Don Maycock...advising you to and through retirement!

Why Consider an Annuity in Your Retirement Income Plan?

Do You Want More Stable Income in Retirement?

There is no question that annuities are viewed as dull and boring. I'm often asked, "Why Consider an Annuity?". If you find GIC rates too low or equity-based investments (mutual funds, ETFs or stock and bond portfolios) too volatile, then an annuity which offers safe and secure regular payments may be a worthy consideration.   This article will present a brief overview of annuities but if you want to learn more, simply fill in your name and email address in the green box below (or click this link) and I'll email you my eLearning modules with more details.

Terminology

Life Annuity

Life annuities are sometimes called “Payout Annuities” or SPIAs (pronounced “SPEE-ah”) which stands for Single Premium Immediate Annuity. As the name suggests, you invest a lump sum of money i.e. a "single premium" and in return the life insurance company begins paying you a regular income for the rest of your life. 

Term-Certain Annuity

A less common annuity is a term-certain annuity.  The term certain annuity pays income for a specific term and then ends.  It is used when a person wants a specific payment for a specific period of time, typically 5 years or more in duration.

How to Purchase

You cannot buy a life annuity online or from a life insurer directly. They must be purchased  through an "life licensed" insurance agent. A term-certain annuity can be purchased from a bank.

There are many considerations that affect the pricing of an annuity as follows.

  • Your age,
  • Current interest rates,
  • Joint Life Annuity -  The payment is based upon both lives such as a husband and wife where payments continue until the last surviving spouse passes away,
  • Guarantee period - How long the payments are guaranteed for in the event you were to pass away prematurely,
  • Continuation % - If Joint-life, is there a reduction in payment when the primary spouse passes, or does it reduce by a certain percentage.
  • Payment start date - Will the payments start immediately, or not for a period of time (months or years),
  • Payment frequency - Monthly or annual payments and
  • Inflation protection - Will the payment increase annually or remain level for life?

Summary and Next Steps

Again, this article presented a brief overview of annuities but if you want to learn more, simply fill in your first name and email address in the green box below (or click this link) and I'll send you my eLearning module to explain more about annuities. 

 

Disclosure: As a life licensed insurance broker, I offer annuities from all the major Canadian life insurance companies.

 

 

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