Now is a great time for all retirees, but especially women, to consider pensions as a source of retirement income.
Interest rates, which play a big role in determining payouts from pensions, increasingly appear to be peaking. Lower interest rates in the future mean the lump sum amount used to purchase the annuity will be less than the amount you receive today.
If you don’t have a company pension, it’s worth considering one as a way to turn some of your retirement savings into a guaranteed source of income for life. Pensions are suitable for all retirees, but they are especially suitable for women because women have longer life expectancies than men.
But too many women ignore their pensions. According to research by Sun Life Financial, only 12% of female baby boomers own at least one guaranteed income retirement product, compared to 24% of male baby boomers. That’s what it means. The survey found that 49% of baby boomer women do not plan to use a guaranteed income retirement plan, and 25% are unfamiliar with retirement plans.
An annuity is an insurance contract that exchanges a lump sum for income that will be paid to you for as long as you live. One of the criticisms of pensions is that they give up control of your money. Once you turn your lump sum into a source of income, there is no going back.
Additionally, those who die early after retirement may not receive their full pension. However, Canadians tend to focus on the risk of dying younger, without paying enough attention to the economic risks of living longer than expected. Sun Life noted that the number of centenarians has soared by 64 percent in 10 years, with women living about three years longer than men.
One thing to note for women considering a pension is that a longer life expectancy means they will receive less than a man of the same age would receive. According to RBC Insurance’s annuity calculator, a 65-year-old man who purchases a $100,000 annuity will receive $7,008.37 a year, compared to $6,627.38 for a woman.