Annuities

Guaranteed Income

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:

• Protect you against fluctuations in the market - you'll always know what your income will be no matter what the markets do
• Protect you against inflation - you can index your annuity so that your income increases each year by a set amount
• Provide a guaranteed stream of income for:
  • You and your spouse - your income can be based on two people's lives to guarantee income for your spouse after you are gone
  • You and your beneficiaries - payment guarantees ensure a specific amount is paid to you or your beneficiaries, no matter what happens
• Offer tax advantages - for non-registered funds, partial tax-deferral is available for your income.
• For clients over 65, the interest portion of your annuity income will generally qualify for the Pension Income Amount Tax Credit.

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.

We Can Help

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.

More on guaranteed income and annuities

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