Annuity
Annuity
Ok I agree that annuities may not be for everyone. But I have the option of converting my alimony requirement into a life annuity for the Xwife. It would be a prescribed annuity and quite large (cost well into 7 figures). My issue is how to get the best price? I’m reluctant to get a commission salesperson involved because their comp is opaque to me and I don’t trust these guys. Can you buy these things directly from an insurance co? Thanks.
Re: Annuity
yes you can buy them directly from insurance companies.
- Shakespeare
- Veteran Contributor
- Posts: 23396
- Joined: 15 Feb 2005 23:25
- Location: Calgary, AB
Re: Annuity
There are quotes available at Annuity Rates Canada: Best annuity rates in Canada | LifeAnnuities.com. You may get a better rate because of the amount.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Re: Annuity
Thanks. I have seen these type of sites before. They are put up by commissioned annuity brokers. I wonder if they would be cheaper if I went direct? I guess I should find out by doing that.Shakespeare wrote: ↑31 Oct 2017 19:52 There are quotes available at Annuity Rates Canada: Best annuity rates in Canada | LifeAnnuities.com. You may get a better rate because of the amount.
Re: Annuity
Please let us know the outcome of your enquiry. I will have to look seriously at this option in a few years and the rate tables in the link provided look pretty dismal.
Not all those who wander are lost... J.R.R. Tolkien
- snowback96
- Veteran Contributor
- Posts: 1200
- Joined: 18 Mar 2007 18:15
Re: Annuity
Great site. Thanks for sharing the link!
I'm curious if anybody knows the minimum investment required to buy a life annuity in Canada? I've seen a few Canadian annuity calculators that use $50k as a minimum (e.g. RBC Insurance) for the calculation. I'm not sure if this is a real lower limit or just a nice round number for illustrative purposes.
I have a small Ontario LIRA and would be interested in turning it into an annuity at age 55 (by way of a LIF) to capture an extra 10 years of the pension tax credit. However, unless I get more aggressive and lucky with the account, it will be below $50k by the time I reach Freedom 55.
As for the original question...
I'm curious if anybody knows the minimum investment required to buy a life annuity in Canada? I've seen a few Canadian annuity calculators that use $50k as a minimum (e.g. RBC Insurance) for the calculation. I'm not sure if this is a real lower limit or just a nice round number for illustrative purposes.
I have a small Ontario LIRA and would be interested in turning it into an annuity at age 55 (by way of a LIF) to capture an extra 10 years of the pension tax credit. However, unless I get more aggressive and lucky with the account, it will be below $50k by the time I reach Freedom 55.
As for the original question...
My best guess is that the major insurance companies will not undercut the brokers that sell their product. Insurance products are typically a sales intenstive product so I'd be surprised if they want to piss off the sales channel for a few direct sales.SQRT wrote: ↑01 Nov 2017 04:25Thanks. I have seen these type of sites before. They are put up by commissioned annuity brokers. I wonder if they would be cheaper if I went direct? I guess I should find out by doing that.Shakespeare wrote: ↑31 Oct 2017 19:52 There are quotes available at Annuity Rates Canada: Best annuity rates in Canada | LifeAnnuities.com. You may get a better rate because of the amount.
Re: Annuity
SQT, you could try calling TD Ins to see if they will sell an annuity directly. I know RBC Ins did a few years ago. Not sure on pricing but their term life at the time was cheaper than through a broker.
Who knows you may get an employee pricing at TD.
Snowback, if 50 K is indeed a minimum, you may be able to buy it for 50,000 by using the LIRA plus some top up funds from your RSP. Not sure if this would make a difference. The annuity pricing and taxation is normally the same for a RSP or LIRA sourced annuity.
Who knows you may get an employee pricing at TD.
Snowback, if 50 K is indeed a minimum, you may be able to buy it for 50,000 by using the LIRA plus some top up funds from your RSP. Not sure if this would make a difference. The annuity pricing and taxation is normally the same for a RSP or LIRA sourced annuity.
