As the cost of living and life expectancy increase each year those who are retired or are planning for retirement might wonder if they’ll have enough money to comfortably live out their lives. A recent FSRA commissioned poll suggested that 81% of respondents were more concerned about paying for necessities than saving for retirement and 44% said the high cost of living was a barrier to retirement savings.
Withdrawing savings during retirement is called “decumulation.” As Ontario’s financial services regulator, we have noticed a growing number of “decumulation” products on the market designed to help consumers find ways to live on their savings, without outliving them. These products work by pooling funds from many people to achieve investment and longevity benefits for those participating.
Some decumulation products are promoted as providing a lifetime of guaranteed income, similar to a pension. Promotion of these products may describe them as pension plans or use terms associated with insurance, such as “annuity” or “tontine.” When you are looking to purchase these products, be sure to read more than the marketing material, and ask questions, to really understand what you are buying.
Some questions you should consider asking before investing in a decumulation product:
- What guarantees are offered? Some products appear to offer payments for life, but the fund manager may have discretion to change or stop the payments anytime.
- What protections apply? Some decumulation products are investments or mutual funds, which are regulated under securities law by the Ontario Securities Commission. They are not the same as insurance or pension plans, and offer different protections than products regulated by FSRA.
- Are there additional costs? Some investments require a consumer to pay fees from funds outside the investment.
As with any financial product, it’s important to proceed with caution and evaluate all available information to make an informed decision. It can be beneficial to speak with a financial planner/advisor, life insurance agent, or securities advisor about whether a decumulation product is right for you.
At FSRA, consumer protection is our priority. Visit FSRAO.ca to learn more about decumulation products and some additional questions you might want to ask before signing on the dotted line.
Evaluate all your options before making the decision to decumulate your savings. Take the time to understand your needs and situation before committing to any financial product. Your future depends on it.
Stuart Wilkinson isthe Chief Consumer Officer for the Financial Services Regulatory Authority of Ontario
