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Have any readers here used an Annuity Broker to purchase an annuity? Were you happy with there service? Are there any annuity brokers that you would recommend? I live in Ottawa.
Annuity Brokers
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Annuities can be sold by anyone with a life insurance license, but the demand for annuities is weak -- and not a lot of brokers have in-depth experience with them. I have no experience with Annuity Brokers but I would seek out a sales channel with extensive annuity experience.
That article was interesting. It mentioned a 10% number that I presumed meant that the buyers of annuities experienced death rates each year 10% less than the tables of total populations. It also indicated that 5% was needed for costs and/or profits. If that is still so (article is old) then I would not be buying Life Insurance Companies.
I found a mortality table that is out of date, so longevity will be longer now. I played with it in a spreadsheet with the idea of pooling with some friends in a club, the $$ we would have in Gov debt anyways. It would pay out the current debt's yield and increase it with inflation. When we reached 100, the remaining pool would be split between everyone/heirs prorated by how much they had already been paid while living.
I found that simply breaking even was VERY touch and go. Simply assuming the buyers would be the healthy people, and so using the death rates from the next younger group, was enough to wipe out solvency. Forget giving the administrator any 5% fees.
I found a mortality table that is out of date, so longevity will be longer now. I played with it in a spreadsheet with the idea of pooling with some friends in a club, the $$ we would have in Gov debt anyways. It would pay out the current debt's yield and increase it with inflation. When we reached 100, the remaining pool would be split between everyone/heirs prorated by how much they had already been paid while living.
I found that simply breaking even was VERY touch and go. Simply assuming the buyers would be the healthy people, and so using the death rates from the next younger group, was enough to wipe out solvency. Forget giving the administrator any 5% fees.
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The article isn't recent, but the concept of the annuity puzzle has been around for a while and that is a good brief overview, plus it references Yaari's classic paper (from 1965) on annuitization.
I use the Society of Actuaries RP2000 life tables (for healthy retirees over 50) [warning: link is to actual tables -- large PDF]. (You can adjust the payouts by health status using a couple of different methods. I'm no actuary, though.)
I haven't read the paper referenced in note 7 but I suspect the conclusion is not that annuitants have shorter lifespans than non-annuitants, but the opposite -- that annuitants live longer than non-annuitants, and the life tables used by insurance companies reflect those conservative assumptions, leading to lower payouts. Later mortality = fewer mortality credits = lower payouts to those remaining in the pool.
The tontine arrangement you described and the difficulty of breaking even is actually a reason to consider not retaining longevity risk but exporting some of it to an insurance company -- they have a much, much bigger pool to draw upon...
I use the Society of Actuaries RP2000 life tables (for healthy retirees over 50) [warning: link is to actual tables -- large PDF]. (You can adjust the payouts by health status using a couple of different methods. I'm no actuary, though.)
I haven't read the paper referenced in note 7 but I suspect the conclusion is not that annuitants have shorter lifespans than non-annuitants, but the opposite -- that annuitants live longer than non-annuitants, and the life tables used by insurance companies reflect those conservative assumptions, leading to lower payouts. Later mortality = fewer mortality credits = lower payouts to those remaining in the pool.
The tontine arrangement you described and the difficulty of breaking even is actually a reason to consider not retaining longevity risk but exporting some of it to an insurance company -- they have a much, much bigger pool to draw upon...
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Here is a link to an article on annuities by David Aston in the Feb 2009 issue of Moneysense.
http://www.moneysense.ca/2009/02/01/retirement-a-25-better-life/2/
He argues that annuities are a suitable choice for certain people and not others.He argues that an annuity be only a part of your income stream, but as such can be very useful.
It is not the best time to buy an annuity now due to historically low interest rates, but I may consider it in two to three years time.
http://www.moneysense.ca/2009/02/01/retirement-a-25-better-life/2/
He argues that annuities are a suitable choice for certain people and not others.He argues that an annuity be only a part of your income stream, but as such can be very useful.
It is not the best time to buy an annuity now due to historically low interest rates, but I may consider it in two to three years time.
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LEB: as your age advances, the sensitivity of annuity payouts to interest rates decreases. At advanced ages, annuities are remarkably insensitive to prevailing interest rates.
The linked article from MoneySense quotes Milevsky. Here's a slightly more detailed look at "how much to allocate to annuities?" from him. (Published in a U.S. magazine, but the argument holds in Canada.)
The linked article from MoneySense quotes Milevsky. Here's a slightly more detailed look at "how much to allocate to annuities?" from him. (Published in a U.S. magazine, but the argument holds in Canada.)
