Thanks for this post as it gives me a very different perspective VS my own country (France) : in France, the life annuity is mandatory, and financed all along your life through tax. As a risk adverse person, I would certainly choose life annuity, but I can see how the other approach can seduce the gambler.

 

Retirement planning posts are always so interesting, as they represent some of the highest stakes decisions we make, however we won't know the outcome for many years. In Canada, we have a small amount of guaranteed annuity paid through mandatory employment taxes, but this is only enough to keep you from being homeless and starving - and barely so.

As I plan to retire much earlier than the norm, the annuity products I've explored tend to be very poorly priced relative to income provided (which is not unreasonable, when they are expected to pay out for 35-50 years - much harder to estimate than 20). That said, I do share the concern about wanting to maximize the utility of the funds. My wife and I don't have children, and I have no particular interest in enriching other heirs upon my death.

One thing to consider is that if you don't go the annuity route, and instead go with a lump sum that you invest and self-manage, you can moderate your spending as you age. You will likely want to spend more now, vs in your eighties. With an annuity, you often have less than you would like in early retirement, and more than you need in your final years.


 

@Vox I can see how you could spend more in your early retirement, on travel and the like, and less in your later years. However, there is the added uncertainty of medical costs, and they tend to rise with age.
 

That's true. In Canada those costs tend not to rise too much on average, and they often come with significant decreases in other spending. One anecdotal example, my father had some very significant health impacts which did increase their medical expenses significantly, but their travel and entertainment budget dropped dramatically, leading to an overall decrease in spending.

It certainly does depend on availability and costs of care in your region though.
 

You could always go half and half if you are unsure.
 

I was talking only about the pension fund from the company I worked for. That isn’t the only savings I have. I also get a state pension, which is already on a monthly basis until I die.
 

And here in the US I maintain a 401(k) which is unfortunately incredibly difficult to grow quick enough to be helpful at retirement, and a strong likelihood that the social security system will collapse in 9 years before I retire.
 

In Ireland you get a contributory state pension based on years worked, or a means-tested non-contributory one. But you can also save into a pension fund that has tax advantages. When that hits maturity - and I think you have to trigger it at some age, maybe 70 - you can take up to 25% as untaxed cash, and the rest goes into an ARF ('approved retirement fund', basically a managed fund where you can choose the risk element a bit, and there is a nominal untaxed disbursement of 4-5% per year) or an annuity. you can choose which, or mix them.

Can you tell I'm coming up to pension age? Looking forward to the free travel pass!