Re: Annuity
Yes. I thought of this. Called my personal banker (In HR) and she said she had been transferred and didn’t know who my new personal banker was. Do you believe that? She tried to pass me off to a full service broker. Ya right?twa2w wrote: ↑01 Nov 2017 13:07 SQT, you could try calling TD Ins to see if they will sell an annuity directly. I know RBC Ins did a few years ago. Not sure on pricing but their term life at the time was cheaper than through a broker.
Who knows you may get an employee pricing at TD.
Snowback, if 50 K is indeed a minimum, you may be able to buy it for 50,000 by using the LIRA plus some top up funds from your RSP. Not sure if this would make a difference. The annuity pricing and taxation is normally the same for a RSP or LIRA sourced annuity.
Disappointing. Boy, doesn’t take long before you’re a nobody. Hope I don’t have to call Bharat.
- Shakespeare
- Veteran Contributor
- Posts: 23396
- Joined: 15 Feb 2005 23:25
- Location: Calgary, AB
Re: Annuity
About a week....Boy, doesn’t take long before you’re a nobody.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
Re: Annuity
For the C-suite it may a take a little longer; a year or two, maybe?Shakespeare wrote: ↑01 Nov 2017 17:06About a week....Boy, doesn’t take long before you’re a nobody.
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Re: Annuity
Yup. As soon as the people who know you move on to other jobs.adrian2 wrote: ↑01 Nov 2017 17:31For the C-suite it may a take a little longer; a year or two, maybe?Shakespeare wrote: ↑01 Nov 2017 17:06About a week....Boy, doesn’t take long before you’re a nobody.
Re: Annuity
I found that it was about 6 months. Of course they resented the fact that I escaped. So it was kind of spotty.
For the fun of it...Keith
Re: Annuity
I went back to a few functions. Mostly for people who were retiring. It was OK but not sure I would bother now. Certainly the people I worked with who are still there remember me, but this group is dwindling. Probably I would be close to about half the senior team. It’s the everyday workers I have to deal with that are the problem.
Re: Annuity
Management used to say the everyday workers were their greatest asset until they started saying they were their biggest expense, humf.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
-
- Veteran Contributor
- Posts: 2240
- Joined: 25 Feb 2007 18:59
Re: Annuity
Has anyone actually done this and if so, what insurance companies. Also, do you know if the price was discounted compared to what they offer if bought through an agent. I believe the agent has about a 2% cost to the annuity so I am wondering if this is added to the customer if the agent is bypassed.
Re: Annuity
I shopped around for an annuity a few years ago, and found that the quoted price was the same, whether through an insurance broker or directly. I suppose that they don't want to alienate the brokers.OptsyEagle wrote: ↑07 Nov 2017 12:21Has anyone actually done this and if so, what insurance companies. Also, do you know if the price was discounted compared to what they offer if bought through an agent. I believe the agent has about a 2% cost to the annuity so I am wondering if this is added to the customer if the agent is bypassed.
I wound up deciding to "roll my own", as the annuities I could find were a poor deal for me (1) return based on Government bond yields (2) mortality tables based on experience of annuitants, hence assume longer lives than typical Canadians (3) as far as I could work it out, total expense ratio of almost 3 per cent.
I recognize that there are cases, such as that of the OP, where the benefits of an annuity outweigh these costs. But I think that the decision is far from a slam-dunk.
George
The juice is worth the squeeze
-
- Veteran Contributor
- Posts: 2240
- Joined: 25 Feb 2007 18:59
Re: Annuity
The problem with alternatives, is that if one truly wants to buy a guaranteed pension, if one did not have the ability to accrue one during their working lives, there are no better alternatives then a life annuity.
I am pretty sure I would be a much better stock investor if I didn't have to worry about putting food on the table every time the stock market decides to come undone. Dividend stocks are great but at the end of the day, they are stocks and will always act like stocks. I like the idea of having my most basic income needs guaranteed.
