Before year-end is a good time to look at annuities with funds from your RRIF or LIF (or RRSP or LIRA)
By John Archer, December 8, 2017.
While 2017 has been a stellar year for many with equity related investments, those depending on fixed income returns from bonds and GICs have continued to battle low interest rates. A life annuity, which pays a blend of return or capital and interest for life might be worth having a look at.
Take a look at a few *examples: a male, aged 71, uses $500,000 of his RRSP funds to purchase a single life annuity would receive $3317.48 per month ($39,809.76 per annum) for life; a female aged 71, uses $500,000 of her RRSP funds to purchase a single life annuity would receive $2963.69 per month for life ($35,564.28 per annum)(females are expected to live longer than males so the lifetime payout may potentially be longer for the female which is why the income is lower): a male and female, both aged 71, uses $500,000 of their RRSP funds to purchase a joint life annuity would receive $2604.67 per month ($31,256.04 per annum) for as long as either are living.
Annuities can also be purchased with non-registered funds and, in this case, receive preferential taxation treatment on the income since the income is considered a blend of return of capital and interest. Only the interest portion is deemed taxable in the case of non-registered annuities. When annuities are purchased with registered funds, the payouts are fully taxable as income.
Annuities have fallen out of favour in recent years partly due to low interest rates and potential annuitants’ reluctance to lock into long term investments. In addition, life annuities are irrevocable contracts where a deposit of capital is exchanged for a lifetime of income and where there is no access to the capital in the event of emergency. Life annuities with ‘guaranteed periods’ such as five, ten or fifteen years, will provide for a payment to a beneficiary the ‘commuted value’ (a discounted value of the remaining payments) should death occur within that chosen time frame. If the annuitant lives beyond the guaranteed period, the annuity income continues but the benefits to the estate are no longer available.
A variety of annuities are available such as ‘indexed annuities’ where the income is indexed according to
the going inflation rate, or ‘impaired annuities’ which are adjusted upwards for those who provide medical evidence of failing health which might impact their life expectancy.
Free, non-obligation annuity quotes are available in minutes for your specific date(s) of birth and amount available for deposit by calingl John Archer directly at 514-878-5040.
John Archer is a financial security advisor at RBC Wealth Management Financial Services Inc. in Montreal and can be reached at 514-878-5040 or via email at firstname.lastname@example.org. Full annuity surveys upon request.
Annuity rates are subject to change. Above quotes are based on a five year guaranteed basis.