Annuities: Your Best Option For Retirement Pension-Like Income.

Who Needs Annuities?

Why An Annuity Is A Good Strategy For A Portion of Your Nest-Egg

Annuities provide guaranteed payments for as long as you live or for certain period e.g. 10 or 20 years to help protect against the risk of outliving your nest-egg. Your annuity income payments from can start immediately or deferred to a specific time later in the future based on your choosing. Reasons you might consider an annuity:

  • You need a stable lifetime income source like a pension for a portion of your retirement.  
  • You want payments that will continue for as long as you or your spouse are alive.
  • You need only about 20-30% of your retirement nest-egg to be guaranteed.
  • You need another stable income source to complement CPP and OAS.


You cannot compare an annuity to an investment like a GIC because unlike GICs that depend on fluctuating interest rates based on the term you choose, annuities have fixed rates. If you're looking for something to compare to mutual funds or stocks, an annuity isn't the right option. An annuity provides lifetime fixed income stated in your contract when you buy.

Who Shouldn't Buy Annuities

If you're looking for a silver bullet product then you likely shouldn't buy annuities.  There has been a lot of negative media attention regarding annuities not because it's true but mostly because media commentators and other financial professionals misunderstand how annuities work. It's true that any financial product has flaws just as annuities do. However, we strongly believe that if you plan properly then you'll know how to apply annuities to your retirement income plan. Buying an annuity is meant to solve a specific problem which is providing an income floor if your concern is running out money or outliving your retirement savings.

By taking 20-30% of your retirement nest-egg and giving it to a life insurance insurance company in exchange for a guaranteed stream of fixed income payments for the rest of your life, you solve this problem. If you have enough income from pensions, CPP or OAS to cover your basic expenses then an annuity is not a good idea. In addition, if you likely don't expect to live for a long time from the time you're thinking of buying an annuity, then an annuity will lock in money you might need. If you still need an annuity with poor health then a term certain annuity will probably be the best option.

Which type of annuities are available to you?

Single Life Annuity

This is your standard annuity. A single life annuity provides you with a series of lifetime income payments. Lifetime means that you cannot outlive your payments. Your payments will stop upon your death, however, you can select options that will direct payments to your spouse in the event you pre-decease them. The annuity cost, and income you receive vary depending on your choice of options.

Joint Life Annuity

If you are married and sharing and living in retirement with a spouse, an annuity will guarantee a series of income payments for as long as you or your spouse are alive, similar to a single life annuity. The income paid can be reduced or remain the same if you choose after the first individual passes away. There is a primary annuitant and secondary annuitant and it's stated in your contract.

Term Certain Annuity

If you're looking for a guaranteed stream of income that an annuity provides, but only for a certain period, this type of annuity does exactly that. Sort of like a term life insurance policy, where the policy expires at the end of the term, once you come to the end of the annuity term, these types of annuities stops making payments to you the annuitant and the contract expires with no further payments.

Variable Annuity

This is a type of annuity that protects your principal but allows you to invest within the stock market (variable) to get better returns on your principal. You can never lose your principal amount but by investing you can have a bigger nest-egg base from which you create your lifetime income once you start taking your annuity payments at a later date. Ideal for younger people looking to create a pension for later.

Why Buy An Annuity?


Annuity rates Canada
  • Fund Your Retirement Income
  • Get Premium Deposit Protection
  • Stable Guaranteed Income For Life
  • Leave A Legacy For Your Heirs
  • Have Income For Long Term Care

When Should I Buy An Annuity?

You can buy annuities anytime from a licensed annuity broker like Blue Alpha Wealth. However, there are some appropriate situations whereby an annuity would be a great way to secure guaranteed income payments.

Workplace Pension Plan You Need to Rollover

If you have a locked-in retirement plan from a former employer or you're retiring and wanting to create a personal pension using your workplace RRSP plan.

Any Type of Lumpsum Settlement Money

If you have a lumpsum settlement such as from a motor vehicle accident and you want to preserve it or use it to create a stream of payments for a life or a period.

When You Start Taking RRIF Payments

If you want to make sure you have enough money available to meet your mandated minimum RRIF withdrawals and are worried that your equity investments fluctuate.

Get An Annuity Quote

  • An annuity can be bought using a portion of your nest-egg, e.g. 25%, to create a guaranteed income stream.
  • Annuities are typically used to cover your fixed basic living expenses in retirement for life.
  • An annuity is insurance in case you live too long and risk running out of money.
  • Greatest risk in retirement is longevity risk...the risk you'll live too long. Annuities take away this risk.
  • Get a quote and Blue Alpha Wealth will review your options with you, no obligation.