I suppose it is possible for a person to find an insurance company that will sell them an annuity directly (although I haven't heard of it), but where my skepticism was, is will it end up being any better then the one from the agent. The insurance industry also has to deal with the regulatory issue that they are forbidden from providing any financial inducements to a customer, to buy an insurance product. I would think that selling one person an annuity at a lower price then selling it to another identical person, might be considered an inducement. It also rules out them returning the commission to the customer in any form whatsoever.
So if all that happens is the insurance company keeps the commission then I don't see how one is that far ahead.
I am pretty sure I would be a much better stock investor if I didn't have to worry about putting food on the table every time the stock market decides to come undone. Dividend stocks are great but at the end of the day, they are stocks and will always act like stocks. I like the idea of having my most basic income needs guaranteed.
I suppose it is possible for a person to find an insurance company that will sell them an annuity directly (although I haven't heard of it), but where my skepticism was, is will it end up being any better then the one from the agent. The insurance industry also has to deal with the regulatory issue that they are forbidden from providing any financial inducements to a customer, to buy an insurance product. I would think that selling one person an annuity at a lower price then selling it to another identical person, might be considered an inducement. It also rules out them returning the commission to the customer in any form whatsoever.
So if all that happens is the insurance company keeps the commission then I don't see how one is that far ahead.
Re: Annuity
If you want to keep an eye on rates without getting quotes, look here
http://www.globeinvestor.com/servlet/Pa ... sidence=ON
http://www.globeinvestor.com/servlet/Pa ... sidence=ON
-
- Veteran Contributor
- Posts: 3956
- Joined: 10 Sep 2012 17:26
- Location: QC
Re: Annuity
It would seem that the Globe and Mail has eliminated its annuity web page recently. The above link doesn't work anymore.gaspr wrote: ↑07 Nov 2017 16:36 If you want to keep an eye on rates without getting quotes, look here
http://www.globeinvestor.com/servlet/Pa ... sidence=ON
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
Re: Annuity
HERE'S THE LINK: https://www.theglobeandmail.com/investi ... pe=annuity (edit: Can't believe it . The page I was looking at this morning is gone! Sorry)
Women really get screwed by annuities because of their longevity (men get screwed similarly by life insurance rates). Today I was playing around with the table and found that, at a certain age, it would be substantially cheaper for me to buy a "term certain" annuity for a 20 year term than either a non-registered or prescribed annuity.
A term certain lasts for the specific period contracted for, unlike an life annuity which is paid out until the annuitant dies. Because of this difference, men and women are offered the same rates. Since the payments are made for a specific number of years, if the annuitant dies, the balance of payments would flow to an heir, unlike life annuities (unless you pay extra to insure your annuity). Of course, the disadvantage is that you can outlive a term certain annuity which stops paying anything when the time period expires.
I don't know if the rules re: alimony would extend to permitting a non-prescribed annuity but it might be useful to ask.
Women really get screwed by annuities because of their longevity (men get screwed similarly by life insurance rates). Today I was playing around with the table and found that, at a certain age, it would be substantially cheaper for me to buy a "term certain" annuity for a 20 year term than either a non-registered or prescribed annuity.
A term certain lasts for the specific period contracted for, unlike an life annuity which is paid out until the annuitant dies. Because of this difference, men and women are offered the same rates. Since the payments are made for a specific number of years, if the annuitant dies, the balance of payments would flow to an heir, unlike life annuities (unless you pay extra to insure your annuity). Of course, the disadvantage is that you can outlive a term certain annuity which stops paying anything when the time period expires.
I don't know if the rules re: alimony would extend to permitting a non-prescribed annuity but it might be useful to ask.
Regards,
Pickles
Pickles
Re: Annuity
My X wife has had some health issues lately so the idea of an annuity has been pushed to the back burner until these issues resolve themselves.
