September 4, 2023

Annuities, buoyed by higher interest rates, regain their lustre

Thanks to today’s higher interest rates, an old staple of the retirement industry — the annuity — is making a big comeback.

Writing in The Globe and Mail, noted financial columnist Rob Carrick says annuities can be added to the “list of safe investments that have been revitalized by high interest rates.”

His article quotes insurance adviser Rino Racanelli as saying annuity sales “are 50 per cent higher than they were 18 months ago,” before the climb in rates. And, the Globe story continues, “financial planner Rona Birenbaum says she’s placing more money in annuities now than in the past, and she’s recommending annuities more often.”

Today’s higher interest rates have been good news for such savings tools as “savings accounts, guaranteed investment certificates, treasury bills, as well as annuities,” but the latter category has “a few other things going for them as well,” he writes.

“If you’re part of the wave of retiring baby boomers, they offer maintenance-free income that won’t demand your attention as you age. Annuities also offer refuge from the never-ending drama of stocks, bonds and everything else financial. Another benefit is the recent upgrade in the protection offered in case an insurance company selling annuities fails,” he writes.

For those who aren’t familiar with an annuity, Carrick offers up this explanation.

“Annuities are insurance contracts where the buyer exchanges a lump sum of money – as little as $25,000 or $50,000 – for a preset, guaranteed, lifelong stream of monthly income. According to Mr. Racanelli, a 65-year-old woman who bought a $100,000 non-registered annuity could receive as much as $6,386 per year, up 5.9 per cent from $6,032 12 months ago,” he writes.

Payouts today are about 20 per cent higher than they were only a few years ago, back in 2019, Carrick continues.

In the article, Naunidh Singh Hunjan of Hunjan Financial Group states that “this is really a special time when it comes to annuity rates,” and that he is seeing the best payouts from annuities that he has seen in years.

The article concludes by recommending that those converting savings into retirement income consider annuities for only some of their savings.

“Annuities should be considered only for a portion of your retirement savings,” writes Carrick. He notes that “Mr. Racanelli said his 65-year-old clients are typically putting 25 to 30 per cent of their savings in annuities, with older clients going as high as 50 per cent. Investments that are complementary to annuities include dividend growth stocks, which offset inflation with rising cash payouts to shareholders.”

Members of the Saskatchewan Pension Plan have the option of converting some or all of their savings into annuity income at retirement.

SPP’s Pension Guide explains the three annuity options in detail.

All three forms of annuity pay you income every month for as long as you live. With the life only option, payments stop upon your death, and there is nothing paid to your beneficiaries. With the refund life option, you get less monthly income, but a calculated death benefit is guaranteed to be paid to your beneficiaries. With the joint and last survivor annuity, your monthly annuity payments carry on (you can choose for your survivor to get 60, 80 or 100 per cent of what you were getting) for their lifetime.

Be sure to check out SPP today!

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Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

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