Tag Archives: longevity risk

Weekly Wrap: Voluntary CPP expansion, Social Security fixes, Longevity Insurance, Tontine Annuities

Posted By |

View of Ottawa on the Grunge Canadian Flag

A lot of coverage this week for the Tories’ floating of a “voluntary” expansion of the Canada Pension Plan (CPP: Canada’s equivalent of Social Security, if you also include its Old Age Security program), especially when you consider the details were pretty scant.

Incidentally, the issue is quite similar with Social Security in the U.S. This week, Reuters ran a piece entitled How to use Social Security to fix Retirement Inequality. It makes the case for “expanding” Social Security benefits “to help people who need it most.”

The Hub ran two pieces on the proposed CPP expansion: an initial one that felt it looked promising, despite the lack of detail: Bring it on!, followed by a guest blog by Retirement Redux’s Sheryl Smolkin: Voluntary CPP contributions will favour high earners.

Time to bring back Tontine Annuities? Continue Reading…

Are low interest rates punishing savers? Hardly!

Posted By |
robb-engen
Robb Engen, Boomer & Echo

By Robb Engen, Boomer & Echo

It’s easy to see how savers feel punished in today’s low interest rate environment. You have to look hard to find a daily savings account that pays more than one per cent.

Fixed income investments aren’t much better, with 5-year GICs barely touching 2 per cent. All of this means parking your short-term savings will do little more than keep up with inflation – you’re treading water, at best.

Rates have fallen steadily for a quarter century

We’ve seen a steady decline in rates for the past 25 years – around the time when the Bank of Canada adopted its inflation-control target to preserve the value of money by keeping inflation low, stable, and predictable. In January 1991, the overnight rate was 10.88 per cent, the interest paid on daily savings was 9.66 per cent, and inflation ran at 6.9 per cent. By 2002, the overnight rate fell to 2.25 per cent, daily savings interest dropped to 1 per cent, and inflation held steady at a now familiar 1.4 per cent.

Related: Can you succeed with an all-GIC portfolio?

So should we long for the days when GICs paid 10 per cent or more? Are low rates really  punishing savers? Hardly. Continue Reading…

Dealing with Longevity Risk

Posted By |
moshe_milevsky_risk_gallery6
Moshe Milevsky (Advisor.ca)

Dealing with Longevity Risk is a “hot topic,” according to someone who’s an expert on the topic. Read this “as told to” interview with Moshe Milevsky, the prolific financial author and finance professor at the Schulich School of Business.

The risk is that as people go from savers (Wealth Accumulation) to relying on retirement income (Decumulation), there’s always the danger of running out of money before you run out of life.

There is of course a solution called annuities but for some reason both investors and their advisors aren’t yet flocking to them. This may be because it involves losing control over your capital to an insurance company and is an irrevocable decision, at least for the portion of your capital being annuitized. Another reason is it often means that capital won’t be available to one’s heirs, depending on the options chosen.

Interest rates low, but mortality credits on annuities become important as you age

Even so, Milevsky tells the site that “single premium income annuities are often under-rated as a retirement planning tool.” Yes, interest rates are low but Milevsky argues that as you get older, mortality credits become relatively more important. In the end, it’s all about peace of mind.

In any case, no one ever said you have to annuitize  ALL your capital. Read Milevsky’s piece and you may conclude that at least some of your capital might be annuitized at some point.