Where can one invest a LIRA in GIC's? | Page 3 | GIC discussions | Discussion forum

NCC1701Z said
An annuity isn't about returns, it's an insurance product that protects one against longevity, variable market returns, mental deterioration and even irresponsible spending and scammers.

If your surviving spouse does not have any investment skills, knowledge or interest the annuity will provide them with a guaranteed income. For many this would be one of the main incentives. Vettese recommends to annuitize ~20% of your funds to provide some protection.

It's puzzling that everyone envies the coveted DB pension that has no estate value after the last survivor but they shy away from annuities.  

Well said though post #39 addresses a key point. People with DB plans tend to feel they are getting something for nothing IF the employer kicks in some of the funding. That is really just 'smoke and mirrors' though as employer contributions are simply a component of the employee's compensation package. The employer does that math.

To put it in perspective, if the employer paid the employee 3% more but the employee had to put that 3% into the DB plan, the net result would be no different BUT the average employee would likely perceive it to be different. They really are one in the same.

Annuities, whether CPP, DB plan, or a commercial annuity from a lifeco, have a legitimate place (base - foundation) in one's retirement plan. I am rather pleased to have taken my DB plan as an annuity when I retired, and not a lump sum. While relatively small, especially after a division of property in a divorce, it is still a great source of comfort for that payment to show up monthly in my bank account just like CPP. I don't care that it vapourizes upon my death. My estate will have some residual legacy for heirs anyway.

Those who are taking their DB in installments should make sure that the payor will be solvent for the next 20-30 years. This is probably not a concern if the payor is the federal government as they can always print the money but is a concern for a private sector company/entity.

A few years ago my broker told me that two of his clients were retired Nortel employees and they took a 30% haircut on their Nortel pension when Nortel crashed and burned.

"A bird in the hand is worth two in the bush." You may or may not want to take the lump sum now. It's your risk and your money.

It wasn't just Nortel, I heard that GM pensioners also took a haircut.

Anyway, your risk and your pension. I offer no advice either way. I am offering only anecdotes.

The shortfall in returns is not unique to the Nortel pension fund. All the DB pension funds that have been around for decades are affected. The Canada Post pension fund, for example, is also short, around $5 billion.

Not like an Alice Industries pension fund can somehow continue to invest in Government of Canada bonds with a yield of 10%+ while CPP and the Teachers funds can only buy the bonds for 4% to 5% yield.

As well, GM is gone too. Company went bust around 2009. GM sold its GM name to a new company that uses the GM name today. Original company was renamed Motors Liquidation Company. Any liabilities not assumed by the new company remains with Motors Liquidation Company.

All registered pension funds are a trust separate from the employer. That's why there's zero additional employer bankruptcy protection from taking a lump sum out into an individual locked-in RRSP.

Decades ago, the estimated future rate of return was much higher. So, a 5% contribution rate could have been estimated to be enough. Investment returns are much lower now. So, the contributions have to be more than 5%.

One can see that in annuity rates. I found earlier that, in 1992, a 70-year old male could buy an annuity that pays around $565/month for life for $50,000. So, $100,000 back in 1992 could buy around $1,130/month for life. Nowadays, $100,000 will buy only around $650/month (LifeAnnuities.com 2023 annuity rates).

The RRIF monthly quotes do look like they are for insurance company RRIF offerings.

One offering seems to pay an increasing income based on the minimum withdrawal formula to withdraw all the principal and earnings by age 90. The other offering pays a level amount until age 90:

The risk with the Sun Life Assurance Guranteed Funds is not significant.

Province of Ontario has a DBRS rating of AA(low). Bank of Montreal has a DBRS of AA.

Sun Life Assurance Company has a DBRS debt rating of AA. So, the estimated risk of default is about that of a provincial bond or an uninsured Bank of Montreal deposit.