Can life annuities mimic pensions? + MORE Jul 10th

Q: My wife Cathy and I pay our adviser an annual flat fee of 1.25% to manage our retirement portfolio, which is worth about $1 million. But I’m not so sure I’m comfortable with this arrangement anymore. We’re buy-and-hold investors and I’m the one whose always telling our adviser what to do. What are our options for reducing fees and getting better returns? — Ned, Toronto
A: I find most investors are unaware that fees can vary greatly depending on the investment options they choose. In fact, my experience has been that many investors don’t even know how or how much they’re paying.
Just keep in mind that lower fees won’t guarantee higher returns, but they will certainly tilt the scale in your favour. For instance, if you can decrease fees or increase returns by just one percentage point annually, you can generate a one-third larger nest egg in 30 years.
Right now, you and Cathy are forking out $12,500 every year to your adviser. And because you live in Ontario, there’s an additional 13% Harmonized Sales Tax (HST), pushing your total fees to more than$14,000 a year—or 1…

Darren would like a worry-free retirement. So he wonders if life annuities would allow him to match his wife’s public-sector pension plan. “I want to be sure I’ll have income for the rest of my life, no matter what happens to the markets,” he says. “Essentially, I want a pension, [without having to] worry about the company going out of business.”
He wonders, however, about the potential pitfalls and risks of annuities. “What happens if the insurance company that supplies my annuity goes under? Is there something else I should consider?”
Darren is now only 38. He aims to retire at 55, with the mortgage on their home paid off, about $600,000 (today’s dollars) saved in his Registered Retirement Savings Plan, plus extra tax-free savings.
Many others are wary of handing their savings over to a life insurance company. Most prospective buyers of annuities tend to live longer than average, but some fear dying early and leaving money for strangers to enjoy what’s called a mortality credit…

 
If you’re in a situation where you are caring for your aging parents while raising your own family, you are living in the Sandwich Generation. Hundreds of thousands of other people are feeling the squeeze of offering financial and emotional support to their parents while trying not to feel as though they are shortchanging their own children. When you add in your own work and financial planning matters, living in the sandwich generation becomes even more complicated.

Living in the Sandwich Generation: How to Make it Work
1. Make sure you understand your financial picture.
Before you can consider commitments to your parents and children, you need to understand your financial picture. Make an appointment with a financial advisor who can help you assess where you are now and help you make safe and secure plans for the coming years. You’ll be better prepared to make plans for college tuition for your children, your own retirement, as well as any financial support you may need to offer your parents…

Marketwatch.com has just published a scary piece based on a research study that warns 44% of all early baby boomer households are likely to run short of money in retirement. It refers to an Allianz Life study in the U.S. that found 61% of respondents were more scared of outliving their assets than they were of dying. It raises the spectre of couples retiring in their early 60s and living another four decades and doing so without a paycheque.
Citing a 2012 brief from the Employee Benefit Research Institute, we’re told that a healthy 65-year-old male has a 50% chance of living to 85, while a female of 65 has an even chance of reaching age 88. And if the pair are a couple both aged 65, the odds are 50/50 that at least one of them will reach age 92 and one in four that one will reach age 97.
Fewer guarantees these days
So a couple hoping to retire in their early 60s could easily have to make their financial resources last 35 or 40 years, possibly as long as was spent in the workforce…