Million Dollar Journey

Lately, I’ve been receiving a few questions regarding annuities.  As I only have a basic understanding of annuities , I emailed Brian Poncelet (CFP and insurance specialist) to provide more details on on the types of annuities.  For those of you fresh to the concept, investors who purchase an annuity would pay a lump sum to an insurance company and receive a cash flow stream for the rest of their lives.

Short history

Reports that ancient Roman contracts called an annual promised an individual a stream of income for a fixed term or possibly for life. In the US annuities have been around for over 200 years. The average age for annuities seems to be in the mid sixties and are purchased for various reasons. Safety and tax reasons are why many look to buy an annuity while large inheritances are another.

Tax advantages for non-registered prescribed annuities. Since annuity payments consists of interest and principal only, the interest is taxable this is spread over the life annuity, tax is deferred. You can’t out live your income. GIC’s, stocks, mutual funds can be depleted; life annuities pay a life time of income.

Types of Annuities

• Term
• Term Certain Annuities
• Life Annuities
• Prescribed Annuities
• Indexing

Term Certain:

Fixed payment for a fixed period. If annuitant dies during the guarantee period the beneficiaries(s) receive the income payments.

Life Annuities

As the name suggests guaranteed regular income for the rest of your life, or could be based on the lives of two people. It can be purchased with or without a guarantee period.

Joint Life Annuities

These may be sold as Reducing or Non-Reducing. A reducing annuity would see the surviving annuitant receive a reduced periodic income in the event of the designated primary annitant’s death or the first death. In the case of a Joint Life Reducing Annuity with a guarantee period, the reduction in periodic income would occur only after the death of one of the joint annuitants and the expiration of the guarantee period. (The guarantee period guarantees the number and amount of the payments.) This is really looked at the youngest spouse age.

Variable Annuity

This annuity is like the Manulife income plus. In a bear market this does not look so bad.  However in a bull market, assuming no real pull back backs, this is expensive. Must be bought and thought of as a pension and not for capital gains (look for frequent resets to lock in market highs).  This product usually has a guarantee of 5% or better.

Prescribed Annuity: A lump sum of non-registered money.

Can be indexed to inflation a fixed annual percentage increase to payments to help guard against inflation.

How is my annuity income determined?

1. Current interest rates
2. Your sex Male/ Female
3. Number of years you want payments guaranteed

Insured Annuity

There is an old concept which is called an insured annuity. The idea is the insurance pays an income for life, if you die early the insurance company keeps your money. If you live for a long time, the insurance company has to pay for life even if you are 105. You can not run out of money! To protect the estate, permanent life insurance is bought. Yes you can buy term but if you live longer than say 70, you have wasted your money and the insurance company is off the hook.

Annuities change all the time and some annuities are taxed less than others so one has to shop the market. Some even give in a built refund for the first few years if death is early.

Example:

• Current GIC rate 3.25% (five year rate lock-in)
• 65 year old male
• Tax bracket 31.41% ($40,970 up to $65,345) Ont.
• $100,000 non-registered

After taxes are considered, a GIC of over 6% is needed, at higher tax brackets this number goes over 8% even at current low interest rates! Other benefits may be avoiding OAS claw backs and age amount (age 65) claw back. This could mean many hundreds or thousands of dollars saved every year.

Currently interest rates are low, but because the way annuities are taxed, they will always pay out more than GIC’s by much higher rates.

To lower the insurance cost to cover the annuity and to get an even higher rate of return, permanent insurance should be considered at an early age (and better health) if cash flow permits. Or to give more options in retirement. Such as selling the house in retirement and living off the capital. Insurance fills the hole after the money is spent.

Example:

If someone could plan in the future he could buy a 20 pay life (paid for 20 years) insurance policy at $2700 per year (at age 40). The insurance coverage would start at $100,000 and at age 65 would be $215,000. This would continue to grow to $451,000 at age 85 (cash value would be over $347,000 which could be taken tax free if structured correctly). The insurance grows over time, instead of a fixed amount which decreases because of inflation.

This allows for more options in the future.

Brian Poncelet who is an insurance specialist and independent certified financial planner (CFP) working in the financial services industry since 1994. Along with insurance, Brian Poncelet focuses on mortgage and retirement planning.

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Changing jobs can be an extremely stressful time. It can also be a great transition with better opportunities for growth. There are certain things you can do to make the transition go as smoothly as possible. Some things are out of your control. Others may need some work to manage well.

Jobs like relationships, are sometimes difficult to end. When things aren’t working out, it may be time to move on. Sharing that news with your supervisor has the potential to get messy, especially if the news comes as a surprise. If like me, you have multiple supervisors, it can go both ways.

Keep it Simple

When writing a formal letter of resignation, it can be temping to give reasons and for some, those reasons can be laced with resentment and negativity. An exit interview, if you are given the opportunity, is the better time to gently share your true reasons for leaving. Your resignation letter just needs the basics.

Date

Dear ____________,

Please accept my resignation from (insert company name and position here) effective (insert date here).

Thank-you for __________. (Ideas might include, 12 years of great service, many opportunities for professional growth, being a mentor for these past years. If you can’t think of anything nice to say, leave it at thank-you.)

