Jan 26, 2018
Personal Investor: Bull market anxiety? Think annuity
By Dale Jackson
If you have a diversified portfolio, that little voice in the back of your head might be telling you to take some gains off the table. That voice could be louder if you’re nearing retirement.
One option is an annuity, but according to a new survey by Ipsos, Canadians between 55 and 75 years old don’t know a lot about them. It found that while 62 per cent of respondents are worried about outliving their savings, only 12 per cent hold annuities in their portfolios.
The survey was done for RBC Insurance, but many insurance companies provide annuities. The operative word is insurance. Think of annuities as a defined benefit pension or even an insurance policy where premiums are paid in lump sums or regular payments for a set payout at a later date.
Here are some other findings from the survey:
- 91 per cent know they don't need to invest all their retirement savings in an annuity. The money you take out of the market and put into an annuity will no longer grow as the market advances, or shrink if the market tumbles. Insurance companies assume that risk and you pay for it in the premium. The good news is you can have both opportunity and security by putting whatever portion of your portfolio you wish into an annuity.
- 72 per cent know annuities can go in a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF). Your annuity can still grow tax free in a RRSP or RRIF until it is withdrawn.
- 63 per cent know an annuity provides a regular income stream through life. Premiums and payouts can be tailored to your needs.
- 28 per cent know an annuity does not need to be managed. Set it and forget it. Let the insurance company worry about where to invest.
