Case Study – Joe
Age: 70
Health status: Good
Joe is tired of stock market fluctuations and the ultra-low interest rates the bank has paid over the prior decade (2022 and 2023 excluded). He is also concerned about his standard of life if he was to live well past his life expectancy. Joe is interested in guaranteed, stress-free income every month, regardless of how long he lives.
Joe is in a solid financial position from an asset perspective. He has real estate holdings and a sizeable non-registered investment portfolio. He has a spouse who has a company pension plan, but Joe was not a member of a pension plan during his working years.
A recommendation for Joe that checks a lot of boxes is to allocate a portion of his non-registered investment portfolio into a life annuity, guaranteeing a monthly income for the entirety of his life.
NOTE: Registered Retirement Income Funds (RRIFs) are another type of investment account that is commonly transferred into a life annuity by retirees, as the loss of liquidity is less impactful due to the tax nature of RRIFs.
Here is a breakdown of the financials:
- Joe deposits $200,000 with a reputable Canadian insurance company
- In return, the insurance company will guarantee a monthly payment to Joe of $1,400 per month, or $16,800 per year – this income will never decrease and will continue for Joe’s entire life
- If Joe were to pass away immediately, income payments will continue to his spouse or estate for 10 years. He also has the option to index the payments to inflation
The life annuity accomplishes the following for Joe:
- He is not responsible for overseeing the investments or doing any legwork himself
- He is now protected from stock market fluctuations and low interest rate environments
- He knows exactly how much he will receive from the annuity provider on a monthly basis whether he lives until 85, 90, 95, 100, or beyond
DISCLAIMER: numbers will fluctuate based on age, gender, guarantee periods and annual increases.
Contact Jeff Graham at (604) 363-7549 or jeff@firstoakfinancial.ca for more information or to receive a quote for a life annuity.