Retired Money: Seniors prefer term Guaranteed Lifetime Income to Annuities

Annuities continue to get short shrift from those nearing or in Retirement, but if you describe them with a different label — like a Guaranteed Lifetime Income — they are viewed much more favourably, according to a study released Tuesday. I summarize the main results of the Canadian Guaranteed Lifetime Income Study in my latest MoneySense Retired Money column, which you can access by clicking on the highlighted headline: Guaranteed Income is a No Brainer: Just Don’t Call it an Annuity.

The study was conducted by Greenwald & Associates and CANNEX for two Canadian insurance companies, Great West Life and Sun Life in February with 1,003 Canadians aged 55 to 75 with financial assets of at least $100,000 (not counting a home. It found only 45% are highly confident they will be able to maintain their standard of living in retirement, assuming a life expectancy of 85.

I’d argue that the majority who ARE confident are probably the beneficiaries of employer-sponsored Defined Benefit pension plans, ideally the kind of inflation-indexed ones that many public servants enjoy. They are of course becoming much less common in the private sector.

This site and my various columns have long argued that, to paraphrase Pensionize Your Nest Egg co-author Moshe Milevsky, DB pensions and Government-provided equivalents like CPP and OAS can be regarded as REAL pensions, because they provide a guaranteed stream of income for as long as you live.

By contrast, investment portfolios comprising RRSPs, TFSAs, group RRSPs and Defined Contribution plans do not in themselves constitute the kind of “real” pension that Milevsky says should be one part of a diversified retirement income strategy. It’s up to retirees to convert their retirement nest eggs into real pensions and one of the most common ways to do this is to buy annuities.

Consider that investors hoping to live on RRSP/RRIF interest, dividends and capital gains have no guarantee their money will last as long as they will. With still-low interest rates and the possibility of stock-market losses, and the constant spectre of rising inflation, longevity risk and the possibility of outliving your money is a real concern.

The study lists several perceived positives and negatives of annuities and segregated funds. And it found the percentage of Canadians who rate GLI as a “highly valuable” supplement to government retirement sources like CPP and OAS has jumped from 60% in 2015 to 80% today.

Note too that Longevity and outliving savings is a particular concern for women, along with not being able to afford long-term care expenses. It’s a fact that women have longer life expectancies,  and the study shows their retirement worries are greater as a result.

Women more concerned about running out of money in old age

The study conducted by CANNEX and Greenwald & Associates found 34% of women are highly concerned about not being able to maintain their standard of living once they retire, compared to only 17% of men. Some 37% of females worry about long-term care expenses in old age, versus just 20% of men. Women place more importance on having GLI at all stages of retirement: early, middle and late; and 76% of them think it important that their essential living expenses be covered by a GLI source, versus 64% of men.

So you don’t like the term annuity? Then use the alternative equivalent phrase of GLI, or Guaranteed Lifetime Income. As In conclude in the MoneySense column, what’s not to like about those three words? We all need income in retirement and it has to be a plus that it is guaranteed to last for a lifetime.


One thought on “Retired Money: Seniors prefer term Guaranteed Lifetime Income to Annuities

  1. Cpp plus oas equals hour much per hourly income if I were working. Does it meet min wage. (Rents in Hamilton require 18 hrs pay to be affordable
    So when retail investors try to top up the income from cpp and oas why isn’t the government cracking down on mainstreet usurious and non compliance with industry protocol rules?
    So cpp plus oas assuming a forty hour work week or thrifty seven and a half works out to how much per hour?
    Then add in the hourly equivalent of income from other efforts to build that nest egg now providing income stream. Then deduct the impact of abusive industry practices .and the retail investor has just had the equivalent of a wage cut.
    Just like atlantic coop employee who had their pensions slashed by 36 per cent.
    So why isn’t the government addressing the slow and steady siphoning of retails financial energy so that they can actually top up basic cpp etc and in a way that will last as long as they do.
    Why is the government allowing the financial industry to work against it and retails efforts to have financial secure retirements
    How many seniors even now can afford to rend a Hamilton apartment using 18 dollars and hour earning bench mark?
    This isn’t about having the government thrown more money at a growing problem but using the resources it has more wisely and to benefit taxpayers not the financial industry .so what is your hourly rate as a retiree?

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