DBRS Releases Commentary on Advanced Life Deferred Annuities: A Proposed Option to Secure Income for Longer Retirement

DBRS Limited (DBRS) released a commentary titled “Advanced Life Deferred Annuities: A Proposed New Investment Option to Secure Income for Longer Retirement.”

The commentary describes how the permittance of a new annuity product under the tax rules (an Advanced Life Deferred Annuity (ALDA)) can be used to secure a steady income for a retiree’s later years when there is a greater potential for outliving their savings. ALDAs are a new option that were proposed to be permitted for qualified retirement accounts in the Government of Canada’s 2019 Federal Budget. With an increasingly older Canadian population and the decline of defined-benefit pension plans, there will be rising numbers of people facing the risk of having inadequate income when they reach their late 80s or 90s. The commentary focuses on how ALDAs have the potential to give Canadians another tool in their planning for retirement.

As more Canadians are living long past the onset of retirement, ensuring a stable and adequate source of income for a potentially long retirement becomes more challenging. An ALDA can help protect retirees from the risk of outliving their savings by supplementing existing retirement income. To illustrate, by buying an ALDA for a lump sum at 65, a retiree can be assured of regular income, beginning at age 85, for the rest of their life. This reduces the risk of outliving their savings. However, there are downsides in the illiquidity of the product, the loss of control over one’s investment, the loss of passing on an inheritance to beneficiaries and the chance of the retiree passing away before receiving any payments, which need to be taken into account when evaluating an ALDA.

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The commentary is available at www.dbrs.com.

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