The idea that "It is not the best time to buy an annuity now" has often been said in the media. But the quotes are not different from historical quotes. You can see multiple year's quotes following. Sometimes you have to e-mail them to ask for an update.
http://www.ifid.ca/payout.htm
http://www.ifid.ca/payout.htm
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I apologise if the following is a stupid question: given that the cost of buying annuity reduces with advancing age, is it possible for younger person to buy an inflation indexed annuity (if they have the cash to do so) and use the payouts from the annuity as supplementary (or even primary) income?
This takes the risk out of investing for a younger individual.
Do insurance companies sell annuities to younger folks.
By younger I mean someone in the range 25 - 45.
This takes the risk out of investing for a younger individual.
Do insurance companies sell annuities to younger folks.
By younger I mean someone in the range 25 - 45.
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I'm not totally sure what you mean when you say, "given that the cost of purchasing annuities decreases with age, can a younger person buy them..."
There is a thin market for annuities under normal retirement age but yes, they can be purchased.
In general, though, you are talking about a deferred annuity -- you give the insurance company a lump sum or a series of regular payments and they give you an income stream starting not immediately, but at some point in the future, either for a guaranteed term or for your lifetime, and either with a guaranteed remainder or not.
GMWBs can function like (but are not) a form of deferred annuity.
There is a thin market for annuities under normal retirement age but yes, they can be purchased.
In general, though, you are talking about a deferred annuity -- you give the insurance company a lump sum or a series of regular payments and they give you an income stream starting not immediately, but at some point in the future, either for a guaranteed term or for your lifetime, and either with a guaranteed remainder or not.
GMWBs can function like (but are not) a form of deferred annuity.
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I meant that in general, the earlier you buy an annuity, the more expensive it is, isn't that so?
So buying at 60 is more expensive than at 65, etc.
So my question is - can a 30 year old pay lump sum money now and buy an annuity that pays out starting immediately.
How early can they be purchased?
What's a GMWB?
I'm in my late 30's and was told by my insurance agent that it would be stupid for me to buy one as a part of an early retirement / financial independence strategy at my age because of the cost involved. He wouldn't even bother giving me numbers.
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Globeinvestor.com prints up to date tables of what the major Canadian issuers are paying out monthly on a $100,000 annuity.
It is here-----
http://www.globeinvestor.com/servle...SL&sex=M&fund_type=R&province_of_residence=ON
Canadian Business Magazine On line has similar tables at:
http://www.canadianbusiness.com/my_money/rates/index.jsp
Both contain quotes for Life and Term Certain annuities, Registered and Non-registered, Male , Female and Joint annuities.
Unfortunately there does not seem to be any tables on current Variable Annuity rates.
It is here-----
http://www.globeinvestor.com/servle...SL&sex=M&fund_type=R&province_of_residence=ON
Canadian Business Magazine On line has similar tables at:
http://www.canadianbusiness.com/my_money/rates/index.jsp
Both contain quotes for Life and Term Certain annuities, Registered and Non-registered, Male , Female and Joint annuities.
Unfortunately there does not seem to be any tables on current Variable Annuity rates.
Two of the posters above seem to looking at these products as a way to offload the risk of doing their own investing. They will not do that, so forget it.
The major reason is that their 'benefits' come from the deaths of your age cohort with which your money is pooled. When you are young, not enough of you are dying to provide any benefit. It is only after 65 or 70 that we start dying fast enough to provide any benefit.
In the interim before that happens, and after you buy the product, the insurance company is draining the kitty, paying out more than they are currently earning. They accept this risk knowing that soon the deaths will start piling up and they can play catch up.
When you buy an annuity any time younger than 65 they have to accept the risk of such a long, long time before breaking even, that they price the products to firmly discourage you from buying.
The major reason is that their 'benefits' come from the deaths of your age cohort with which your money is pooled. When you are young, not enough of you are dying to provide any benefit. It is only after 65 or 70 that we start dying fast enough to provide any benefit.
In the interim before that happens, and after you buy the product, the insurance company is draining the kitty, paying out more than they are currently earning. They accept this risk knowing that soon the deaths will start piling up and they can play catch up.
When you buy an annuity any time younger than 65 they have to accept the risk of such a long, long time before breaking even, that they price the products to firmly discourage you from buying.
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I love tontine schemes.
Ah, the wonders of capitalism.
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I checked out the Globe Investor annuity chart and the payouts are higher than I expected. Keep in mind I know very little about annuities.
For example the BMO insurance pays out $544.62 monthly on $100k for a 55 year old which is $6335 per year. This seems quite high - it's higher than 4% (4% rule) and certainly higher than any kind of conservative fixed income products available.
Are these payments fixed payout and don't ever increase? Or am I missing something?
For example the BMO insurance pays out $544.62 monthly on $100k for a 55 year old which is $6335 per year. This seems quite high - it's higher than 4% (4% rule) and certainly higher than any kind of conservative fixed income products available.
Are these payments fixed payout and don't ever increase? Or am I missing something?
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