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Getting to know annuities

Getting to know annuities

You are nearing or already into retirement and you want to maintain a secure income stream, pass a steady income to your spouse, or gradually transfer an inheritance to your grandchildren. One of the investment options available to look at is an annuity. Here’s why:
• An annuity is a financial product that pays you a regular income for a fixed period or the rest of your life. They are often used for transforming a lump sum of money into a dependable income stream.
• Annuities are available in a variety of types: o Single life annuities provide a guaranteed income for as long as you live, helping to ensure you will not outlive your money. In addition, you can elect a guaranteed period to allow payments to continue to your beneficiary at your death.
o Joint and survivor life annuities cover the lives of two individuals and payments are made as long as either you or your joint annuitant lives. Indexed annuities are also available whereby the income can be increased periodically, either on a fixed or variable basis, to adjust for factors such as inflation or market performance.

o Term certain annuities provide guaranteed payments for a specified period of your choosing. If you die before the contract ends, payments will continue to your designated beneficiary for the remaining specified period.
o Payout or cashable annuities, unlike all other types of annuities, allow the flexibility to redeem lump sums during the lifetime of the income. So if you need a larger amount of money than your regular payment provides – for whatever reason – it will be available to you.
o Insured annuities can provide you with a tax advantaged solution allowing you to draw income in retirement while still preserving your capital to be paid to your beneficiaries at your death.

• Annuities purchased with non-registered funds can be issued with a ‘prescribed tax status’ that provides a tax deferral by averaging out and deferring taxable interest earned over the expected life of the annuity. Depending on your situation, this can be an effective way to receive income from your portfolio tax-efficiently and may be more attractive than earning the income as interest from a term deposit.

With the exception of payout or cashable annuities, once you commit to annuity terms, you can’t change the plan. However, there are many ways to structure an annuity to gain the most benefit for you. Find out how an annuity and the various options might fit into your retirement portfolio by talking to me as your professional advisor.

About the author

Pl. Fin. Noël Hémond

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