How to win using annuities in retirement

How to win using annuities in retirement


In this underused strategy, weigh your age and interest rates, then get the timing right.

by Jonathan Chevreau

November, 2016

Presented by: Henley Financial & Wealth Management , If you would like a detailed explantion of how this could work for you please feel free to contact Winston L. Cook

The good news is most of us can expect to live longer. The bad news is that the decline of defined-benefit pensions, along with chronically low interest rates, makes it harder for us to avoid outliving our money.

For those without workplace defined-benefit pensions, annuities can offset that risk by acting as a form of longevity insurance. You hand over capital to an insurance company today in exchange for a guaranteed flow of income for as long as you live. In a real sense a DB pension, with its guaranteed payouts, is annuity-like. As are programs like the Canada Pension Plan (CPP) or Old Age Security (OAS).

Despite similar terminology, defined-contribution pensions, RRSPs, TFSAs, and non-registered savings are not real pensions, cautions Schulich School of Business finance professor Moshe Milevsky. While those vehicles will help out in retirement, the only way you can create a real guaranteed income for life is to annuitize, he explains in the second edition of Pensionize Your Nest Egg.

Nevertheless, annuities are underutilized because they are misunderstood or viewed as undesirable. Yet, new “fintech” alternatives may do the same thing as annuities, only using terms such as peer-to-peer longevity insurance or investment funds with longevity insurance.


Milevsky argues that even at today’s rock-bottom interest rates, annuities should pay more than comparable fixed-income investments because of the built-in mortality credits. “Anyone who bought an annuity five years ago is very happy,” Milevsky says.

He adds: “Everyone should have a source of income that’s predictable, inflation-adjusted and will last for the rest of their lives.” The trick is knowing when to annuitize. The longer you wait, the more you receive on a monthly basis. Milevsky’s rule of thumb is to annuitize when the death rate exceeds the interest rate. For example, relatively few die by 65, so the death rate is under 1%; buy an annuity now and it will give you little more than current interest rates. Wait until your mid-70s and the death rate starts to rise. That’s when annuities start to look much better.

This question often arises the year a retiree turns 71 and is forced to convert an RRSP into a Registered Retirement Income Fund (RRIF) or an annuity. Fee-only planner Marie Engen, co-owner of Boomer & Echo, says this is not an either/or case. You probably should do both, particularly as you move into your 70s and 80s. Ideally, she says, pensions and annuities will cover basic retirement expenses, leaving the rest for investment growth and more liquid access to money for more enjoyable lifestyle expenses.

For healthy males, Milevsky suggests annuitizing between 70 and 80, adding 5% or 10% more each year, until you’re almost entirely annuitized between ages 80 and 95. Because spouses and children can be impacted, the whole family needs to join the conversation, particularly since capital that has been annuitized can’t be converted back. That means your heirs will inherit little or none of what is annuitized.




Keep in mind the distinction between registered and non-registered annuities. Payments from registered annuities are fully taxable like RRIFs and, on death, heirs will be taxed based on a same-day valuation. According to Ivon Hughes of Montreal-based, a healthy 65-year-old male not wanting a guarantee period would get $531.49 monthly income from a $100,000 registered annuity. At age 71 this income rises to $636.34, and at age 80, he’ll get $946.76.

With non-registered “prescribed annuities” the interest paid out is taxable but not the return of capital. Keep in mind, the Canada Revenue Agency is updating its mortality tables and increasing the taxable portion—people are living longer. That makes annuitizing with registered funds more attractive, Milevsky says. A $100,000 non-registered annuity without a guarantee period pays out $509.97 at 65, $606.12 if acquired at 71, and $789.03 at age 80.

Milevsky favours plain-vanilla annuities and cautions against buying too many bells and whistles: every time you add guarantees, minimums, and survivorship benefits, you water down the mortality credits.

To mom on her day!

A Mother loves right from the start.

She holds her baby close to her heart.

The bond that grows will never falter.

Her love is so strong it will never alter.

A Mother gives never ending Love.

She never feels that she has given enough.

For you she will always do her best.

Constantly working, there’s no time to rest.

A Mother is there when things go wrong.

A hug and a kiss to help us along.

Always there when we need her near.

As I look back on my life

I find myself wondering…

Did I remember to thank you

for all that you have done for me?

For all of the times you were by my side

to help me celebrate my successes

and accept my defeats?

Or for teaching me the value of hard work,

good judgement, courage, and honesty?

I wonder if I’ve ever thanked you

for the simple things…

The laughter, smiles, and quiet times shared?

If I have forgotten to express my gratitude

For any of these things,

I am thanking you now…

and I am hoping that you’ve known all along,

how very much you are loved and appreciated.

As always we never get around to thanking the ones

We love when we can… give your mother a hug because you never

Know when that time will come and you wished you could one last time.

