annuity income significantly reduced. Hey, it's only fair...isn't it.
I've been waiting for the federal government to ruin CPP with politics since I first started working back in 1970. How much longer do I have to wait? ;)
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Re: Annuities

Post by adrian2 » 15 Mar 2015 10:13

Springbok wrote:this still seems to me to be about the worst time to be considering annuities (initial $100k premium only just returned in 15 years for 75 yr old. IOW, when he is 90.
Annuities are longevity insurance. There is a fair chance of at least one of the couple aged 75 today to make it well past 90. It's all about numbers are probabilities, and at age 75 much less about prevailing interest rates.

So it is very much not "the worst time to be considering annuities"; it's the perfect time to at least consider them. But you can't seem to grasp simple math, like you having profited a lot by using your RRSP to defer taxes for decades, at an MTR-in much higher than 25%. You just forget what's not convenient for your current thesis and don't respond when challenged to provide a semblance of proof to your arguments.
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Re: Annuities

Post by OptsyEagle » 15 Mar 2015 10:40

Bylo Selhi wrote:
OptsyEagle wrote:The problem with the federal government doing anything is eventually a great idea gets ruined by something we call politics... It would be nothing but a tax drain in 10 years and wealthier people (those not getting GIS) will see today's pathetic annuity income significantly reduced. Hey, it's only fair...isn't it.
I've been waiting for the federal government to ruin CPP with politics since I first started working back in 1970. How much longer do I have to wait? ;)
You need to update your information.

What does disability have to do with retirement planning? Why does someone having children provide them with a better return on their CPP contributions then someone who never had children?

Now go find those features inside an insurance companies contract and report back.

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Re: Annuities

Post by Bylo Selhi » 15 Mar 2015 11:00

OptsyEagle wrote:What does disability have to do with retirement planning? Why does someone having children provide them with a better return on their CPP contributions then someone who never had children?
What does any of this have to do with your assertion that "The problem with the federal government doing anything is eventually a great idea gets ruined by something we call politics"?

How has politics ruined CPP?
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Re: Annuities

Post by brucecohen » 15 Mar 2015 11:01

adrian2 wrote:There is a fair chance of at least one of the couple aged 75 today to make it well past 90.
Using StatCan's 2007-09 table, there's at least a 58% chance of one spouse living past 90, 26% chance of living past 95, a 12% chance of living past 98 and a 6% chance of living past 100. Odds for Springbok & wife are probably higher since longevity correlates directly with socioeconomic situation and SC table reflects the whole population. Also, I recall him saying that neither he nor wife are on any maintenance prescription drugs.

Perhaps the best reason for Springbok to consider a life annuity is that he keeps bitching about not having a DB pension. A life annuity is a DB pension and vice versa.

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Re: Annuities

Post by brucecohen » 15 Mar 2015 11:08

BTW, two random points on annuities I got from back-reading two Rob Carrick articles:

-- This site offers quotes on annuities indexed at 2% and those for people with medically reduced lifespans (impaired annuities). The quotes are three-months-old but indicative. 2% indexing reduces the starting payment by nearly 20%. (Several years ago OTPP's chief actuary told me that full indexing added 25% to their pension cost.)

-- Carrick quoted Clay Gillespie of The Rogers Group in Vancouver as saying that advisors get a 2.5% commission for selling a life annuity. There is no trailer* so they make much more from selling mutual funds and wraps. (* Gillespie did not say that but I know it from a consulting firm report that I edited a couple of years ago.)

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Re: Annuities

Post by OptsyEagle » 15 Mar 2015 11:26

Bylo Selhi wrote:
OptsyEagle wrote:What does disability have to do with retirement planning? Why does someone having children provide them with a better return on their CPP contributions then someone who never had children?
What does any of this have to do with your assertion that "The problem with the federal government doing anything is eventually a great idea gets ruined by something we call politics"?

How has politics ruined CPP?
Because if it was not run by the Federal Government, a person would not get a higher rate of return on their contribution by way of getting an early payout due to a disability. A person would not get a higher rate of return on their contributions by way of having children. A female would not get a higher rate of return on her contributions then a male by way of longer retirement incomes.

Remember, money does not grow on trees. Some hard working, non-disabled, male, without children is getting a much lower rate of return on their contributions, to pay for all those vote generating benefits. Guess what I am. I have come to grips with this and I am not even going to discuss what is right or wrong. All I am saying is please, for the love of sweet Mary, leave at least one program (Annuities) in this world where I can focus on my retirement without having to pay for everyone else's.

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