Retirement in a Time of Rising Rates

Simon Barcelon

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15 Dec 2022

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In a year of decades-high inflation, investors in or nearing retirement have had to navigate the usual challenge of figuring out what retirement investments work best for them in a near-unprecedented economic environment.

With the latest interest rate hike from the Bank of Canada, rates have climbed by over 4% in the past year. Yields offered on annuities and GICs have also increased considerably, and these products have regained attention. However, as risk-free rates have increased, so too have expected returns on a balanced portfolio, which might create more attractive choices for investors who need financial flexibility and can tolerate some volatility. That’s where solutions like the Longevity Pension Fund come in, which offer lifetime income like an annuity within a flexible, mutual fund structure.

In this article, we’ll dig into the differences between annuities and the Longevity Pension Fund and discuss the benefits and downsides of each to help decide what might make more sense for your retirement.

Key Takeaways:

  • With rates increasing by over 4% in the past year, the yields on GICs and annuities have also increased considerably, making these types of securities much more attractive investments.

  • Since rates have increased, the expected returns on a balanced portfolio have also risen. So, there’s a lot to be excited about for investors that rely on fixed-income solutions to generate income.

  • The Longevity Pension Fund is an actively managed balanced portfolio that has exposure to fixed-income securities, also benefitting from the rising rates.

Annuities vs the Longevity Pension Fund

Although annuities and the Longevity Pension Fund both offer income for life, how they do this is quite different.

First, let’s compare the rate for annuities with that of the Longevity Pension Fund:

  • The average rate for a 65-year-old Canadian investing in a lifetime annuity with a 10-year guarantee period is 6.51%, but it can range from 6.29% to 6.74%.1

  • The current yield for 65-year-olds investing in the Longevity Pension Fund is 6.80%.2

Next, let’s look at the key structural differences between annuities and Longevity Pension Fund:

Longevity vs annuities

As you can see, while both products provide lifetime income, yearly returns on Longevity are expected to rise over time, while income from annuities remains constant.

Deep-Dive Analysis: Looking Long Term

Let’s dive in deeper to review the expected cash flows from each of these products and how that looks from a total income perspective and from the probability-weighted standpoint that factors in mortality.

First, we’ll start with some assumptions:

  • A 65-year-old male with a $100,000 initial investment,

  • A life annuity rate of 6.51%,

  • The Longevity Pension Fund rate of 6.80%4 (approximate current yield for a new investor), and

  • Assumed life expectancy used by Canadian pension plans.5

Expected increases in Longevity’s distribution rate follow the average of the Fund’s Income Policy under LifeWorks’ Economic Scenario Generator (“ESG”) data as of September 30, 2022, and can be seen in the Annual Report.

  • The Life Annuity provides an income level of $6,510 per year, irrespective of market returns. In the event of early death, the investor’s estate would be entitled to the remaining payments until the 10-year guarantee period making the cumulative value received equal to $65,100. If they live past the 10-year period, they will not receive anything further at death.

  • The payments from the Longevity Pension Fund would start at $6,800 and are designed to increase over time; however, they can fluctuate on an annual basis depending on market returns and experienced mortality. In the event of early death, the investor’s estate would receive the unpaid capital (up to a maximum of current NAV). The cumulative value received in this example following LifeWorks’ ESG data as of September 30, 2022, equals $100,000.

Figure 1 - Annual income

Annuities vs Longevity annual incomeThis chart models hypothetical performance data. It was created using LifeWorks ESG data as of September 30, 2022, which includes 2,000 stochastically generated future economic scenarios. The results shown are purely hypothetical and do not provide a guarantee of the expected performance of the Fund. This chart does not consider all risks, fees, unique financial circumstances, or the costs of redeeming an investment in the Fund.

Figure 2 - Total returns (income payments + any residual value paid at death)

Total returnsThis chart models hypothetical performance data. It was created using LifeWorks ESG data as of September 30, 2022, which includes 2,000 stochastically generated future economic scenarios. The results shown are purely hypothetical and do not provide a guarantee of the expected performance of the Fund. This chart does not consider all risks, fees, unique financial circumstances, or the costs of redeeming an investment in the Fund.