Part 2, of the great debate… Pay down the Mortgage or contribute to your RRSP!

Part 2, of the great debate… Pay down the Mortgage or contribute to your RRSP!

 Part 2, of the great debate… With RRSPs at the forefront of everyone’s minds I want to continue to share with you comments on the most common debate. In Part 1, we talked about three questions you should ask yourself, below we will show how you might be able to contribute to your RRSP and put a little extra down on your Mortgage.

Should I pay down the mortgage or contribute to the RRSP? 


Generally speaking, either financial strategy is a good choice. It is better than spending the money on things that have no inherent financial value. It is also better than “investing” (I use that term loosely) in depreciable assets like cars. Let’s compare the financial benefit of the two alternatives. First, let’s look at your mortgage. We know that mortgage rates are around 2.7%. You might think that paying down the mortgage means you forego paying 2.7% in the future, and therefore, the mortgage pay-down has a financial benefit of 2.7%. Most mortgages are not tax-deductible thus you must earn more than a dollar to pay down a dollar of debt. In fact, you probably need to earn about $1.23 to pay down a dollar of debt (depending on your tax bracket – Middle income is about 23%). Therefore, paying off your mortgage has an after-tax benefit of over 2.7%. Remember, the higher the interest rate on the mortgage, the more attractive it is to pay down the mortgage.

Now let’s look at the RRSP.  If you are in the middle marginal tax bracket, you will save around 23% in tax (combined federal and provincial; note: rates vary from province to province). In a higher tax bracket, an RRSP contribution might save you as much as 46% in tax savings. The bottom line is that when you compare the two scenarios, a dollar put toward the mortgage saves you 2.7% in interest while a contibution to your RRSP could save you 23% in tax (as discussed 23% is around the middle-income tax bracket). Given the choice, you would likely take a 23% saving over a 2.7% saving. The final point in favor of making an RRSP contribution is that making the RRSP contribution may give you the opportunity to  invest in your RRSPs and pay down the mortgage. For example, let’s assume you have $10,000 and you are in a 23% marginal tax bracket. By contributing to the RRSP, you could save $2,300 in taxes and potentially get that in a refund. Once you get the refund, you can then take the $2,300 and pay that down on the mortgage. You have created $12,300 out of $10,000, $10,000 went into your RRSP and because of that contribution, the government potentially refunded you $2,300, which you then put towards the Mortgage.

Generally speaking, anytime, you can pay down a big debt it is beneficial to your overall financial security. The ability to invest in yourself and pay down the mortgage if done correctly creates financial success.

Reality tells us that this is not a debate but sound advice… we are in control of our own situation – sometimes using your rebate to pay for a vacation seems like a better option. The choice is yours make (and you deserve it), but you only have one opportunity per year to double dip between your investments and debt reduction. The choice is yours!

Note: Please be advised that the percentages used in this article are for ease of calculations to help you understand the concept and are not meant to be everyone’s valuation each person’s situation is different.

Think of everyone during the Holidays

Some thoughts around the holidays…It is important to remember that not everyone is looking forward to Christmas or the New Year. Some people are not surrounded by large wonderful families and friends. Some of us have problems during the holidays and are overcome with great sadness when we remember the loved ones who are not with us. For many, it is their first Christmas without a particular loved one, many others lost loved ones at Christmas time. And, many people have no one to spend these times with and are besieged by loneliness. We all need caring, loving thoughts right now. May I ask my friends wherever you might be, to make someones day with a smile, take the time to support to all those who have family problems, health struggles, job issues, worries of any kind and just need to know that someone cares. Please do it for all of us, for nobody is immune.

Peace, Joy and Love.

There is always time for a drink with friends…

There is always time for a drink with friends…

Remember the holiday season is a time to connect with friends and family to celebrate. Tis the season to be jolly, proceed with caution and be responsible.  Merry Christmas and Happy New Year!


A professor stood before his philosophy class and had some items in front of him. When the class began, he wordlessly picked up a very large and empty mayonnaise jar and proceeded to fill it with golf balls. He then asked the students if the jar was full. They agreed that it was.

The professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed it was.

The professor next picked up a box of sand and poured it into the jar. Of course, the sand filled up everything else. He asked once more if the jar was full.. The students responded with a unanimous ‘yes.’

The professor then produced two Beers from under the table and poured the entire contents into the jar effectively filling the empty space between the sand.

The students laughed.

‘Now,’ said the professor as the laughter subsided, ‘I want you to recognize that this jar represents your life. The golf balls are the important things—-your family, your children, your health, your friends and your favorite passions—-and if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter like your job, your house and your car. The sand is everything else—-the small stuff.

‘If you put the sand into the jar first,’ he continued, ‘there is no room for the pebbles or the golf balls. The same goes for life.

