Guaranteed lifetime income supplements are looking increasingly attractive to Canadians, particularly because many fear an inability to maintain their standard of living in retirement, according to a recent study supported by Toronto-based Sun Life Assurance Co of Canada. and Winnipeg-based Great-West Life Assurance Co.
The 2018 Canadian Guaranteed Lifetime Income Study (GLIS) conducted by Washington-based Greenwald & Associates and Toronto-based Cannex Financial Exchanges Ltd., shows that less than half (45%) of Canadians are highly confident they will be able to keep their standard of living in their twilight years, and nearly a third (29%) don’t expect to meet this goal at all.
In scenarios where Canadians outlive their predicted life expectancy — on average, 85 years of age — by five years, this lack of confidence increases to 46%, and jumps up further to 58% after 10 years.
As a result, more and more Canadians (80%) consider guaranteed life income products a desirable supplement to government sponsored retirement plans — a significant increase from 60% in the 2015 GLIS study.
Participants say key factors threatening their security in retirement are: retirement savings not keeping up with inflation (48%), low interest rates (47%), not earning as much as possible on investments (46%), losing money during downturns in the stock market (46%), not being able to afford long-term care expenses (45%), outliving savings (43%), and not having enough money for an emergency (43%).
It’s important to note that more than a third of women (35%) reported being highly concerned about outliving their retirement savings compared to men (20%). Not surprising then, is the finding that more women than men rated a guaranteed life income as highly important to meeting essential expenses in retirement (76% vs. 64%).
Canadians increasingly looking to guaranteed income products to provide longevity, peace and of mind, and easier budgeting, the report says. However, despite enthusiasm, participants also noted that guaranteed income products have their drawbacks. They offer limited access to money, they’re difficult to understand, there have too many terms and conditions, and they’re costly.
Another, perhaps more significant finding, was that participants are not particularly aware or educated on their product options, especially when it comes to guaranteed income.
“Among the three-quarters of respondents working with financial advisors, retirement income conversations are largely focused around asset withdrawal, investments with dividends or fixed income strategies,” says Sam Sivarajan, senior vice president of wealth solutions at Great-West Life, in a statement.
“The study shows that guaranteed lifetime income products, more often than not, aren’t part of these discussions.”
Specifically, only 44% of Canadians who have discussed retirement income with an advisor say they have spoken about taking a consistent percentage of savings as income. Income annuities and segregated funds were brought up in conversation even less (27% vs. 16%).
Among participants who still haven’t discussed a retirement strategy with an advisor, 40% say they’d be interested in income annuities or segregated funds.
How an advisor pitches a product to their client plays a significant role, however. For instance, when a guaranteed income product was labeled as an income annuity or segregated fund, 41% of participants expressed diminished interest.
The likely reason is that 67% were unaware that segregated funds can be used as guaranteed life income, and 41% say they are unfamiliar with income annuities, in general.
Most participants (73%) want and expect their advisor to discuss these kinds of products with them, and say that that if an advisor doesn’t fulfil this responsibility, they would consider finding someone else.
“Canadians are looking for financial solutions that maximize the value and flexibility of their retirement savings while also providing guaranteed income for life,” says Jordy Chilcott, head of investment distribution at Sun Life Global Investments (Canada) Inc., in a statement.
“Segregated funds and annuities are two solutions that can help Canadians reach their goals while addressing retirement risks for longevity and market volatility.”
For the study, 1,003 pre-retirees and retirees aged 55 to 75 were interviewed in February. Participants were required to have more than $100,000 in investable assets, excluding the value of a home.