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Makes me wonder why you would ask for opinions on a forum when every opinion on this thread that doesn't agree with you seems to be an affront.

You sure seem to have it all worked out, and so for myself, I'll leave no further comments. You've got this already. Go Foxx88...........

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Discussion Starter #62
Actually didn't take it as an affront ... was just responding to the previous comments. No one has it all worked out. Anyways, my question at the outset was what do people think about planning to age 110 versus a shorter time period and it's been a useful discussion. No problem with different opinions and I welcome them. It's the sarcasm and mockery of one or two people I don't welcome ... it's possible to discuss things like adults without that, but some people on the internet don't treat other people on the internet like human beings (that's what affronts me).

As for annuities, someone else brought that topic up, and since they did I responded why why I'm not interested in them, at least not right now. That isn't being "affronted" ... it's addressing their post. So don't be affronted by thinking I'm affronted by different opinions when I'm not.
 

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I'd rather leave any money left to my children rather than an insurance company. There must be a lot of cases the insurance company is laughing all the way to the bank.
It was this comment that soured some views. Surely you know that insurance companies work with actuarially determined data. Die before age you are supposed to die and the lifeco wins. Live longer than when you are supposed to die and you win. Of course, there is a profit element involved too, which is what makes DB pension annuities a better deal for pensioners than profit oriented lifeco annuities. There is a place (and time) to run a financial plan to perhaps 90 or 95, but have some of one's assets in longevity insurance if one lives to 100 and beyond. The combination is better than one might think at first blush.

I won't be buying any such annuity because I have the resources to fund my life however long it goes, but not many have that luxury. Financial plans are very situational AND personal. There is no single right answer.
 

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The basic assumption of drawing down capital is that the person does not have enough without doing that. I disagree with that assumption. They simply haven't figured out how to do it on what they do have. Travel is actually a good example as it is something you can do on almost any amount of money you have and still get the same amount of happiness out of doing it.
You are just demonstrating (repeatedly) that you do not support living out your last dollar. That is a valid strategy. It just does not belong in this thread.
 

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Discussion Starter #65
I'd rather leave any money left to my children rather than an insurance company. There must be a lot of cases the insurance company is laughing all the way to the bank.
It was this comment that soured some views. Surely you know that insurance companies work with actuarially determined data. Die before age you are supposed to die and the lifeco wins. Live longer than when you are supposed to die and you win. Of course, there is a profit element involved too, which is what makes DB pension annuities a better deal for pensioners than profit oriented lifeco annuities. There is a place (and time) to run a financial plan to perhaps 90 or 95, but have some of one's assets in longevity insurance if one lives to 100 and beyond. The combination is better than one might think at first blush.

I won't be buying any such annuity because I have the resources to fund my life however long it goes, but not many have that luxury. Financial plans are very situational AND personal. There is no single right answer.
I probably should have explained myself better ... wasn't saying there's no place for annuities in a retirement plan for some people, I was saying I'm not comfortable with the idea of handing over a chunk of money for an annuity because the principal is gone forever, and there's no possibility of passing that down. I also don't know a lot about annuities so I can't really have an informed discussion about them. My response is a "gut reaction" to handing over a chunk of my retirement fund to an insurance company. Who else sells annuities other than them? How is a DB pension annuity different from what an insurance company sells, and who sells them?

I realize one could come out ahead with an annuity if one lived long enough, but the opposite could also happen. Once one buys an annuity it can't be undone like other investments. I'm not up on the topic, but my personal comfort level is not to hand over a chunk of capital that I no longer have any say in other than to collect monthly income. If I decided down the road I wish I hadn't done that, then it would be a mistake that can't be undone.

Yes, I know insurance companies use actuarial data as they do for life insurance premiums ... for me, it's hard to imagine that an annuity wouldn't be tipped in their favour to make profit. If there are other types of annuities I haven't heard of, then I'd be interested to hear. However, if anyone commenting on annuities sells them, that should be stated.

As you can see, I don't know much about annuities, but my comfort level with the idea is low.
 

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Discussion Starter #67 (Edited)
Thank you for the links ... I'll read up soon.

I'll edit to add: My financial planner would compare an annuity with how well my investments could do/are doing elsewhere. I have a lot of money in balanced funds that have had 9.2% annualized returns over 10 years, and 8 and 8.4% since inception, inclusive of fees. Of course, we all know past performance is no indication of future performance. The thing to determine would be whether an annuity would potentially provide returns better than how I'm already invested.
 

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As you can see, I don't know much about annuities, but my comfort level with the idea is low.
Not suggesting they are, but just don't denigrate them. They have a place for longevity insurance, especially for those that don't have a portfolio that can see them to the 'end'.

A commercial annuity at current (low) interest rates is not going to compete with CAGR 8% returns or perhaps even CAGR 6% returns so that is not a favourable choice now. You would be wasting your money having that analyzed now, but keep your mind open to it as you age towards 75-80. Who knows whether CAGR returns of 6% will even be possible, or whether interest rates have doubled or tripled making an annuity for a good portion of one's remaining life an attractive option? The investing environment can change as well as one's personal circumstances.
 

