The recently released 2014 Sun Life Canadian Health Index reveals 45 per cent of Canadian respondents are worried about outliving their retirement savings. That’s not too surprising, considering Canadians are living much longer.1
We also asked, “If you were to live 10 years longer than you thought you would, how confident are you that your finances would cover your needs for those extra years of retirement?” One out of two Canadians who answered aren’t at all confident or don’t know if they’d have adequate resources.
Reducing longevity risk
Living longer isn’t an issue with payout annuities. They typically provide the highest rate of guaranteed income, for as long as your clients live. They may not know how this retirement income solution works – a majority of Canadians surveyed don’t2 – and you may have to correct a misunderstanding about the product.
Myth: I won’t live long enough to receive my principal back.
How long does it take before they’ll actually get their principal back? The answer might surprise you:
All the break-even points in the chart above occur on or before the average life expectancies for the corresponding ages. Your clients will be happy to know that after they break even, their payout annuity payments continue for the rest of their lives.
Getting the original premium back and benefitting from additional income payments from the insurer transform longevity risk into longevity reward.
Illustrating the annuity advantage
Show clients the age they can expect to receive their original payment back with Sun Life Financial’s new Annuity & GIC income comparison tool. It also compares the income a payout annuity generates with the income a GIC generates.
This client-facing digital tool creates compelling graphs and tables, customized with information from clients’ financial situations:
Help clients enjoy the savings they’ve built while getting the most from their money. They’ll likely want a retirement portfolio that’s flexible, yet secure.
Allocating 25 per cent of their retirement income portfolio to a guaranteed lifetime income product can offer security. Market downturns and interest rate fluctuations don’t affect income from payout annuities, and an added benefit is that they don’t need ongoing investment management.
Other investments, such as guaranteed investment certificates (GICs) and mutual funds, can provide flexibility, liquidity, and growth in the rest of the portfolio.
Payout annuities – part of the retirement plan
- We’ve written extensively about longevity in a recent Bright Paper, Running on Empty: Are we facing a longevity crisis in Canada?, which provides insights you can share with your clients.
- To help your clients understand how long they might live and the health risks they could face, sign on to sunlife.ca/advisor, access the Money for Life web app, and use the Longevity Risk Illustrator tool.
- The Sustainable income demo tool on the Money for Life web app can help clients see how a payout annuity generates additional income during their retirement.
- Also on the Money for Life web app, the Buy now, buy later tool helps clients between the ages of 65-75 understand the best time to buy a payout annuity to meet their retirement goals. It also explains the trade-offs associated with delaying a payout annuity purchase.
1 In Canada, a 65-year-old woman’s average life expectancy is almost age 87; a 65-year-old man’s average life expectancy is almost age 84. Thirty-five years ago, those averages were age 84 for women and age 80 for men. Life Tables, Statistics Canada, 2012.
2 2014 Sun Life Canadian Unretirement Index. When asked, “How well do you understand how life annuities work?”, 62% of respondents said not at all well.