Employers & Employees

Annuities

What is more important to you when it comes time to take money out of your RRSP or Defined Contribution plan? Is it flexibility, or having a steady stream of income that they know will be protected from the ups and downs of the markets? If certainty is more important, it may be worth taking a look at an Annuity.

With Annuities, you will put in a lump sum of cash in all at once -- for example, as a way to convert your RRSPs at age 71 (the mandatory age from the Federal Government). The Annuity then guarantees a monthly amount to be paid out to you-- no matter what the markets do.

Some cases where an Annuity might make sense

• If you have been contributing to an RRSP to plan for your retirement and want a specific monthly amount guaranteed.
• If you have a Defined Contribution Pension (where the pension will come as a lump sum that has to be converted), it's not locked in and you want guaranteed income through your retirement.
• If you're concerned about market fluctuations and wanted a guaranteed income stream -- even if this income stream had little to no growth
• If you intended the funds to go to, for example, support a family member who was incapable of making financial decisions -- it would pay them a regular stream of income rather than a lump sum that could quickly disappear

Where it would not make sense is if you might want access to those funds at a later date. Annuities by their nature are "locked in" -- you're giving up access to that lump sum of capital in exchange for the certainty of regular payments. As well, in today's low interest environment, Annuities will often have lower monthly payouts than a fund like a RRIF that is not locked in.

Annuity options

An annuity will provide you with a series of payments for a specified number of years after retirement. Or, it will provide payments for your life, your spouse's life, or the lifetime of both you and your spouse. Different types of annuities are available, including the following:

• A life annuity, which provides income payable as long as you live, most often with a number of years of payments guaranteed to your beneficiary. The most common period selected by people is 10 years.
• A joint life annuity, which provides income payments for as long as you and your spouse live.
• A term certain annuity gives you a specified number of income payments. If you die before all the specified payments have been made, a death benefit is paid to your beneficiary. This option is particularly useful in situations where income is required for a specific length of time. For example, a five-year term may be selected to cover five years remaining on a mortgage.