A life annuity is not an investment that provides you with a rate of return over a fixed period of time, like a GIC. Instead a life annuity is a product that provides you with a fixed monthly income that is guaranteed for life no matter how long you live. The total payouts you receive from this life annuity will be largely determined by how long you live. The longer you live, the more income you will receive.
For non-registered funds and registered funds annuitants must be younger than age 90 and older than age 18. But there are no health restrictions.
President Obama has chosen life annuities as the official retirement vehicle for Americans to guarantee them a lifetime income. In an article published in the New York Times on January 31st Unloved Annuity Gets A Hug From The President the President’s team said that a life annuity can give Americans a better shot at a more secure retirement.
One of the main problems is that the word “annuities” covers a wide range of products, the more notable of which are not retirement vehicles. The phrase “variable annuities” covers mutual fund investments with perhaps a floor on losses provided by some insurance. On the other hand “life annuities” refer to a level guaranteed income for life. So defining that the Government wants a life annuity, where payments are for life, is perhaps the best place to start. The client could pay into a life annuity vehicle and, at retirement, draw the guaranteed life annuity income.
Should you buy a life annuity? Well that depends on whether you are fed up worrying about interest rates on certificates, stock market volatility and excessive investment charges. A life annuity brings you peace in the form of a check every month to help meet your expenses. If your living costs are pretty well fixed, a life annuity which brings a guaranteed cheque each month may be the answer.
And a life annuity can cover your spouse and be guaranteed long enough to provide some cash for your beneficiaries. So perhaps the President has done his homework when he instructed his team to concentrate on life annuities.
Here is my comments to an article from the globe and mail. You can read the life annuity article here.
A very good approach,simply explained.Most provincial governments try to answer the same question by offering a smaller pension at age 60 but a larger pension at age 65. Which do you take?
If you die at 67 or 68 you probably should have taken the smaller pension at age 60. So this means that if you don’t take the early payment, you will have to live to age 70 at least to match the amount.
I have a client,a single lady 75 years old,who draws the minimum payment of approx $ 726 monthly from her $100,000 RRIF.
Now here is the question. A life annuity guaranteed 10 years will pay her $766 monthly for life. As the income amounts are similar, should she stay with the RRIF or take the life annuity? The RRIF is earning about 4 % a year,but if she continues with the RRIF, she will deplete her capital and could in fact outlive it. What should she do?
Life annuity payments generally begin one month after the money is invested. If you choose a monthly income, your payments will begin one month later. You may select the start date for receiving the life annuity payments, but payments do not have to begin within one year of the policy issue date.