For people at risk of running out of money, the products could be essential
The inability to enter variables such as assets, age, gender, risk tolerance and desired income into financial planning software and receive an answer that gives clients their best possible combination of products is a major hindrance.This is the fourth and final article in a series examining the decumulation product landscape in Canada and how advisors can explain the options to clients.
To date, the available products’ novelty, the lack of solid allocation frameworks, the behavioural factors and compensation differentials – combined with a general lack of appreciation of the challenges and mathematics of decumulation – have contributed to low adoption.The first step is to educate themselves on mortality risk, the probability of living to different ages, and the mechanics of the products available.
By creating and stress-testing financial plans, we can assess the probability of ruin at advanced ages. For those unlikely to run out of money, longevity products may still be useful of enhancing estate values potentially through access to mortality credits; for people at greater risk, the products could be essential..
For Guardian Capital’s Modern Tontine Trust, create a separate account for which the return expectation is that the account value will be the expected value of the tontine at the end of the 20 years.
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