-
- Contributor
- Posts: 195
- Joined: 18 Feb 2016 09:47
Re: Annuity
Is it more worthwhile to purchase a term-certain annuity for 20 years (not life) or to use the same amount of money and keep investing it at 3% in 5-year GIC's and draw out the same amount as they pay per month? I can't fathom out the formula the actuary uses at the insurance companies. What profit do they make if we're getting a benefit? Is it that we die early?
I put in the Sunlife calculator 65, $100k reg funds, and the payout is only $3876/year after tax of 35%. It tells me
At 3% interest, the GIC's after-tax income will be able to match the annuity up to age 88 — but only the annuity income is guaranteed for life.
The average life expectancy for someone the age and gender shown is 87 years. For females, they have to live till 92 to break even and the payout is only $3511/year (who can live on that)? At least if I keep the money in a non-reg account, I can move it around, be frugal, put it in a TFSA or invest more aggressively.
What are the benefits of a life annuity then? Or a term-certain annuity (can't find calculator). If I find out that I only have 2 years to live after retirement, I can't even withdraw it to splurge?
I put in the Sunlife calculator 65, $100k reg funds, and the payout is only $3876/year after tax of 35%. It tells me
At 3% interest, the GIC's after-tax income will be able to match the annuity up to age 88 — but only the annuity income is guaranteed for life.
The average life expectancy for someone the age and gender shown is 87 years. For females, they have to live till 92 to break even and the payout is only $3511/year (who can live on that)? At least if I keep the money in a non-reg account, I can move it around, be frugal, put it in a TFSA or invest more aggressively.
What are the benefits of a life annuity then? Or a term-certain annuity (can't find calculator). If I find out that I only have 2 years to live after retirement, I can't even withdraw it to splurge?
-
- Veteran Contributor
- Posts: 13310
- Joined: 20 Feb 2005 16:47
Re: Annuity
The Sunlife calculator you used is for a life annuity.
A term-certain annuity is functionally very similar to an annual- or monthly-pay GIC but typically runs for a longer time and returns your money more quickly.
A GIC is a contract under which you give a financial company a set amount called "principal" for a set time period and receive a set amount of monthly or annual interest. At the end of the set time period you get back your original money. Let's say you buy a $10,000 five-year GIC that pays 3% annually. You'll receive $300 on each anniversary for the first 4 years and then $10,300 on the fifth anniversary.
A term-certain annuity is a contract under which you give a financial company a set amount for a set time and receive a set monthly or annual amount that's a blend of interest and principal. For simplicity let's say you buy a $10,000 five-year term annuity that pays 3%. In reality, term annuities are usually bought for longer terms than that, but we'll keep it identical to the GIC. While the GIC's annual payment was entirely interest, the annuity's annual payment is a blend of interest and principal. This generic calculator says our sample term annuity will pay $2,183.55 annually -- maybe a wee bit more/less depending on the issuer's pricing. That includes total interest of $917.73 over the five years. Why is this less than the GIC's total interest of $1,500? Because the annuity returns part of your principal each year. So you get more cash flow but there's less and less money earning 3%. So why would someone buy a term annuity? To guarantee income over a set period. Consider Joan and John, a couple who are getting divorced. John owes Joan eight years of child support for their 10-year-old daughter, but Joan doesn't trust him. Her lawyer insists that John buy an eight-year term annuity that will make those payments. What if the daughter dies before reaching 18? The financial company will pay the commuted value of the remaining payments to one of the parents depending on their divorce agreement. Remember that point as we move on to life annuities in the next paragraph.
Term and life annuities are different animals. With a term annuity and GIC you lend the financial company money for a set amount of time. With a life annuity you give a life insurance company an amount of money and in return that company gives you a guarantee of income for as long as you, and maybe your spouse*, live. The insurer pools your money with that of others your age and invests the total amount. You then receive periodic income -- normally monthly -- that's a blend of principal and interest. If you die at the age the insurer projected, you will have received back your principal plus interest. If you die before that age -- unlike with a term annuity -- your money remains in the pool to subsidize lifelong payments to those who live longer. If you live past the projected life expectancy, you will have received back all of your principal and will continue to receive payments made possible by those who died early. This "mortality credit" is why a life annuity can pay more than a GIC series to someone who outlives the life projection.**
So a term annuity is normally used as a bridge while a life annuity is used to provide lifelong income.
