rational reminder

Episode 59: Financial Economics and Annuities: Rational Planning for Retirement

Welcome to another episode of the Rational Reminder Podcast! We have a fantastic guest joining us today to talk about annuities, or in more general terms, pensionization. Alexandra Macqueen is certified financial planner, who is also a financial author, editor, York University educator, consultant, and speaker. Alexandra co-wrote a book with Dr. Moshe Milevsky called Pensionize Your Nest Egg: How to Use Product Allocation to Create a Guaranteed Income for Life, an incredible resource on our topic today. In this episode, Alexandra talks about the important distinction between financial economics and financial planning, the former being much more rational and quantitative than the latter, which is largely based on folklores and rules of thumb. We discuss the concepts of retirement sustainability quotient (RSQ) and financial legacy value (FLV) and the impact they have on each other, before diving into explaining what annuities are and how they are meant to function. She also advises on the use of the GIC ladder, copycat annuities, and considerations for deferring your CPP. Don’t miss out on this insightful conversation!

Key Points from This Episode:

 

•    The distinction between financial economics and financial planning.  [0:02:38.8]

•    Product allocation and how it relates to pensionization. [0:04:15.8]

•    The retirement sustainability quotient (RSQ) and what it measures. [0:06:46.3]

•    How the RSQ affects your financial legacy value (FLV). [0:07:45.7]

•    The idea of eliminating the probability of ruin from your portfolio. [0:09:39.6]

•    What exactly is an annuity and how does it work? [0:10:15.3]

•    The type of person and age group that annuities appeal to. [0:13:53.2]

•    Why allocating to an annuity can allow you to spend more on your overall capital. [0:16:20.0]

•    The problem with the folklore rules around appropriate withdrawal rates. [0:19:47.8]

•    Suggestions for annuities for wealthy people under 50. [0:23:08.3]

•    Why a GIC ladder is not a guaranteed stream of income. [0:26:04.9]

•    Defining copycat annuities and their accompanying issues. [0:30:57.6]

•    CPP and the impact of deferring it at retirement. [0:33:52.4]

•    And much more!

Links From Today’s Episode:

 York University — https://www.yorku.ca/index.html

Pensionize Your Nest Egg on Amazon — https://www.amazon.ca/Pensionize-Your-Nest-Egg-Allocation/dp/0470680997

Moshe A. Milevsky — https://moshemilevsky.com/

Alexandra Macqueen — https://www.pensionacuity.com/

Wade Pfau on Twitter — https://twitter.com/WadePfau?ref_src

An Efficient Frontier for Retirement Income — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2151259

Why the 17% drop-out rule is key to your CPP entitlement — https://www.moneysense.ca/columns/ask-moneysense/17-percent-drop-out-rule-cpp/

Episode 58: The Ins and Outs of Real Estate: Mortgage Rate, Rentals, REITs and Variable Annuities

On today’s episode, Benjamin and Cameron are talking real estate, specifically mortgage rates and REITs. For the first time since the early 90s, fixed mortgage rates are lower than variable ones, which have always been the popular choice. However, due to the fact that Canada’s yield curve is inverted, short term rates higher than their long-term counterparts. This is not usually the case, which makes it a great time to consider a fixed term mortgage, bearing in mind that it requires some lifestyle considerations. Benjamin and Cameron also provide some insights into the rental property market changes since 2015, with some astonishing figures. They then discuss REITs, which many think should be considered their own asset class. While it is often recommended to have REITs in your portfolio, research is starting to show that you are taking a great deal of risk you are not being compensated for. This means you may be better off investing in other options such as high exposure bonds which bear much less risk. For all this and much more, join us today!

Key Points From This Episode: 

  • Why fixed-rate mortgages are now lower than variable-rate ones. [0:03:58.0]

  • Interest rates went up, but the shape of the yield curve changed as well. [0:06:25.0]

  • Property prices have almost doubled relative to rent since 2015. [0:07:12.0]

  • What a rental wage is. [0:12:48.0]

  • What a REIT is and the benefits of investing one in your portfolio is. [0:17:05.0]

  • Why the risk of a REIT may not be justifiable. [0:21:01.0]

  • Variable annuity investors routinely outperform mutual fund investors [0:26:23.0]

  • And much more!