How annuities can help fund a full lifestyle in retirement

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By Jean Salvadore, Director, Wealth Insurance, RBC Insurance

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Summary: While Canadians want to live a full lifestyle in their retirement, a majority (62 per cent) are worried about outliving their retirement savings. The majority are missing annuities in their portfolio that can help guarantee an income stream in their retirement. 

If you’re like most Canadians, your vision for retirement includes a full roster of activities such as travel, dining out and shopping for the things you want. But while many of us look to our retirement years as a time to enjoy life to the fullest, having enough money to support that lifestyle is a real concern. Canadians are living longer than ever before and, according to a recent survey by Ipsos for RBC Insurance, the majority (62 per cent) are worried that they’ll outlive their retirement savings.

In fact, even with various financial tools in place such as RRSPs and TFSAs, almost half of Canadians are still not confident that they will be able to afford the lifestyle they want. And perhaps not surprisingly, what’s most important to that lifestyle is keeping a sense of independence. Among those between the ages of 55 to 75, eight out of ten want to live at home for as long as they can and 72 per cent say it’s important to own a car. On top of that, almost three-quarters (68 per cent) would like to be able to travel at least once a year, shop for the things they want (62 per cent), and go out for lunch or dinner a few times a week (53 per cent).

If you’re nearing retirement, how can you ensure that you have enough money to stretch over decades, while also enjoying an active and productive lifestyle?

Planning for the future with annuities

Canadians use various financial tools for retirement savings such as RRSPs (45 per cent), cash savings (43 per cent), or TFSAs (39 per cent). Yet most Canadians are unaware of annuities and may lack an understanding of the product, which can be why so few (only one in 10) are building them into their retirement plan

An annuity provides a predictable and reliable income stream for as long as you live, and can be used to supplement existing sources of income in retirement such as RRIFs and other plans. They are particularly helpful if you have a certain amount of fixed expenses you want to cover throughout your retirement, and that way you can use your additional savings to fund those activities that are important to you.

For example, the table below shows what a Single Life Annuity of registered funds with a 10-year guarantee period would yield, yearly, but there are resources online to help you determine payouts unique to your situation:

Deposit
Age Gender $100,000.00  $250,000.00
65 F $    5,354.53  $  14,106.01
M $    5,902.14  $  15,458.49

*Based on rates as of January 11, 2018

The facts about annuities

  • You don’t need to invest your entire retirement savings into an annuity
  • It’s possible to invest in an annuity using your RRSP and/or RRIF savings
  • An annuity provides a predictable income stream for as long as you live, regardless of whether financial markets rise or fall
  • Purchases can be staggered to help increase payouts
  • It does not have to be managed once it has been purchased

There are a number of strategies around retirement planning and each should be considered carefully. Annuities may be the missing tool in your investment portfolio that can help guarantee an income stream in retirement, and increase available funds so you can enjoy the lifestyle you want.

As Director of Wealth Insurance, Jean is responsible for the development and management of RBC Insurance Wealth Products, including solutions that offer unique benefits to help clients reach their retirement goals. She has been on the RBC Wealth Insurance product team since 2006 and was previously a consultant at Investor Economics, a financial services research and consulting firm. Jean holds a Bachelor of Commerce from the University of Toronto and a Masters in European Economic Studies from the College of Europe in Bruges, Belgium.

 

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