Let’s think about the following scenario. You’re a senior (or senior couple) with a downsizing strategy. As part of that strategy, you’ve recently sold your family home and have decided to rent smaller and more manageable accommodation.
However, the likelihood is that, as a former homeowner whose monthly mortgage payments have probably long ceased being necessary, you now have a significant financial adjustment to make: namely, the need to pay rent. Every month!
How to Ease That New Financial Reality
A recent article in The Globe and Mail – written by the widely published financial journalist Rob Carrick – explored an imaginative idea for making the need to meet those monthly payments less challenging.
That idea involved the purchase of an annuity, the proceeds from which enables you to pay all or part of your monthly rental costs. Mr. Carrick offered the following example:
“Let’s say you aim to get $3,000 in rental costs covered by an annuity. A mid-July (2022) survey of the annuity marketplace shows a 65-year-old would need to put between $495,371 and $514,846 into a non-registered annuity to generate that much money each month. The cost of an annuity paying $3,000 a month for a guaranteed 14 years (to you or your estate) would range from $522,156 to $560,891. The significance of 14 years is that’s how long it would take to get all the money you put into the annuity back through monthly payments ($3,000 x 12 x 14 = $504,000).”
Mr. Carrick also offered an alternative, involving a smaller financial commitment – $1,000 per month for example:
“Let’s say you’re a 75-year-old and want to generate roughly $1,000 in monthly annuity income. Royal Bank of Canada’s online annuity calculator showed in late July that buying a $150,000 annuity would give you annual payments of $12,541, or $1,045 per month. That’s easily enough to pay property taxes and utilities.”
Other Income-Generating Options Are Also Available
Annuities are not the only financial planning strategy for generating retirement income. There are several alternatives to both fixed and variable or indexed annuities, each with its own associated risks and benefits. These alternatives include bonds, certificates of deposit, retirement income funds, dividend-paying stocks and variable life insurance policies.
Annuities are among the safest options for long-term financial planning. They provide a reliable and steady stream of regular payments and offer an attractive choice for people looking to fund retirement, provide for loved ones or even pay for long-term care.
Get Expert Advice Before You Invest in an Annuity
But, like any investment strategy, annuities carry some risk and may not be the best financial planning choice for everyone. Your best bet is to discuss your annuity options with a credit union financial advisor who will have access to an annuity income calculator and – based on due discussion – will help you source an annuity provider that best meets your unique financial circumstances and needs. We recommend speaking to the great teams at Interior Savings, Coastal Community Credit Union or Coastal Community Private Wealth Group to learn more.