Now happens to be a great time for all retirees to consider an annuity for retirement income, but particularly women.
It looks more and more like we’re at a peak for interest rates, which play a big role in determining the payout from annuities. Lower rates in the future mean a lump sum of money used to buy an annuity will pay out less than you’d get today.
If you don’t have a company pension, an annuity is worth considering as a way to convert a slice of your retirement savings into a guaranteed stream of income for life. Annuities can be a fit for all retirees, but women especially because they live longer on average than men.
Too many women are ignoring annuities, though. A survey by Sun Life Financial suggests that only 12 per cent of women in the baby boom cohort have at least one guaranteed income retirement product, compared with 24 per cent of boomer men. The survey found that 49 per cent of boomer women don’t plan to use a guaranteed income retirement product, and 25 per cent are unfamiliar with them.
Annuities are an insurance contract where you exchange a lump sum for a stream of income paid as long as you live. One of the criticisms of annuities is that you give up control of your money. Once you convert your lump sum into an income stream, there’s no going back.
Also, people who die early in retirement may not get full value from their annuity. But Canadians are prone to dwelling on the risk of dying young while not paying enough attention to the financial risks of living longer than expected. Sun Life noted that the number of centenarians jumped 64 per cent in 10 years and that women are living about three years longer than men.
One caveat for women investigating annuities: longer life expectancy means lower payouts than a male of the same age would receive. The RBC Insurance annuity calculator shows a 65-year-old man buying a $100,000 annuity would receive $7,008.37 per year, compared with $6,627.38 for a woman.