![]() ![]() The insurance industry loves this new rule, too, so consumers can be excused for taking some time to consider all the costs and angles. A saver who put 10 percent of her nest egg into one of these policies could withdraw as much as 6 percent of her retirement account in the first year instead of the safer and more traditional amount of 4 percent, estimates Christopher Van Slyke, an Austin, Texas, financial adviser.Ī fee-only planner who tends to view many insurance products with some skepticism, Van Slyke likes these longevity plans for those reasons and because they convey a tax break, too: IRA and 401(k) money spent on these policies - up to 25 percent of the account’s value or $125,000, whichever is less - is exempt from the required minimum distribution rules that force savers over 70 1/2 to make withdrawals that count as taxable income. It also lets you take bigger retirement withdrawals in the years between 60 and 80. ![]() That takes the worry of outliving your money off the table. Not everyone will live beyond 80 or 85, so those who do so can collect more income than they would have been able to produce on their own. Like most insurance policies and traditional pension plans, these “longevity” plans take advantage of the pooling of many lives. For example, a 60-year-old man who spent $50,000 on a longevity annuity from New York Life could lock in $17,614 in annual benefits when he turned 80, the company said. These so-called deferred “longevity” plans kick in with guaranteed income when the buyer turns, say, 80 or 85 years old. The new rule focuses on a particular kind of annuity. Treasury Department has just given a tax break and its blessings to retirement savers who want to buy long-term deferred annuities in their 401(k) and individual retirement accounts. Rivard as well, but he says what’s key is setting expectations so clients are very clear about what an annuity can and cannot provide compared with other choices.(Corrects 8th paragraph to say annual benefits, not monthly benefits) “And with interest rates going up recently, there’s definitely been an increase in the number of clients asking if an annuity is appropriate for them.”Īnnuities’ lack of liquidity concerns Mr. For the majority of people, though, who are focused on retirement planning, it’s going to be the certainty that the annuity is able to provide,” he says. “There can be a lot of reasons assets flow into annuities. He adds that what they offer, in a word, is “stability.” Rivard also emphasizes that adding an annuity to a client’s portfolio depends on that client’s specific circumstances. That holds true no matter where interest rates settle. “Having certainty of income really matters to clients who are looking specifically for guarantees, clients who may not have an employer-sponsored pension plan … or who want to know a percentage of their income in retirement is going to be assured,” he says. Jonathan Rivard, financial adviser and general partner at Edward Jones in Toronto, suggests annuities may be part of the solution for clients who are hoping for decades in retirement but are anxious they will outlive their savings. It’s another tool advisers can use when a client requires extra guaranteed income to cover a shortfall or plan for longevity. ![]() Guenther sees annuities as complementary to the rest of a client’s holistic wealth plan. Real estate may also become a more attractive option if interest rates drop and make investment properties more affordable. Guenther proposes to income-seeking clients a range of alternatives that preserve liquidity, including dividend-paying stocks and preferred shares. So, especially at times when interest rates are low, Ms. “A prescribed annuity would be something worth considering for a client in a higher income bracket and looking to generate income but in a more tax-advantaged way,” she says.Īn annuity’s big disadvantage is loss of liquidity. And as long-term rates have moved upward, BMO Insurance has seen interest in annuities rise to levels not seen since before the pandemic. ![]() But will demand hold if interest rates plateau or start falling?ĭaniel Walsh, senior vice-president and head of individual insurance and annuities at BMO Insurance in Montreal, points out that while short-term interest-rate fluctuations affect mortgages, lines of credit and guaranteed investment certificates (GICs), it’s long-term interest rates that matter for annuities. Get exclusive investment industry news and insights, the week’s top headlines, and what you and your clients need to know.Īn environment of rising interest rates and volatile investment markets has prompted more advisers and clients to consider incorporating annuities into their retirement income stream. Sign up for the Globe Advisor weekly newsletter for professional financial advisors on our newsletter sign-up page. ![]()
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