* When you buy a life annuity, you can opt for a certain number of guaranteed payments or can choose an annuity that makes payments for as long as you AND your spouse live. In each case, the monthly payment should be lower than if you had bought a plain vanilla single-life annuity with no guaranteed payments.
** Be careful about life expectancy projections from Statistics Canada and generic sources. Their life expectancy is not when your terminal age but rather the point at which half the people in your birth cohort are expected to be dead. So at each age you have a 50% chance of outliving the table if you're in reasonably good health. Life annuity issuers do their own life expectancy projections based on the characteristics of people who tend to buy their contracts. Those terminal age projections are typically higher than StatCan/generic tables because people who don't expect to live long lives tend not to buy life annuities. If you're in good health and middle-class a ROUGH, probably very rough, rule of thumb is to add 5 years to the StatCan projection.
A term-certain annuity is functionally very similar to an annual- or monthly-pay GIC but typically runs for a longer time and returns your money more quickly.
A GIC is a contract under which you give a financial company a set amount called "principal" for a set time period and receive a set amount of monthly or annual interest. At the end of the set time period you get back your original money. Let's say you buy a $10,000 five-year GIC that pays 3% annually. You'll receive $300 on each anniversary for the first 4 years and then $10,300 on the fifth anniversary.
A term-certain annuity is a contract under which you give a financial company a set amount for a set time and receive a set monthly or annual amount that's a blend of interest and principal. For simplicity let's say you buy a $10,000 five-year term annuity that pays 3%. In reality, term annuities are usually bought for longer terms than that, but we'll keep it identical to the GIC. While the GIC's annual payment was entirely interest, the annuity's annual payment is a blend of interest and principal. This generic calculator says our sample term annuity will pay $2,183.55 annually -- maybe a wee bit more/less depending on the issuer's pricing. That includes total interest of $917.73 over the five years. Why is this less than the GIC's total interest of $1,500? Because the annuity returns part of your principal each year. So you get more cash flow but there's less and less money earning 3%. So why would someone buy a term annuity? To guarantee income over a set period. Consider Joan and John, a couple who are getting divorced. John owes Joan eight years of child support for their 10-year-old daughter, but Joan doesn't trust him. Her lawyer insists that John buy an eight-year term annuity that will make those payments. What if the daughter dies before reaching 18? The financial company will pay the commuted value of the remaining payments to one of the parents depending on their divorce agreement. Remember that point as we move on to life annuities in the next paragraph.
Term and life annuities are different animals. With a term annuity and GIC you lend the financial company money for a set amount of time. With a life annuity you give a life insurance company an amount of money and in return that company gives you a guarantee of income for as long as you, and maybe your spouse*, live. The insurer pools your money with that of others your age and invests the total amount. You then receive periodic income -- normally monthly -- that's a blend of principal and interest. If you die at the age the insurer projected, you will have received back your principal plus interest. If you die before that age -- unlike with a term annuity -- your money remains in the pool to subsidize lifelong payments to those who live longer. If you live past the projected life expectancy, you will have received back all of your principal and will continue to receive payments made possible by those who died early. This "mortality credit" is why a life annuity can pay more than a GIC series to someone who outlives the life projection.**
So a term annuity is normally used as a bridge while a life annuity is used to provide lifelong income.
* When you buy a life annuity, you can opt for a certain number of guaranteed payments or can choose an annuity that makes payments for as long as you AND your spouse live. In each case, the monthly payment should be lower than if you had bought a plain vanilla single-life annuity with no guaranteed payments.
