{"id":2595,"date":"2023-06-15T14:49:26","date_gmt":"2023-06-15T19:49:26","guid":{"rendered":"https:\/\/advisor.wellington-altus.ca\/spiring\/?p=2595"},"modified":"2023-06-16T15:47:40","modified_gmt":"2023-06-16T20:47:40","slug":"will-annuities-remain-attractive-as-interest-rates-plateau-or-start-falling","status":"publish","type":"post","link":"https:\/\/advisor.wellington-altus.ca\/spiring\/2023\/06\/15\/will-annuities-remain-attractive-as-interest-rates-plateau-or-start-falling\/","title":{"rendered":"Will annuities remain attractive as interest rates plateau or start falling?"},"content":{"rendered":"

View full article<\/a><\/p>\n

An environment of rising interest rates and volatile investment markets has prompted more advisors and clients to consider incorporating annuities into their retirement income stream. But will demand hold if interest rates plateau or start falling?<\/p>\n

Daniel 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\u2019s long-term interest rates that matter for annuities. And as long-term rates have moved upward, BMO Insurance has seen interest in annuities rise to levels not seen since before the pandemic.<\/p>\n

\u201cUnless you have a traditional [defined-benefit] pension plan or a diversified portfolio generating income well in excess of your expected income needs, having a source of guaranteed income is very important,\u201d he says.<\/p>\n

\u201cAn annuity provides a series of periodic income payments for life, [so] you cannot outlive your income payments.\u201d<\/p>\n

If interest rates begin to drop, Mr. Walsh expects some people will turn back to alternatives that benefit from declining interest rates while also providing monthly or quarterly interest income \u2013 including fixed-income mutual funds and exchange-traded funds. Blue-chip dividend-paying stocks are another option. Of course, neither guarantees performance or income.<\/p>\n

However, even in a low-interest rate environment, he sees a place for annuities. That\u2019s because they provide a source of income that won\u2019t behave like other components of a portfolio, including GICs, which must be renewed when they mature at an uncertain future prevailing interest rate.<\/p>\n

Annuities, he believes, are an important source of income diversification.<\/p>\n

\u201cThe best time to buy an annuity is not necessarily when you think rates are high. It\u2019s whenever you need one to achieve financial security,\u201d Mr. Walsh emphasizes. In other words, it\u2019s about timing in a client\u2019s life rather than timing the markets.<\/p>\n

No correlation to market ups and downs<\/p>\n

Rica Guenther, investment advisor at Wellington-Altus Private Wealth Inc. in Winnipeg, also says the most important context is the client\u2019s life. Regardless of the interest rate environment, she considers annuities when a client is approaching retirement and seeking a guaranteed income stream that can supplement existing pension income without correlation to any market event or volatility.<\/p>\n

She adds that annuities can also contribute to tax planning as some structure payments include a non-taxable return of capital.<\/p>\n

\u201cA prescribed annuity [in a non-registered account] would be something worth considering for a client [who is] in a higher income bracket and looking to generate income but in a more tax-advantaged way,\u201d she says.<\/p>\n

An annuity\u2019s big disadvantage is loss of liquidity. So, especially at times when interest rates are low, Ms. Guenther proposes to income-seeking clients a range of alternatives that preserve liquidity, including dividend-paying stocks and preferred shares. Real estate may also become a more attractive option if interest rates drop and make investment properties more affordable.<\/p>\n

Overall, Ms. Guenther sees annuities as complementary to the rest of a client\u2019s holistic wealth plan. It\u2019s another tool advisors can use when a client requires extra guaranteed income to cover a shortfall or plan for longevity.<\/p>\n

Certainty of income for a long life<\/p>\n

Jonathan Rivard, financial advisor 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 anxious they will outlive their savings.<\/p>\n

\u201cHaving certainty of income really matters to clients who are looking specifically for guarantees, clients who may not have an employer-sponsored pension plan \u2026 or [clients] who want to know a percentage of their income in retirement is going to be assured,\u201d he says.<\/p>\n

That holds true no matter where interest rates settle. Mr. Rivard also emphasizes that adding an annuity to a client\u2019s portfolio depends on that client\u2019s specific circumstances. He adds that what they offer, in a word, is \u201cstability.\u201d<\/p>\n

\u201cThere can be a lot of reasons assets flow into annuities. For the majority of people, though, who are focused on retirement planning, it\u2019s going to be the certainty that the annuity is able to provide,\u201d he says.<\/p>\n

\u201cAnd with interest rates going up recently, there\u2019s definitely been an increase in the number of clients asking if an annuity is appropriate for them.\u201d<\/p>\n

Annuities\u2019 lack of liquidity concerns Mr. Rivard as well, but he says what\u2019s key is setting expectations so clients are very clear about what an annuity can and cannot provide compared with other choices.<\/p>\n

He explains to anyone considering an annuity that the reason insurance companies can pay higher rates for annuities, compared to GICs or bonds, is because of that lack of liquidity. Some are very willing to accept that in exchange for getting a higher income stream.<\/p>\n

\u201cBeing able to anchor themselves in the fact that they do have a portion of their retirement income coming in that\u2019s guaranteed [gives] them confidence,\u201d he says.<\/p>\n

\u201cThat\u2019s why having a good advisor who is going to go through options and specifically looks at goals, the interest rate environment [and] suitability really matters, so that there\u2019s alignment with expectations, risk tolerance and client confidence.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

An environment of rising interest rates and volatile investment markets has prompted more advisors and clients to consider incorporating annuities into their retirement income stream. But will demand hold if interest rates plateau or start falling?<\/p>\n","protected":false},"author":149,"featured_media":1202,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2595","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/posts\/2595","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/users\/149"}],"replies":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/comments?post=2595"}],"version-history":[{"count":3,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/posts\/2595\/revisions"}],"predecessor-version":[{"id":2598,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/posts\/2595\/revisions\/2598"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/media\/1202"}],"wp:attachment":[{"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/media?parent=2595"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/categories?post=2595"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/advisor.wellington-altus.ca\/spiring\/wp-json\/wp\/v2\/tags?post=2595"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}