The Only Guarantees in Life Are Death and Taxes


Champion gymnast Simone Biles recently made news for withdrawing from the Olympic Games for mental health reasons, finding it irresponsible to do flips off the high beam when she didn’t feel completely confident and mentally secure. Some risks are simply too great to take.

For those of us in retirement, figuring out our finances can often feel like balancing on the high beam. Because of this, many of us look for security wherever possible. Extremely low-risk investments and lifetime annuities that guarantee you will receive a defined amount for as long as you live can be appealing.

Understandably when it comes to our life savings, we want to be as careful as possible. That’s why it’s important to remember that just because a product is “guaranteed” does not mean it’s risk free.

Much like how we don’t save money under our mattress, it’s a very real risk you take if you choose to allocate your money too conservatively. In his historic paper where he first introduced the 4% withdrawal rule for retirees, William Bengen highlighted the importance of risk in an investment portfolio, saying: “Holding too few stocks does more harm than holding too many stocks… The superior returns of stocks versus bonds are essential to maximizing the benefit from a portfolio.”

Although Bengen was referencing the strengths and downsides of the traditional 60/40 portfolio, his insights can be applied to the modern retirement portfolio (read what we believe to be the elements of a strong one here).

How Risk Fits into a Retirement Portfolio and How to Manage It

At Purpose Investments, we aim to decrease income insecurity for retirees with the Longevity Pension Fund, a mutual fund designed much like a pension plan that provides Canadians with income for life.

When people first learn that the Longevity Pension Fund offers income for life, their next question, understandably, is “but, is that distribution rate guaranteed?”

No, Longevity’s distribution levels are not fixed – but that represents one of its strongest design features.

By conservatively investing the fund’s assets in a balanced, low-volatility portfolio, and taking on some market risk, we can expect to generate modest returns in most years. And by not locking the distribution rate at a fixed level, we’re able to pass on those market gains to investors through higher distribution levels as time passes.

Like everything in life, there are of course trade-offs. In return for these higher initial rates, expected future increases, and flexible structure, investors accept some market risk. The Longevity Pension Fund is not designed to eliminate market risk; it’s designed to help offset an individual’s longevity risk, by providing them with income for life.

Retirement expert Fred Vettese explored the potential trade-offs of different retirement products in various market scenarios and found that, according to his calculations, the Longevity Pension Fund outperforms a typical balanced fund or an annuity in a standard market scenario (50th percentile returns), showing the benefits of Longevity’s product design.

The next time someone says, “It’s guaranteed!”, ask yourself: “At what cost?” For some retirees, the lower fixed rates on annuities could be the right choice. But for many others, the financial benefits of staying invested in the market far outweigh the costs.

If you would like to learn more about Longevity Pension Fund and how to best implement it in your retirement portfolio, please reach out:

Source: “Determining Withdrawal Rates Using Historical Data,” William Bengen, FPA Journal, October 1994:

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. Fees may apply.

Commissions, trailing commissions, management fees and expenses all may be associated with the Longevity Pension Fund. This communication is not investment advice, nor is it tailored to the needs or circumstances of any specific investor. Talk to your investment advisor to determine if the Longevity Pension Fund is suitable for you and always read the prospectus before investing. There can be no assurance that the full amount of your investment in a fund will be returned to you. Investments in the Fund are not guaranteed, investment values in the Fund change frequently and past performance may not be repeated.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.