Budget: Advanced Life Deferred Annuities | Page 2 | General financial discussion | Discussion forum

According to Canadian Encyclopedia: Old-Age Pension, Canada's first old-age pension in 1927 was means tested. The means test was intrusive.

As the result, when it was later replaced with Old Age Security, the means test was dropped:

The Old Age Security Act

The first old-age pension was enacted by the federal parliament in 1927. It was jointly financed by federal and provincial governments but administered by the provinces, as pensions were considered a provincial constitutional responsibility at that time. The plan paid up to $20 per month, depending on other income and assets, and was available to British subjects 70 years of age and older with 20 years of residence in Canada. A strict means test was applied and was widely regarded as humiliating.

In 1951, following an amendment to the British North America Act to permit the federal government to operate a pension plan, the Canadian Parliament passed the Old Age Security Act, which provided a universal pension, or demogrant, of $40 per month financed and administered by the federal government. All Canadians aged 70 and over who could meet the more liberal residence requirements were eligible, regardless of their other income or assets. Pension payments began in 1952 and were taxable.
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The means testing back then involved more than just income and assets. There were home visits by a government official. It also included the means of relatives!

This is from Passing the Means Test: The Old-Age Pension Applications of Norfolk County, Ontario, 1929-1948:

The Application, 1929-1948
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Other considerations

In addition to questions regarding eligibility, the application also contained sections for the applicant's statutory declaration and other, more clerical, notations such as the date the application was received, and whether the pension was granted or refused. Less self-explanatory are the sections requiring a list of all the applicant's living sons and daughters, and details of their contribution towards their parent's maintenance. This interest in the applicant's children stemmed from the revised 1927 Parents Maintenance Act of Ontario, which made adult children liable for the support of their aged and dependent parents.⁵⁸ Many applicants claimed that their children were unable to support them, no doubt thinking that this would make it easier to get a pension. However, as the applications indicate, such a claim did not automatically relieve children of their obligation to support their parents.⁵⁹
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The intrusiveness of the testing caused a backlash. The testing was consequently dropped when the 1927 old-age pension was succeeded by OAS.

2of3aintbad said

Thanks for your reply. I see that this is going to be tricky. It's not like the registered plan will have $150,000 in cash at the beginning of 2020, for making a single purchase of an ALDA. It is more likely that we would 'dollar cost average' a number of ALDAs, funded from income, maturing fixed income and sold equities, reduced by the RRIF withdrawals required. Is anyone else considering this option?

A $150,000 ALDA might be a lot of annuity!

I got an US estimate from Charles Schwab Income Annuity Estimator for a 65 year old male, income deferred until 85:

Deferred Income Annuity
Single Life
Male annuitant, born March 1, 1954
Lives in New York
Income starts March 31, 2039
Investment Amount $150,000

Payments:

$5,584/month for single life deferred, no minimum payment.
$4,402/month for single life deferred, $150,000 minimum payments.

You're welcome!

Keep in mind that the quotes are US quotes and not Canadian ones. US interest rates are different. US life expectancies may differ as well. So, the estimated income is only a rough idea of what a similar Canadian ADLA would pay out.

I did find some Canadian numbers at LifeAnnuities.com. Monthly income would be $750.99 for $100,000.00 life annuity purchased at age 65, income deferred ten years to age 75, with a minimum of 10 years of payments.

Similar US annuity from the Charles Schwab estimator would pay $1,016 per month.

LifeAnnuities.com does have a form to submit for a custom deferred annuity quote. The Deferral Period drop down only goes out "ten years" or to "80th birthday". Perhaps the Canadian annuity market is not yet developed for deferrals as long as 20 years or to age 85.

Those numbers include the cost of any minimum guarantees which are purchased when the deferred annuity is purchased. The minimum guarantees are not purchased years later when the deferred income starts.

Yes, the rates are attractive because a significant number of 65 year old males aren't expected to make it to age 85 or many years after that.

The 2013 to 2015 life expectancy from Statistics Canada for a Canadian male at age 65 is another 19.2 years. Age 65 + 19.2 = age 84.2. Those who actually do survive to age 85 are expected to only live another 6.4 years.

