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Guaranteed Income for Life

What is an Annuity?

An Annuity is a financial product designed to provide a steady stream of income, typically during retirement. By investing a lump sum or a series of payments with a financial institution, such as an insurance company, you receive regular payments in return. These payments can last for a specified period or for the rest of your life, offering a reliable income source that can help mitigate the risk of outliving your savings.

Canadian retirement expert Fred Vettese describes annuities as a "transfer of risk" from your investment account to the financial institution. This means that instead of managing the fluctuations of the stock market and other investments, you receive a guaranteed income, simplifying your retirement planning.

Why Choose an Annuity?

Lifetime Income: One of the biggest advantages of an annuity is that it guarantees income for life, helping you plan for a comfortable retirement without the worry of running out of money.
Secure & Predictable: Annuities offer a predictable income stream, making budgeting easier and more reliable, even when the market fluctuates.
Tailored to You: Whether you want payments to start immediately or in the future, there’s an annuity option to suit your retirement needs.

Types of Annuities in Canada

Annuities come in various forms, each tailored to meet different financial needs and retirement goals. Here are the primary types of annuities available in Canada:

Lifetime Annuities are the most common type in Canada and are designed to provide income for the rest of your life.

Single Life Annuity: This annuity pays out a fixed amount regularly until your death. After you pass away, payments cease, which means there is no continued income for your beneficiaries.
Joint Life Annuity: Ideal for couples, this annuity continues to pay income to the surviving spouse after one partner dies. This ensures that both partners receive financial support throughout their lifetimes.

Term Certain Annuities

Provide payments for a predetermined period, such as 10, 15, or 20 years. If you pass away before the end of the term, the remaining payments are made to your designated beneficiaries or estate. This type of annuity is beneficial if you want to ensure that your loved ones receive some financial benefit even if you do not live for the entire term.

Deferred Annuities

Payments begin at a future date rather than immediately. This allows your investment to grow tax-deferred until you start receiving income. Deferred annuities are useful for those who want to secure income later in retirement, providing flexibility in your financial planning.

Indexed Annuities

Adjust payments based on a set rate or inflation. This feature helps maintain your purchasing power over time, ensuring that your income keeps pace with the cost of living. While indexed annuities offer protection against inflation, they often come with higher fees compared to fixed annuities.

Guaranteed or Cash-Back

What to Consider Before Purchasing an Annuity

Health & Longevity: Life annuities work best for those expecting to live longer, as the income continues for life.
Liquidity Needs: Annuities are long-term commitments, so consider your need for flexible access to cash.
Inflation Protection: Some annuities offer an inflation adjustment, ensuring your income keeps pace with rising costs of living.

How Annuities Work

Step 1: You invest a lump sum or make a series of payments to an insurance company.

Step 2: The insurance company guarantees regular payments, either starting immediately (immediate annuity) or at a later date (deferred annuity).

Step 3: You begin receiving predictable income, providing financial stability throughout your retirement.

Recent Developments in Canadian Annuities

The Canadian retirement landscape continues to evolve, with new options and features emerging to meet diverse retirement needs. One such development is the Advanced Life Deferred Annuity (ALDA), which allows individuals to defer registered taxable income up to the age of 85. This option provides additional flexibility for those with significant registered savings, enabling them to reduce required withdrawals from other retirement accounts during their earlier retirement years.

Conclusion

Annuities can play a crucial role in securing a stable and predictable income during retirement, especially for those without a traditional pension plan. By understanding the different types of annuities and evaluating your personal financial situation, you can determine whether an annuity aligns with your retirement goals. Consulting with a financial advisor can also provide personalized guidance to help you make informed decisions about incorporating annuities into your retirement strategy.

Frequently Asked Questions

What is an Annuitant?

An annuitant is the individual whose life is used as the measuring life and upon whose death the death benefit will be paid.

What is a Beneficiary?

The beneficiary is the person named to receive the death benefit according to the provisions of your contract upon the annuitant's death.

What is a Payee?

The payee is the person who receives the annuity payments. In some cases, it may be someone other than the annuitant.

Aren’t there other investments that would give me a better return?

While some investments may offer higher returns, annuities provide the unique advantage of guaranteed income for life. The return on an annuity can be more attractive over the long term, especially for those who live longer than expected.

How can I maintain my purchasing power over the long term?

Diversifying your investments, staying ahead of inflation, and regularly reviewing your portfolio are key to preserving your purchasing power.

How can I make sure I don't outlive my savings?

Annuities offer guaranteed income for life, ensuring you won’t outlive your savings.

Interest rates aren’t great right now. Wouldn’t it be better to wait until they increase?

Annuity interest rates are based on long-term rates and tend to be more stable than short-term rates. Annuities protect you from interest rate drops.

Won’t I have enough money from government plans?

Government plans may not be sufficient, depending on your lifestyle and health. An annuity can provide additional financial independence.

How can I access my capital if I have unexpected expenses?

Annuities are designed to work in tandem with other investments. Including flexible investments like term deposits in your portfolio ensures you have accessible funds if needed.

Do I have to invest everything at once?

No, you can purchase an annuity in stages, giving you the flexibility to manage your retirement income over time.

What will happen to my relatives when I die?

Annuities with a guarantee period or joint and survivor option ensure that your beneficiaries or spouse continue to receive payments after your death. The cash refund option provides additional protection.

At Senior Secure Canada, we specialize in providing financial solutions that ensure guaranteed income for life, helping you retire with peace of mind. With personalized strategies tailored to your needs, we help you navigate retirement without the stress of market risks.