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Discussion Starter #69
Not suggesting they are, but just don't denigrate them. They have a place for longevity insurance, especially for those that don't have a portfolio that can see them to the 'end'.

A commercial annuity at current (low) interest rates is not going to compete with CAGR 8% returns or perhaps even CAGR 6% returns so that is not a favourable choice now. You would be wasting your money having that analyzed now, but keep your mind open to it as you age towards 75-80. Who knows whether CAGR returns of 6% will even be possible, or whether interest rates have doubled or tripled making an annuity for a good portion of one's remaining life an attractive option? The investing environment can change as well as one's personal circumstances.
Haven't read all the articles you provided links to, but quickly scanned one that suggested, as you say, annuities might be better bought when one is considerably older. I appreciate the information and will keep this in the back of my mind. My FP has never said I don't have enough money to see me to the 'end' ... that would only happen if I overspent. I anticipate there will still be money left unless I live an incredibly long life, such as to age 110, which isn't in my family history.
 

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I receive a DB pension, but I was offered the commuted value before I retired.

The commuted value offered would have bought an annuity benefit that wasn't even close the DB monthly benefit.

It is widely known that commuted values won't buy an annuity that replaces the pension. The insurance companies don't work for nothing.

The only way to beat the pension benefit is by investing the money well on your own, and that will require a mixture of luck and skill.

If people don't have a pension and want a fixed income, an annuity might be something to consider, but people shouldn't make the mistake of comparing it to a DB pension.
 

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My understanding is that one of the key reasons why market annuity returns are lower than pension plan returns is fairly straightforward.

People who buy annuities are typically in good health. So much so that they expect to beat the mortality tables-and many do. So insurance companies adjust their rates to reflect the typical longer average lifespan than the general population...which includes DB plan members.

I believe that annuities can be a good solution for some people. Especially those who are 70 plus, in good health, and when interest rates are high/annuity costs low. It certainly is not a one size fits all situation.
 

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Discussion Starter #72 (Edited)
I receive a DB pension, but I was offered the commuted value before I retired.

The commuted value offered would have bought an annuity benefit that wasn't even close the DB monthly benefit.

It is widely known that commuted values won't buy an annuity that replaces the pension. The insurance companies don't work for nothing.

The only way to beat the pension benefit is by investing the money well on your own, and that will require a mixture of luck and skill.

If people don't have a pension and want a fixed income, an annuity might be something to consider, but people shouldn't make the mistake of comparing it to a DB pension.
I don't have a DB pension because I was self-employed for many years, and before that where I worked didn't have a pension plan anyways. What I'm retiring on is investments and CPP.

Edited to add: the majority of my retirement income from investments.
 

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I don't have a DB pension because I was self-employed for many years, and before that where I worked didn't have a pension plan anyways. What I'm retiring on is investments and CPP.

Edited to add: the majority of my retirement income from investments.
Same boat I am in. CPP isn't much for wife and I and only pays about $1200/mth but I have several registered and unregistered investments that I look after myself, while drawing down from what I consider a cash wedge. The cash availability eliminates having to sell investments at the wrong time.
 

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I would be interested in seeing some what-if scenarios or sensitivity analysis on living to age 100 or 110 vs. a more traditional planning number like age 90. Maybe you could get your planner to analyze that for your situation. If the plan included ramping down spending as one ages, it might not be that significant. For myself I am using variable withdrawal, and have planned to leave a moderate sized estate. If I start running out of money the estate and the value of my house are a safety net.

For annuities, I look at them as longevity insurance, not an investment. I have no pension so an annuity might help mitigate the risk of running out of money due to failure to die in a timely manner. You don't buy life insurance and say "damn I did not die so all the money I spent on premiums was wasted". You don't buy house insurance and say "darn, my house did not burn down so all those insurance premiums were wasted". So why would you say the money spent on an annuity was wasted just because you did not live longer than your actuarial life expectancy. If you live a very long time you could say wow that annuity was worthwhile. Or if you died shortly after buying an annuity I guess you could say crap that annuity was really a waste of money.....no, wait...

To me you don't buy an annuity as an investment or for normal life expectancy or market performance. You buy it to protect against living a long time and running out of money, or against bad market performance eroding your money. It does not however protect against inflation*, but deferring CPP to age 70 can do that, as can equity investments. People with an inflation indexed DB pension that covers all their expenses have little worry about outliving their savings. And people that have low savings but that can responsibly live on CPP/OAS/GIS also don't have to worry about outliving their meagre savings. But for many people between those two positions, an annuity could provide protection against adverse circumstances.

It's easy to say you could do better by investing, especially over the past decade's bull market. But there have been times like the crash of 1929, the dirty thirties, the stagflationary 1970s and the lost decade of the 2000s where poor market returns could cause sequence of return risk to do some real damage to an investor's portfolio.

