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What’s So Scary About Life Annuities?

February 12th, 2016

My wife Mary and I are getting ready to move into the deaccumulation stage, the stage where we need to draw down on our savings to support our lifestyle.

In particular, I will turn 71 next February which means that by December 31, 2017, I will need to convert my RRSP’s (Registered Retirement Savings Plans) into RRIF’s (Registered Retirement Income Funds) and my LIRA’s (Locked in Retirement Accounts)into LIF’s (Life Income Funds).

Even as a retirement planning professional, I must admit that I find this somewhat daunting. The challenges are developing strategies that:

  • Ensure that we don’t run out of money
  • Protect us from the impact of inflation
  • Generate the needed income regardless of what the stock market is doing.

The good news is that I am tremendously motivated to read everything that I can get my hands to help achieve these goals.
What I have learned so far is that life annuities will be one of the strategies that we will end up using.

In the financial planning world, there is a phenomenon called “the Annuity Puzzle” which refers to the fact that people are strongly prejudiced against life annuities, even though they have significant benefits for people in the decummulation stage.

As a professional advisor, my challenge is to walk my clientele through a discovery process that, at the end, enables them to make informed decisions about whether life annuities have a role in their financial future and what exactly that role is.

To help readers get a handle on this issue, I will be writing future posts of some of the most common concerns about life annuities:

  • If I die early in retirement, the insurance company keeps the rest of my money and in effect “wins”.
  • If I give my money to an insurance company, I won’t have access to my savings. What if I need it for an emergency?
  • It does not happen often in Canada, but what if the insurance company goes bankrupt?

For the immediate future, you can help me to make my future posts on this subject as relevant as possible by sharing any questions and concerns that you have around the issue of using some, not all, of your savings to purchase a life annuity.

Send any comments or questions to william@williamjack.ca.

Thanks in advance for your help.

 

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