David F. Andrews B Comm CFP CLU TEP
Annuities are generally a misunderstood and overlooked option in today's investment world.
So let's start with a quick refresher:
What is an Annuity?
An Annuity is a series of payments. Pension plans are a form of an annuity. Annuities may be for a fixed period of time or they may be for life.
Term Certain Annuities
The assumptions on a fixed term annuity are easy because we are earning a rate of interest and paying out the principle and interest over a fixed period of time.
Tax advantage
Personally owned non-registered annuities are PRESCRIBED Annuities for tax purposes. unlike a mortgage with high interest at the beginning and low interest at the end, The total interest earned on the annuity is calculated and spread EQUALLY over every year of the annuity income. This creates a modest tax deferral and savings in real terms.
When combined with another product offering tax sheltering of the investment growth, An annuity can provide tax efficient income as a result of the deferral and as a result of the fact that a large portion of the payment is principle and non-taxable.
Life Annuities
Life annuities add an additional calculation to the way the payments are calculated. They use life expectancy as the term. Life expectancy is an Actuarial Concept and allows individuals to participate in a pooled approach to income generation where those who live longer will end up with a better deal. Key to this is that the payments will never stop in their lifetime. Taxation is again level for the life of the annuity.
Can I lose all my money if I die early?
Life annuities have several options available. The first is that you may request a minimum number of payments (live or die). This can protect part or all of your original deposit. You may elect to have a Joint and Survivor Clause that protects your spouse. Life annuities are most attractive at older ages. Ask us if they might be right for you.
Enhanced Guaranteed Income Alternative.
For individuals age 70 plus with good health, an insured annuity strategy may be available that will secure 100% of your capital and provide up to 50% more guaranteed income than what is available through conventional fixed income alternatives