I went to a free retirement planning seminar at the local library. The speaker was from IG Wealth (formerly Investors Group). I asked about purchasing a basic, single premium, immediate annuity somewhere between age 70 and 80. The speaker's response was that purchasing a deferred annuity now (I'm early 60s) makes sense because I would get higher payments in the future. Well duuuuhhhh! The insurance company would have my money to invest for many years before the payouts started. And the cynic in me says the advisor's motive is to make a commission now, not in 15 years. But that won't stop me from considering an annuity when the time comes. It can also protect against dementia or scammers / financial abuse by locking up enough funds to live on when you could be most vulnerable.

I've tried to develop a flexible plan with diversified assets and income streams that will survive good times and bad times, not just hope for a rosy future influenced by recency bias.

*An inflation indexed annuity could protect against inflation, but I have heard they are very expensive due to the insurance company having to take on unknown future inflation risk.
 

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Last year I hired a financial planner to do overall planning and retirement planning, after having found myself in a position to potentially retire early. I'm coming up to the end of the first year using this planner's services and so far I'm happy. However, there's one issue I want to discuss with the planner, and that's the outer age limit used for my financial plan, which is one factor that will affect how much monthly income I draw. The age the planner uses for all clients is 110. Yep, 110! At the risk of sounding negative, I don't think I'll live beyond 90 (based on family history) and neither of my parents made it to 85. I had one grandmother who lived to 105. When I tell my friends the planner is basing my financial plan on potentially living to age 110, they say that's ridiculous. I know he's chosen that age to ensure the financial plan outlives any eventuality in life expectancy.

So the question is: what AGE do people think financial planning should go to? What is reasonable? What is the norm to plan to? I thought maybe 100 ... one friend said 90. I think 110 is far, far beyond what I'll live to.

Given that most of my retirement income will come from investments (I don't have a pension plan), I certainly have to ensure that my money outlives me, and I want to leave something for my children. I have enough money to retire on comfortably but not so much to live lavishly (not my style anyways, but I do want to travel more than I have in the past and travel isn't cheap). However, my feeling is that the age to which the planner is planning will have a bearing on my sustainable monthly income, and thus how much travelling I can afford. It's important to balance living life to the fullest possible while ensuring I don't run out of money. But age 110 ... my feeling is this is likely 25 years beyond what I'll live, and at a minimum 20 years beyond. Of course, no one has a crystal ball. But the average life expectancy for women in Canada is about 85.
I like to answer the question asked and only that.
First 110 is far too long. Even if you were alive then you wuld not be doing much.
If you live in Canada, even without any funds beyond your won RRSP/RRIF/...or what ver it is structured as, we have social safety net, that would provide long term care.
Yes there are those over 100 still on their own, but that number is avery small % .
Now the second part: If you are in excellent health & from a genetic pool of long life. I would plan to 100
If you have normal health etc. & you mentioned family to age 85? Id go to 95. Essentially 10 years past your expecte life span.
..One commong stratagy many use;
Do planning to age X, not counting the residence. If you outlive your $ and by "that" age.will probably need some type of long term care.
Either a retirment home, or nursing home.
That can be funded by selling the house.
Ironically, my wife & I will be meeting with a fiancial planner to discuss the very plans you ask about.
Ill be requesting age 95 as the end date. Not counting our home...depending on numbers might even use 90.
I also have some life insurance & will be converting about 20% of RRSP funds to an annuity at some point.
All plans need to be looked at Holistically. Including CPP/OAS/ other gov funds.
We have to be honest, when looking at the future.
Im not 65 yet, I know many people who are older than me.
One aunt who is mid 90s, She lives in a retirement home. For her age, great mental shape. Asside form the monthly rent costs, spends very little/year.
One uncle low 91, bad health last 3-4 years.
Friend of mine recently lost mom & dad late 80s low 90. Last few years of either life, they did very little.
Point is, we may live longer, but reality is, unless you are near athletic in your 60s, your 80s will become the turning point of costly activities.
Yes..I know full well eveyone has a story, of a relative who is 99 and still driving etc, but that is not the norm.
One other story. I have been on a pension/investment advisory committee years ago. We had a speaker come in from WM Mercer: Look them up. Top actuarial firm in canada.
Pension advisors to the largest in Canada.
The speaker that that time ( 1995) said " the majority of retirees will pass away with more $ than they started with"
Why? They over saved, over planned ( 110 yrs) and in retirment, spend way less than expected.
I appreciate NOT The majority, but I know 7 sets of people, in mid 60s to late 70s, who are in retirment and accumulating money.
Three of the six can not possiby without a major change of lifestyle, outspend their assets. Not even counting the house.
As Canadians we are a frugal/conservative bunch.
The financial plan needs to/should take into consideration the tipping point, when expenses drop off. while at the same time the portfolio is still growing?
Very few do & you end up with a case of a big bundle to leave to the kids
To conclude: pick an age you think you will live to, add 10 years to be safe.
The house, CPP/OAS/other will coast you through the rest.
 

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I think it's reasonable to ask...

When did your parents die? Then, add 8-10 years if you don't smoke, don't drink much, do exercise and do eat properly. Improved medical care plus healthier habits mean we will live longer than our parents. I would bet money on it. However, you may want to go the way of Socrates rather than spend the last five years miserable.

One man's opinion only.
 
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