** Be careful about life expectancy projections from Statistics Canada and generic sources. Their life expectancy is not when your terminal age but rather the point at which half the people in your birth cohort are expected to be dead. So at each age you have a 50% chance of outliving the table if you're in reasonably good health. Life annuity issuers do their own life expectancy projections based on the characteristics of people who tend to buy their contracts. Those terminal age projections are typically higher than StatCan/generic tables because people who don't expect to live long lives tend not to buy life annuities. If you're in good health and middle-class a ROUGH, probably very rough, rule of thumb is to add 5 years to the StatCan projection.
Re: Annuity
First, there is no point in comparing after-tax for registered funds. The taxation is the same whatever option you use. I get $5832 for a 65-year old woman from Sunlife. Withdrawing $5832 from a RRSP/RRIF invested in 3% GICs means that the funds are depleted at 88. For a man, it gets depleted at 85 ($6492). Note that GIC rates may fluctuate over that 20-year+ period though, which may make the GICs better or worst than the annuity.Hopetoretire wrote: ↑07 Jan 2019 06:28 I put in the Sunlife calculator 65, $100k reg funds, and the payout is only $3876/year after tax of 35%. It tells me
At 3% interest, the GIC's after-tax income will be able to match the annuity up to age 88 —
Source: https://lifeannuities.com/annuity-rates ... ed-65.html
- Guaranteed payment until you die. It doesn't matter what your life expectancy is, you don't die at the average life expectancy. You are essentially paying "insurance" against living longer than your life expectancy.What are the benefits of a life annuity then?
- Guaranteed interest rate. You don't have to worry about GIC rates going down and you don't get to benefit if they go up. You're buying insurance that your return will be the same for the rest of your life
- Even payments and taxes. With registered funds, you may be forced to take more than that $3876/year out of your RRIF and pay taxes on that larger amount as you start aging. With a registered annuity, you don't have that problem. Tax savings may (or may not) compensate for the loss in yield that you get by annuitizing instead of using GICs.
In exchange for foregoing 2 years of GIC return (for a man) or 4 years (for a woman), you get a guarantee that you'll get your regular monthly check if you live longer than your life expectancy, and you won't have to worry about GIC rate fluctuations for the next 20-30 years. You also reduce complexity (of dealing with withdrawals, short-term re-investments, uneven withdrawals, more complex tax filing, etc.).
A 5-year term-certain annuity (if they exist that short) should technically approach the return you could build with a 5-year GIC ladder, minus an administration fee and the commission for the convenience of having it all packaged into a single product. It's harder to compare a 10-year or 20-year annuity with a GIC ladder, because there are no such things as 10-year or 20-year GICs. That shows what another benefit of a term-certain annuity is: it guarantees that return over a whole 10 or 20 year period, which you couldn't do with a GIC ladder.Or a term-certain annuity (can't find calculator).
Correct, although you could likely find a way to borrow against (or sell) a term-certain or term-guaranteed annuity. Essentially it's the reverse of buying life insurance. You could say that you'd be on the "winning end" if you died only 2 years after buying an insurance policy, and you'd "lose" if you die way past your life expectancy.If I find out that I only have 2 years to live after retirement, I can't even withdraw it to splurge?
You can't compare apples with oranges. You talk about a registered annuity (before tax) and a non-registered flexibility (after tax).At least if I keep the money in a non-reg account, I can move it around, be frugal, put it in a TFSA or invest more aggressively.
It's a convenience and insurance thing. Insurance against interest rate fluctuation over 20 years, and convenience of not having to continuously re-invest GICs every year and not having to convert 5-year GICs into 60 monthly cashflows. You get that in exchange of an admin fee and a commission to the nice insurance salesperson.Is it more worthwhile to purchase a term-certain annuity for 20 years (not life) or to use the same amount of money and keep investing it at 3% in 5-year GIC's and draw out the same amount as they pay per month?
Edited: realized that previous poster referred to female rates