Longevity and Solvency

This week I read two interesting articles in The Financial Post that made me think about the guarantees we can offer your clients. The first article is about increasing life expectancies, and the opening paragraph states: “Canadians are living longer. In fact, half of Canadian babies born in 2007 are predicted to still be alive at age 104 according to the World Economic Forum (WEF). Even a 65-year old couple has a 10 per cent chance of one of the two spouses reaching 100 and a 50 per cent chance that one will live to at least age 94.” I have usually used age 90 as life expectancy when I’ve put plans together. It’s probably time we start doing a scenario with age 100 as more and more Canadians are going to reach that age. The second article is about defined benefit pension plans. In the past when I’ve worked with advisors our main concern has been can we create the same guaranteed income in retirement if we commute the pension and which retiree benefits will have to be replaced. More and more, a third consideration is coming into play – will the pension plan be viable enough to supply the guaranteed income? In fact, I recently helped an advisor with a client who had just such a concern. After doing the math and showing that under reasonable returns, commuting the pension didn’t make sense from a guaranteed income point of view, the client still went ahead and opened a LIRA because of their uncertainty about the pension plan living up to its obligations. I can’t think of a better solution for both of these issues other than an annuity or GMWB. Both the longevity and solvency risks are eliminated when annuities are used. And, they are backed by major insurers as well as Assuris protection. Take care, Scott Edgington Director of Wealth Qualified Financial Services scott.edgington@qfscanada.com 416-786-4140