Annuities from top life insurance companies

Province
  • Province
  • Alberta
  • British Columbia
  • Manitoba
  • New Brunswick
  • Newfoundland & Labrador
  • Nova Scotia
  • Northwest Territories
  • Nunavut
  • Ontario
  • Prince Edward Island
  • Quebec
  • Saskatchewan
  • Yukon
How Long Do You Need Guaranteed Income For?
Lifetime Income
  • 5 Years
  • 10 Years
  • 20 Years
  • Lifetime Income
When Would You Like Income To Start?
Immediately
  • Immediately
  • Next Year
  • 5-10 Years From Now
Account Type
Non-Registered
  • RRSP
  • RRIF
  • Non-Registered
  • Registered Pension Plan 
  • Locked In Retirement Account (LIRA)
  • LIF/LRIF
  • DPSP
Deposit Amount
Primary Person
Gender
  • Gender
  • Female
  • Male
Secondary Joint Person (OPTIONAL)
Gender
  • Gender
  • Female
  • Male
By submitting this form I confirm that my information is accurate

WHO ARE THE HAPPIEST PEOPLE IN RETIREMENT?

Those not living a "just-in-case" retirement and  have some form of guaranteed fixed income like a pension

Which Type of Account Should I Buy My Annuity?

How each account impacts your annuities in terms of taxes is the most important consideration. The nice thing is that it's easy to determine based on whether your account is registered or non-registered. Non-registered accounts can hold prescribed annuities whereas registered accounts cannot.  Speak with Blue Alpha Wealth to see what type of annuity and annuity work best for your retirement income planning.

RRSP Account:

Income from an annuity purchased with registered funds is fully taxable to you in the year you receive it.

Non-Registered Account:

Income from an annuity purchased with non-registered money can have non-prescribed or prescribed (level tax treatment and preferential tax status).

TFSA Account:

Income from an annuity purchased with registered funds is fully taxable to you in the year you receive it.

RRIF Account:

Income from an annuity purchased with registered funds is fully taxable to you in the year you receive it.

Annuities Pros, Cons and Advice

We believe perfect planning is better than perfect financial products. There are no perfect products.

Pros

  • Provides a guaranteed stream of income  
  • You will not outlive your savings or income
  • Payments will continue to your spouse after your death
  • No interest rate or stock market risk and volatility as payment is fixed

Cons

  • You have to lock-in your money  
  • Some penalties if you break your contract
  • You may need income more than a certain period if you choose a term certain annuity
  • You miss out on investing to get stock market gains

Advice:

When thinking of buying annuities make sure you take advice from an annuity broker like Blue Alpha Wealth. There are many options available and features that you might miss out on if you don't take time to look into it. Also, if you need more than $2,000 income, for insurance protection, divide your annuity amongst different life insurance companies so you get the full protection.

RRIF versus annuities

RRIF vs Annuities

Registered Retirement Income Funds or RRIFs are the next after an RRSP whereby the government of Canada requires that by age 71 you start withdrawing from your RRSP.  The RRIF is the vehicle used to take out these mandatory minimum payments required by law. A RRIF is mandatory at age 71 whereas an Annuity is an optional retirement income tool.

Options To Convert Your RRSP to RRIF At Age 71

  • cash out rrsp

  • transfer to rrif

  • buy an annuity

  • blend rrif with annuity

Take Out All Your Nest-Egg From RRSP

This is not what retirees typically do but supposing you do it, it will involve a likely large amount you will withdraw at once. This will attract a high tax burden as this amount will be added to your income. 

RRIF

  • You can make lump sum withdrawals at any time as needed.
  • You control your investments and adjust accordingly.
  • You can adjust how much income you withdraw as your needs require.
  • You may run out of RRIF income as your investments diminish.
  • Your RRIF requires ongoing management due to stock market volatility.

Annuity

  • Neither you or your spouse are required to make any ongoing investing decisions.
  • You can spend every income payment without worry because your future income is guaranteed
  • Most annuities cannot be cashed or modified after payments have commenced.
  • Annuities usually pay higher income than RRIFs.
  • If you need more income in one month you cannot make adjustments to reflect that.