Sincerely,

(your name)

Give appropriate notice

For many jobs, two weeks notice is appropriate. For other positions, you’ll need much longer than that. For part of my last job, I was an instructor for a two week course that ran 4 times a year. Giving two weeks notice would not have been enough time. Instead I timed the transition in such a way to give over 3 months notice for them to find someone else and train them for that role.

Keep your cool if things get messy

Like relationships, some bosses can take it personally when you decide to leave. In my case one supervisor was kind and gracious saying that I’d be missed but that he understood my situation. The other, not so much. He nearly went off the deep end. I didn’t take it as a compliment but rather confirmation I was doing the right thing by leaving. It took everything in me not to get defensive, especially after repeated conversations begging to me to stay and not accepting my resignation. Is that even possible when I had already secured another job?

He’s still calling me two months later, acting like a jealous ex-boyfriend using everything in his arsenal to try and get me back. I finally had to contact my other supervisor to explain the situation and ask that he stop contacting me. It was difficult to stay calm and not lose my temper when faced with an unreasonable and inappropriate response. Leaving well means rising above things and staying professional when things get ugly.

Tie Up Loose Ends

It can be difficult to focus in the those last few weeks. You’ve landed another job. You are looking forward to the next chapter in your life. You still have work to do at this job and need to tie up loose ends. This might include such things as:

• finishing up projects
• thanking helpful colleagues and great supervisors
• letting your clients know when you’ll be leaving and who’ll be replacing you
• tidying up your workspace
• completing your final expense reports

Train the next person

It’s nice to feel irreplaceable but when it comes to leaving well, someone else needs to know what you’ve been doing and how you’ve been doing it. They may find their own ways over time and change things up and that’s great too. What you don’t want is for people to wonder what you ever did or for the person coming in to have to re-create everything you took years to perfect. You won’t always have the time to train your replacement. In the time you’ve given notice, they need to hire someone else. Hiring can take time unless there is a natural opening for someone else in the office. If you can’t train the person directly, make sure you leave detailed notes or a training manual.

Final Thoughts

Some people don’t have the opportunity to leave well. Just recently my uncle, a middle manager with the government for over thirty years was called into the office, given ten minutes to gather his things and was escorted out the door with a non negotiable early retirement package. He hadn’t done anything wrong. It was just another round of impersonal middle management layoffs. There was no time to train someone else or to transition well. There wasn’t even time to process what happened. Fortunately he’d escaped the first few rounds of lay-offs so he knew the the potential was there. It still doesn’t make the transition to retirement any easier with you’ve only been given a ten minute warning.

When you are the one making the decision to leave for another job, it’s important to keep it professional. Even if you move to a completely different industry in another city, you’ll never know whose path you’ll cross again. You build your reputation over your career and the grace with which you transition jobs can be a great testament to your character not to mention future references you may need.

What is your advice on transitioning well from one job to another? Any lessons you learned the hard way?

Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.

8 Comments

I know that the iPhone is expensive and the prices for the monthly plans are out of this world but it is a very attractive device. The tools available on the iPhone are unbelievable.

One problem I find with many iPhone apps is that many popular apps are not available on the iTunes store in Canada. I had two requirements: absolutely free application and available on the App store in Canada.

I have found seven applications that not only let you save money but are free applications that don’t cost anything.

Wi-Fi Finder

Wi-Fi Finder offers a list of more than 200,000 locations across 135 countries. All of these locations are verified hotspot locations which are made available on iPhone and iPod touch. This is convenient when travelling and it avoids you having to pay for internet access sometimes. Click here to download

Cheap Gas

Find the cheapest place to by gasoline near you with the Cheap Gas iPhone application. The pricing for this app is provided by the GasBuddy website and works in the United States and Canada. I am a major fan of low gas prices! Click here to download

CIBC Mobile Banking – ATM Finder

With the CIBC Mobile Banking app, you can complete everyday CIBC banking transactions on your iPhone quickly, easily and safely. The app even has an area where you can find CIBC bank machines and branches in your area. Search by street address or postal code. I really liked the interface, and it saves fees when you need to use a specific CIBC ATM. Click here to download

Stanza – Free eBook reader

Read books on your iPhone or iPod Touch! Choose from an additional 50,000 free classics and recent original works available from Project Gutenberg, Feedbooks, and many other sources. This is a major money saver when you consider how much the Kindle costs in Canada. Click here to download

GroceryDeals – mobile grocery deal finder

GroceryDeals lets you find the closest, grocery store with the single touch of a finger. It was designed to allow Canadians to find grocery store deals to save them time and money. It helps you find a close grocery store when you are in a hurry and a quick look at five deals from the latest grocery flyer. Click here to download

Taxi Magic

Book a taxi from your iPhone. Save yourself the cost of a DUI and/or fender bender. It seems to not have every Canadian city but they seem to slowly be adding more cities. Click here to download

Awesome Tip Calculator

I still remember the Seinfeld wizard when Jerry bought his dad the expensive calculator that was also a tip calculator. Free application that provides full set of features and easy to use great UI so that you don’t tip more then you need to. Click here to download

Back to you,

Does anyone know of any other free iPhone apps that help save money?

The author is Steven Zussino, Founder of Grocery Alerts Canada – home of grocery deals, product reviews and money saving coupons. He enjoys personal finance and saving money in beautiful Victoria, BC.

19 Comments