Andrea Thompson

The problem, though, is that people are always worried about running out of money and therefore it leads them to not spend.

And that's why the research and data out there shows that retirees automatically become more frugal because they are worried about outliving and outspending.

So annuitizing or purchasing an annuity, which is a form of a defined benefit pension plan, is a wonderful way of being able to pay yourself and continue to pay yourself first like a salary while you're retired and guarantee your baseline spending.

The way that I like to look at it for retirees is this.

When we go back to the cash flow conversation we were having before, we have our committed spending, which is all the really boring, unemotional stuff that we spend money on.

And then we have our spendable bucket, which is all the emotional and fun stuff that we do, which can include groceries, by the way, because we can shop at Pusateri's or we can make other decisions.

There is.

So if you can cover your committed or baseline or boring expenses with CPP, old age security, maybe social security and a defined benefit pension plan and an annuity if you don't have the other ones, then you can create a baseline that will cover all of your bills so that you don't have to be worried that you're not going to be able to pay your bills if you live until you're 98.

Your bills are covered by defined benefit pension plans.

Then all the fun stuff you do, all the fun spending can then be funded from your lifestyle assets.

So from your investment portfolios, from your retirement plans, from your savings.

And that gives people the license to feel more comfortable to spend freely knowing that their property taxes aren't coming from their investment portfolio, for example.

I'm not sure because you can buy an index to inflation annuity.

You can buy annuities that keep up with the CPI over time.

So I think it's maybe just them not understanding that element.

I think it's also a little bit difficult to write the big check.

So when you buy an annuity, you're taking a big chunk out of your net worth, let's just say, or a small chunk.

depending on what you do.

And you're writing a check, which is an irrevocable decision, and you're handing it over to an insurance company, which nobody likes.

And in return, you're getting a check that maybe is $2,000 a month.