Case study – Joint and Survivor Annuities

Richard and his wife Kelly are eagerly anticipating retirement in the next 3 to 5 years.  They have accumulated savings, invested wisely and worked with David their investment advisor to develop a financial plan that should take care of their needs for the balance of their lifetimes.

Recently, very close friends who have been retired for a couple of years were hit by tragedy – when the husband suffered a massive coronary and died.  While the couple was previously comfortable in retirement, when he died, his pension payments stopped and his final expenses significantly reduced the couples retirement nest egg.

In very short order, the widow saw her income drop sharply even though her expenses had not.  As a result of her new financial situation, the woman could no longer afford to maintain her home.  Even though she hates to leaves her friends, the widow will have to move to another city and live with her eldest daughter.

Both Richard & Kelly are sad to be losing good friends and it reminded Richard that Kelly may have the same experience if something were to happen to him.  Knowing that his pension from work will also stop when he dies, Richard decided to give David a call.

David, an investment advisor with TD Wealth is an expert in allocating assets for both income and growth and while he has done very well for Richard & Kelly over the 13 years together, he has no solution to offer other than an introduction to a Wealth Consultant.

Shortly after the initial meeting with Richard & Kelly and learning everything about their current financial position including their goals and commitments it became clear what was needed to satisfy Richard’s concern.  We recommended the purchase of a permanent life insurance policy that would pay Kelly on Richard’s death, an amount equal to what her needs would be for the rest of her life.  Easy sound financial advice.  Only problem is we found out that Richard had cancer 3 years ago and is uninsurable.
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We then suggested using a portion of their investments to purchase a Joint and Survivor Life Annuity.  Using a single lump sum to purchase the annuity, the couple will secure a no-risk, management-free investment that will generate guaranteed income for the rest of both of their lives.

The annuity can be purchased with both registered and non-registered funds, however we suggested using non-registered funds because only the interest portion of the annuity payment will be taxed and the interest income may qualify for the pension income tax credit.

In the end analysis, the Joint and Survivor Annuity is the best choice for Richard & Kelly because it guarantees income for the length of two lifetimes.