If you spend all your time and energy on the small stuff you will never have room for the things that are important to you.

Pay attention to the things that are critical to your happiness.

Spend time with your children. Spend time with your parents. Visit with grandparents. Take your spouse out to dinner. Play another 18. There will always be time to clean the house and mow the lawn.

Take care of the golf balls first—-the things that really matter. Set your priorities. The rest is just sand.

One of the students raised her hand and inquired what the Beer represented. The professor smiled and said, ‘I’m glad you asked.’ The Beer just shows you that no matter how full your life may seem, there’s always room for a couple of Beers with a friend.

Henley Financial & Wealth Management wishes you the best of the holiday season.

See you back here in the New Year!

Lest we forget! Thank you to all that served and continue to serve our great country.

Lest we forget!  Thank you to all that served and continue to serve our great country.

Thank you for all that served our country, giving us the freedom we enjoy today. Thank you to all that continue to serve our country and put themselves in harm’s way to protect us from what the world has become.

I leave you with this poem below… a tribute to the fallen soldier.
The GreatWar 1914-1918
In Flanders Fields
Flanders Poppy on the First World War battlefields.
by John McCrae, May 1915

In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields. Lest we forget.

When should you invest?

When should you invest?

We as humans tend to get caught up in media hype about when that next stock market plunge will come. Especially now when the markets have been in the midst of the best run in its history.

At some point what goes up must come down…

In nearly 90 years of market history, if you bought stocks on the absolute worst day the point where the market is at it’s highest peak. The average time to make your money back has been three years. It shouldn’t make you shy away from investing in the markets. But we hear time and time again, “Stay away from the markets because you will lose your money”.

Nobody likes to lose their money but it does not stop us from going to the casino or buying lottery tickets.  We gamble with a chance of beating the odds, so why is it that most people believe that they should always beat the markets on performance.

Of course, while we can tolerate three years to get our money back. You’re probably thinking, what if the big one comes and the world ends?

Let’s look at the 2008 financial crisis we thought that was the end, I remember people talking about how we are going back to the Great Depression. If you got in at the peak of the market the worst day, it would have taken 5.5 years to recoup your money.

Not bad considering if you invested the day before the 1929 crash, it would have taken you 25 years to be back in the positive. That’s a long time, even for a long-term investor. Many of the people I’m writing this for did not even have parents who were born when that happened. We are 86 years past that historic fall in times, and the media has no problem reliving that moment in history if the market shows any signs of correction.

So in 90 years of stock market history, only the Great Depression took longer than a decade to recoup your money. And only four times since did it take longer than 5 years to get back to gains.

The Facts:

While economists might disagree over the exact definition of a bear market, most financial professionals consider a 20 percent drop in the market from its previous high to be a pretty good indicator that the market is down. The problem is, few investors actually pick the bottom, and those that do are probably more lucky than smart. The primary factors that drives market prices up or down, and the stock market is no exception. If there are more stockholders who want to sell their stock than there are investors who are willing to buy, the price per share drops, driving the stock market down. Plenty of factors can influence this, company performance, positive or negative news about specific companies or industries, world events and political changes. So once again media creates frenzy as doom and gloom sells, and seriously who wants to hear about the good times being had by all invested in the market.


It is possible to make greater returns during a down market than in an up market, for the simple reason that stocks have the potential to move higher from a lower starting point. For example, a $1,000 investment at the stock market’s peak in 1929, just prior to the start of the Great Depression, would have been worth only around $170 by the time the market bottomed out in 1932. But if you had held on to your stocks until 1959, around 27 years, your original investment would be worth more than $9,500, for a total annualized return of around 7.8 percent. If you had waited and invested that same $1,000 at the bottom of the market in 1932, your total annualized return by 1959 would have been 16 percent return on investment. Not bad, but who would have done that because certain doom was happening.


So should we invest when the market is down? That seems obvious but human nature does not allow us to invest in a market going down, as we believe the end will happen. But history shows us that what goes up must come down and what comes down will definitely go up! The graph clearly shows how a market goes up and down… If we follow the market from 1900 we see a steady increase from the beginning to now, yes the market drops but it always rebounds within certain time frame to better than average returns depending on the cycle of the fall.

Whether you buy stocks in an up market or a down market, you are more likely to earn strong, positive returns if you buy stocks for the long haul. Just remember that buying in down markets present opportunities. Holding your investment during a down turn is vital to coming out ahead; as we know if you don’t sell in haste then you have lost nothing. But if you sell because of emotion you must accept the consequence of your losses. You cannot lay blame as history dictates the value of investing for the long term.

The purpose is to show you that you should buy low and sell high but regardless of your timing. You must have a secure financial plan that does not include emotion.

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