It becomes clear from the two charts above that although the level of income is not guaranteed, the Longevity Pension Fund provides a higher expected level of income compared to annuities. Another way of looking at this is by examining the probability-weighted cash flows expected from each investment product. This requires factoring for the investor’s expected mortality—i.e., what is the chance that each payment is actually received?

Appendix 1 includes the probability of being alive at various ages for the 65-year-old investor. By weighting these probabilities against the expected cash flow from each product, we can see in Figure 3 that the annuity provides a total expected cash flow of $148,639 while Longevity provides $203,261. The Longevity Pension Fund provides $54,621 (or 37%) more in expected cash flows vs. that of the average annuity available today. (Note that if you discount future cash flows at 5%, the Present Value of the expected payments from LPF is 29% higher than from the annuity.)

Figure 3 - Total expected cash from from annuity vs Longevity

Total expected cash flowThis chart models hypothetical performance data. It was created using LifeWorks ESG data as of September 30, 2022, which includes 2,000 stochastically generated future economic scenarios. The results shown are purely hypothetical and do not provide a guarantee of the expected performance of the Fund. This chart does not consider all risks, fees, unique financial circumstances, or the costs of redeeming an investment in the Fund.

Overall, while annuities are great products for those requiring complete certainty, their guarantees come at a cost. The same economic forces that are raising the fixed payments that annuities offer are raising the variable payments that Longevity Pension Fund is expected to make.

In keeping with core financial principles, investors can expect more income over their lifetime on average from Longevity. This is similar to how an investor who accepts some volatility in a balanced portfolio of stocks and bonds can expect to earn more, on average, than an investor in an interest-bearing account.

To learn more about how the Longevity Pension Fund can streamline your portfolio management and help your clients, reach out to your Purpose Investments sales representative, give us a call directly at 1-888-273-8471 or email us at contact@retirewithlongevity.com.

Appendix 1: Expected cash flow factoring in mortality rates

Appendix 1This chart models hypothetical performance data. It was created using LifeWorks ESG data as of September 30, 2022, which includes 2,000 stochastically generated future economic scenarios. The results shown are purely hypothetical and do not provide a guarantee of the expected performance of the Fund. This chart does not consider all risks, fees, unique financial circumstances, or the costs of redeeming an investment in the Fund.


  1. Taken from Cannex.com, as of December 9, 2022. Rates shown above are from six different life insurance companies, for a single life, male, 10-year-guarantee and premium of $100,000 of non-registered funds.

  2. Distribution levels are not guaranteed and the amount of distributions may increase or decrease.

  3. Income in the form of Fund distributions is not guaranteed, and the frequency and amount of distributions may increase or decrease. The Fund has a unique mutual fund structure. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or the initial investment amount less any distributions received.

  4. The level of income in the form of Fund distributions is not guaranteed as the amount of distributions may increase or decrease.

  5. The mortality table follows the CPM2014 public rates taken forward using the MI2017 mortality improvement scale (to account for increasing life expectancy).

Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. The prospectus contains important detailed information about the investment fund. Please read the prospectus before investing. There is no assurance that any fund will achieve its investment objective, and its net asset value, yield, and investment return will fluctuate from time to time with market conditions. If the securities are purchased or sold on a stock exchange, you may pay more or receive less than the current net asset value. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. Income in the form of Fund distributions is not guaranteed, and the frequency and amount of distributions may increase or decrease

The Fund has a unique mutual fund structure. Most mutual funds redeem at their associated Net Asset Value (NAV). In contrast, redemptions in the decumulation class of the Fund (whether voluntary or at death) will occur at the lesser of NAV or original purchase price less distributions paid.

The Longevity Pension Fund is managed by Purpose Investments Inc. The document is not investment advice, nor is it tailored to the needs or circumstances of any investor. Talk to your investment advisor to determine if the Longevity Pension Fund is right for you and always read the prospectus before investing. Nothing in this document shall be considered a solicitation to buy or an offer to sell, or a recommendation for, a security, or any other product or service, to any person in any jurisdiction where such solicitation, offer, recommendation, purchase or sale would be unlawful under the laws of that jurisdiction. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information contained in this document is believed to be accurate and reliable, however, we cannot guarantee that it is complete or current at all times. The information provided is subject to change without notice.

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