I don't think one has to defer all the way to age 85. That's the maximum deferral for the ALDA. I think the proposed ALDA allows one to defer the payments until anywhere from age 71 to age 85.

Norman1 said
Income won't necessarily increase when the ADLA starts paying out.

One approach is to buy an ALDA at age 65 that starts paying at age 78. Between age 65 and age 78, one would completely drain one's RRSP's and RRIF's. Starting age 78, one would be living off the ALDA payments.  

i don't understand why you would do that. If it's all the same, then why not just leave it in ordinary RIF life annuities at whatever age suits your circumstances?

I think it's too difficult to figure out exactly how to structure this as there are too many unknowns in people's futures.

In my unverified and possibly unverifiable view, life expectancy is likely to decrease over the next 20 years. I'm considering many factors that I think all point in basically the same direction.
The way things are going, with laughable progress on the climate change file and climate-deniers running the show, the grim forecast that was for 2040 now seems more imminent. It will cost lives, with the elderly being especially vulnerable and dispensable.
You don't have to agree with me, of course, but, as things stand, I would not even consider something that depended on me living to 90+ to maybe get my money's worth while i'm still alive. I think it's a ridiculous scam. It will be so complicated to figure it all out that people won't realize they're being scammed until it's too late.

I intend to stick with my current plan - the one that the government, insurance companies, investment houses, and the average "advisor" at your local bank or CU never mentions. I will keep winding down our RSP/RIFs as quickly as is reasonable, considering tax rates. I will minimize exposure to changes in withdrawal schemes. Banks, insurance companies and even CUs will not like what I'm doing because there will be less in it for them. And I will keep the after-tax money in my pocket and reinvest what I don't need as I choose as I go along, taking into account unfolding conditions.
Before I'm 85, should I live that long, I will be done. I will know exactly how much after-tax money I have. If I want, I can take out annuities with some or all of that money, which will receive very favourable tax treatment.
I believe this is a more reliable approach than playing a guessing game with insurers, withdrawal rates, life expectancies and taxes.

The two annuities cited are not directly comparable. The fellow who buys his annuity at age 75 has already had the use of his money and its income for ten years. The one who defers has lost that opportunity. The comparison would have to be for the end result starting with the same capital at 65 years for both.

Further, the one who has already survived to 75 has a longer life expectancy on average than the one who is only 65, so is more likely to survive past the average life expectancy 85 (which "happens" to match the guaranteed payout, perhaps not a coincidence). The point of comparison has to do then with how long you live past 85.

These are a couple of things that occur to me. It gets back to the problem of this being a very complicated calculation. There are just too many moving parts!

Yes, you could cash out your remaining RSP/RIFs before the annuity kicks in, but that assumes you have just the right amount with which to do this. It's the same problem with trying to make calculations around moving targets in the end. And you will only have 150K to work with in the end. The return may be high, but it won't necessarily be enough to live on. (I anticipate very substantial inflation within the next 20 years, which the govt will not be able to control, due to scarcities related to trends that are currently underway.) I don't see that you need to worry too much about just exactly how much you'd need to have available at age 78. I think you'd want to put in the maximum. The problem might be how much they are going to give you for it but, since I anticipate lowered life expectancies, I wouldn't see that as an issue. Market activities are also unknowable, so you might end up with a better deal at 78! No way to know.

I'm willing to bet that the insurance company actuaries, who are very well educated in these finer points and no doubt earn their high salaries will do a better job of that than the average Canadian, and thus the scales are tilted in their favour.

I can maybe see some value in this potentially, as a diversification strategy. Insurance companies may turn out to be more secure than banks since they devote a large portion of their energy to figuring out the odds of one thing or another.

You're quite right; it's an insurance product, not n investment per se. And, as with all insurance, I'd say don't buy it unless the risk of not having it is too scary to live with.

As always, the best defense is to figure out how to live in good health to 110 while growing your own veggies! Once I get that straight, I'll be happy to buy in.