For more, visit  http://personalifnanicalplanning.ca   <ul><li>Our previous analysis (Part 2 in a series) with the Product...
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For more, visit  http://personalifnanicalplanning.ca   Alternatively, instead of optimization by software (resulting in he...
For more, visit  http://personalifnanicalplanning.ca   Or, she could spend all the $300,000 on the annuity and get $12,600...
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For more, visit  http://personalifnanicalplanning.ca   45/55 (within 25%)  100% non-indexed annuity  45/55 (of $41,426)  7...
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Retirement income calculations with guaranteed products (Part 3 of 3)

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2nd stage of assessing and comparing usefulness of retirement allocation calculators. Shows huge potential of inflation-indexed annuity, and impact of costs of GMWB plans (a hybrid of segregated funds and annuities). Illustrates how and why Otar Retirement Calculator (ORC) is a better software tool than Product Allocation Tool from a Canadian insurance company.

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Retirement income calculations with guaranteed products (Part 3 of 3)

  1. 1. For more, visit http://personalifnanicalplanning.ca <ul><li>Our previous analysis (Part 2 in a series) with the Product Allocation Tool (PAT) from company X showed: </li></ul><ul><li>According to PAT, without buying any guaranteed income product (annuity, GMWB), the male in Case 2 have a chance of about 85% for having full income whole life (this is his RSQ value) </li></ul><ul><li>PAT recommended 0 to 20 % range for annuities and 60 to 80% range for GMWB, claiming that it will ensure full income for whole life (very high RSQ) </li></ul><ul><li>We found that PAT suggests the same product ranges for very different input scenarios, and that the RSQ can be even higher with allocations different from those PAT recommendations </li></ul><ul><li>Annuities seemed to be underplayed, GMWBs overplayed </li></ul><ul><li>Planning horizon was not clearly defined </li></ul>
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  71. 71. For more, visit http://personalifnanicalplanning.ca Alternatively, instead of optimization by software (resulting in her spending of $270,105 on annuity), we can calculate how much would buy exactly $12,000 per year, i.e. $1,000 per month. $100,000 buys $350/month, … so she would need to spend $285,714 on the inflation-indexed annuity for full income (but not more) coming from annuity, leaving $14,286 completely to grow. Going into such details is unnecessary, even misleading.
  72. 72. For more, visit http://personalifnanicalplanning.ca Or, she could spend all the $300,000 on the annuity and get $12,600 annual (inflation-indexed) income for life. He could get $13,896 (i.e. $1,296 more) because his shorter life expectancy.
  73. 73. For more, visit http://personalifnanicalplanning.ca
  74. 74. For more, visit http://personalifnanicalplanning.ca
  75. 75. For more, visit http://personalifnanicalplanning.ca 45/55 (within 25%) 100% non-indexed annuity 45/55 (of $41,426) 75% non-indexed annuity Inflation-indexed annuity for $258,374 15% equity/85% fixed inc. 45% equity/55% fixed inc. 45/55 (within 20%) (optimal w/o guaranteed 10% non-indexed annuity product/s) 70% GMWB –> PAT reco. 70% equity/30% fixed inc. 30% equity/70% fixed inc. 85% equity/15% fixed inc. (‘current’) Chance of having various levels of planned income at various ages $13,000/yr targeted Male, 60, retiring now Strictly from retirement income point of view. (Cash/liquidity & estate aspects disregarded) Same security for female can be achieved at somewhat lower income only

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