Taxation of Annuities in Canada

Registered Income vs Non-Registered Income Payments

In general, payments or income you receive from a registered annuity are taxed 100% in the year you receive it as an annuitant. In contrast, income or payments you receive from from non-registered account annuities are treated on a non-prescribed (accrual accounting) or prescribed taxation treatment. When you buy an annuity contract from a life insurance company your series of income payments are made up of two components: return of capital and interest income. Your capital portion is not taxed but the interest is taxed and the way its taxed depends on whether you choose "prescribed" or "non-prescribed" taxation at the time of policy issuance.

What Is A Prescribed Annuity?

A prescribed life annuity is a type of annuity that has a fixed or level taxation structure which has the benefit of spreading out your tax burden evenly over the life of the annuity policy. Opting for either prescribed or non-prescribed annuity taxation doesn't affect the amount of income you will receive. It will, however and more importantly, affect your after-tax income calculation.

  • If you choose non-prescribed taxation: the interest income is fully taxed at your marginal tax rate whereby you pay more tax in the beginning then less tax over the years as it tapers off over time.
  • If you choose prescribed taxation of your annuity you will receive greater after-tax savings and benefits. Based on Canada Revenue Agency policy, prescribed annuities receive level taxable income and preferred tax status. Prescribe annuities are unique to non-registered accounts.

In Canada withholding tax is compulsory for annuities purchased with Life Income Fund (LIF), Deferred Profit Sharing Plan (DPSP) and Registered Pension Plan (RPP)premiums. It doesn't matter if the account is locked-in or not locked-in. For non-resident Canadians, the applicable withholding tax rate is deducted for any annuity contract that has been bought.

Who Qualifies for A Prescribed Annuity

In general most people can qualify for prescribed annuities and the tax favored status they receive as long as you can demonstrate the following:

  • You are using non-registered funds.
  • Your annuities income payments are not indexed.
  • You are the owner and annuitant of the annuity policy.
  • You have not deferred/delayed payments beyond December of the following year.
  • Your annuity guarantee period (if you choose) does not go beyond age 90

Main Benefits of Annuities

Building a financial plan and investing your retirement savings is mainly to ensure you replace your salary or income sustainably once you retire full-time. These are the benefits of an annuity you might consider:

Stable fixed income

This is the biggest benefit of annuities. They solve an income problem that most retirees face when they wonder if they will outlive their savings. Annuity income is fixed.

No interest rate risk

Most retirees buy GICs to park their money or as a safe way to manage their cash flow. Unfortunately GIC rates fluctuate due to market interest rates. Your annuity rate is fixed.

Pass benefit to heirs

Using a non-registered account annuity, for example, you can choose to leave a benefit to your beneficiaries when you pass away using a term annuity.

No market volatility

Unlike equities or bond type investments, annuities do not have the same type of market volatility dues to changes in the market or events.

Easy to manage

Once you figure out how much income you need and for how long it's easy to setup an annuity and no difficulty managing it like an equity portfolio .

Tax deferral

Savings you deposit into a non-registered annuity provides tax-deferral until you withdraw from the account. Compared to GICs taxed annually.

Curious About Getting Started?


Blue Alpha Wealth

Get An Annuity Quote

  • An annuity can be bought using a portion of your nest-egg, e.g. 25%, to create a guaranteed income stream.
  • Annuities are typically used to cover your fixed basic living expenses in retirement for life.
  • An annuity is insurance in case you live too long and risk running out of money.
  • Greatest risk in retirement is longevity risk...the risk you'll live too long. Annuities take away this risk.
  • Get a quote and Blue Alpha Wealth will review your options with you, no obligation.

Annuities from top life insurance companies

Province
  • Province
  • Alberta
  • British Columbia
  • Manitoba
  • New Brunswick
  • Newfoundland & Labrador
  • Nova Scotia
  • Northwest Territories
  • Nunavut
  • Ontario
  • Prince Edward Island
  • Quebec
  • Saskatchewan
  • Yukon
How Long Do You Need Guaranteed Income For?
Lifetime Income
  • 5 Years
  • 10 Years
  • 20 Years
  • Lifetime Income
When Would You Like Income To Start?
Immediately
  • Immediately
  • Next Year
  • 5-10 Years From Now
Account Type
Non-Registered
  • RRSP
  • RRIF
  • Non-Registered
  • Registered Pension Plan 
  • Locked In Retirement Account (LIRA)
  • LIF/LRIF
  • DPSP
Deposit Amount
Primary Person
Gender
  • Gender
  • Female
  • Male
Secondary Joint Person (OPTIONAL)
Gender
  • Gender
  • Female
  • Male
By submitting this form I confirm that my information is accurate

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