Canadians today are enjoying a healthier and more active retirement than their parents’ generation. We are living longer than ever and, in some cases, may spend as much time in retirement as we did working. How you turn your savings into retirement income can have a significant impact on your retirement lifestyle. One of the biggest risks you’ll face during this stage of your life is longevity risk - the risk you’ll outlive your income.
What is the one kind of investment that can insure against longevity risk? A life annuity (let's call it a personal pension) can help to lessen your longevity risk by providing a guaranteed source of income for life. This income can be used to meet expenses or provide a strong foundation for your portfolio, freeing up the balance to be invested in the most efficient manner.
An annuity is like a mortgage payment that works in reverse. Instead of borrowing money, you invest money with a financial institution and in exchange you receive regular income payments - payments that contain both interest and principal. But unlike a mortgage that would typically end after a specific period, payments from an annuity can be guaranteed for the rest of your life.
Beyond providing guaranteed income for you for the rest of your life (or for you and your spouse’s life) no matter how long you live, an annuity can also:
There are several kinds of annuities available. A Single Life annuity provides income for as long as the annuitant is living. A Joint and Survivor Life annuity provides income for the lifetimes of two people. A Term Certain annuity provides income for a specified period. A return of principal (principal protected) annuity can ensure that you or your heirs receive back at least as much as you initially invested (see chart, right).
Annuities can also be combined with life insurance to enhance your monthly retirement cash flow (see calculation, below), while guaranteeing a specific benefit for your heirs. If you plan on making a donation to charity as a part of your will and estate plan, a charitable insured annuity presents significant tax savings and an enhanced yield.
The variety and complexity of guaranteed income and annuity products may seem daunting but that's why we are here to help. ScotiaMcLeod offers a full array of investment and insurance products to meet your financial goals. We can help you assess your income needs and shop the market to get you the best combination of features and price for your individual situation. Contact us for review of guaranteed income needs.
Managed Money Reporter Articles
Tax Rules Changing for Insured Annuities Mar/16
Annuities Sep/12
Consider an annuity for certainty and tax-efficiency
Nov/10
Guaranteed Income for Life
Jun/10
Income for Life
Jun/05
Transitioning Investments at Retirement
Jun/02
Term Certain Annuity Example
Jul/97
ScotiaMcLeod Resources
The Insured Annuity Strategy
Annuities
Insured annuities
An insured annuity example
Other Resources
Why annuities work now - Investment Executive Magazine
Life After Work - Manulife
About Principal Protected Annuities - Manulife
Principal Protected Annuity Ad - Manulife
Trading liquidity for certainty with an annuity - Tim Cestnik, Globe & Mail, Jan 14, 2010
Manulife website
Standard Life website
T. 416.863.RRSP (7777)
1.800.387.9273
F. 416.863.7479
E. carl.spiess@scotiawealth.com
allan.mcglade@scotiawealth.com
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