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“Unless you have a traditional [defined-benefit] pension plan or a diversified portfolio generating income well in excess of your expected income needs, having a source of guaranteed income is very important,” he says. However, even in a low-interest rate environment, he sees a place for annuities. That’s because they provide a source of income that won’t behave like other components of a portfolio, including GICs, which must be renewed when they mature at an uncertain future prevailing interest rate.“The best time to buy an annuity is not necessarily when you think rates are high. It’s whenever you need one to achieve financial security,” Mr. Walsh emphasizes.
An annuity’s big disadvantage is loss of liquidity. So, especially at times when interest rates are low, Ms. Guenther proposes to income-seeking clients a range of alternatives that preserve liquidity, including dividend-paying stocks and preferred shares. Real estate may also become a more attractive option if interest rates drop and make investment properties more affordable.
That holds true no matter where interest rates settle. Mr. Rivard also emphasizes that adding an annuity to a client’s portfolio depends on that client’s specific circumstances. He adds that what they offer, in a word, is “stability.” Annuities’ lack of liquidity concerns Mr. Rivard as well, but he says what’s key is setting expectations so clients are very clear about what an annuity can and cannot provide compared with other choices.