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April 25, 2021

Do you think you'd buy an annuity in retirement?

Transition Boomers — those ages 55 to 65 and closing in on retirement — are more interested in protecting their retirement savings with a guaranteed return even though they realize the stock market may offer better returns over the long haul, according to to a recent survey.

87% say they'd be more interested in a financial product with a 4% return, which is guaranteed not to lose value, over one with an 8% return but which is subject to market downturns.

Despite this, only 25% say they currently own an annuity, a product that can help answer the demand for guarantees, largely because they don't feel comfortable with them, it seems.

75% of admit to a general lack of understanding, saying either “there’s a lot about annuities I’m not sure about” (37%) or “I haven’t got a clue” (38%).

And that's too bad, according to a recent C.D. Howe Institute report, which suggests that more Canadians approaching retirement should be looking at annuities.

People in the lowest income brackets already receive most of their retirement income from government programs like OAS and CPP (both of which are a form of annuity) and many middle-to-high income earners should do the same, suggests Norma Neilson, the author of the report.

In the absence of a pension, getting a secure monthly cheque eliminates much of the complexity and stress that comes with managing a retirement portfolio over a couple of decades. But, until interest rates move back up to closer to historical levels, it's still a tough sell.  

Ten years ago, a 70-year-old male with $100,000 in an RRSP, could have bought an annuity providing close to $800 per month, guaranteed for the greater of 10 years or his lifetime.

A woman the same age would have received about 10 per cent less than that each month, because she was expected to live longer.

Today, that same 70-year-old male would only see about $650 a month; the payout for a 70-year-old female would be closer to $580.

Do you see an annuity in your future? How high would interest rates have to rise before you'd jump in?

By Gordon Powers, MSN Money




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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...