Annuity Calculator:
Calculate Your Annuity Income

Calculate Your Annuity Income

Those looking for a steady income source during their retirement may be interested in an annuity. In this article we are going to take a closer look at annuities, including their advantages and disadvantages, at annuity rates, at annuity benefits and more so that you can make a better, more informed decision about whether they are the right investment vehicle for you.

For those who have an annuity, or those wondering how to determine how much money they can count on receiving from an annuity, we are also going to discuss annuity calculators and how they can be used to get a more accurate indication of how much you stand to earn with an annuity contract.

Let’s get started by taking a look at just what an annuity is and then how it differs from Canada’s other main retirement investment vehicle the Registered Retirement Income Fund or RRIF.

What is an Annuity?

A life annuity is a retirement policy provided by an insurance company. The insurance company undertakes to pay the annuity owner a set amount either monthly, quarterly or yearly. To determine the amount you may receive, try this annuity payout calculator.

There are a couple of choices an annuity owner must make when buying a policy:

• Do they want to receive income for a set period of time or for the rest of their life?
• Do they want to include a life partner?

Here is an Example of How a Life Annuity Works:

A man age 65 purchases a $100,000 life annuity. That means that the man pays a lump sum of $100,000 to the insurance company. Now under terms of the annuity agreement, the company agrees to pay out to the man $500 per month for a 20 years minimum and his lifetime.

The good news is if the man lives the entire 20 years he will receive $120,000 on his original investment of $100,000. But let’s say the man lives only 5 more years and dies at age 70. That would mean that he only received $30,000 of his original $100,000 investment but his heirs would receive income for the balance of the 20 year period. Use this annuity calculator Canada to run your own scenarios.

Annuity Versus RRIF

How does an annuity differ from a RRIF? Again, an annuity is a contract with an insurance company to pay the policy owner a certain amount of money per year, normally during their retirement.

A RRIF on the other hand is an investment account where retirees put the money they earned from their RRSP, Registered Retirement Savings Plan.

This money is invested according to the account holder’s directions. And the account holder must withdraw a certain amount of money each year according to the Canadian RRIF Withdrawal Requirements.

Other Alternatives to Annuities

While annuities and RRIFs are the most common investment vehicles for Canadians, there are other places where they can put their money.

For comparison’s sake, here are a few of the other available options to buying an annuity in Canada:

Savings and GIC’s

Savings accounts and GIC’s are honestly not a particularly effective way to grow your money. To be sure, strong savings accounts are important to retirement planning (and even more important to day-to-day life before retirement). However, with inflation and the rising cost of living, low-interest savings and GIC’s should not be the only tool in the retiree’s box.

Yet we don’t want to slight the mighty force called “cash.” Beautiful in its liquidity, cash is highly movable, highly usable, and the best thing to have on hand for a rainy day.

Let’s take a look at some of the most common bank accounts, and short-term savings products, in which people put their cash.

• Chequing accounts

The most liquid of all accounts. These allow you to withdraw and deposit at will, from almost anywhere, these days. The problem? They offer zero interest, in most cases. Keeping too much money in your chequing account, therefore, is a no-no.

• Savings Accounts

The weak sister of all interest-accruing accounts. These basic savings accounts usually pay only a few percentage points on your money, and, thus, aren’t very useful anymore.

• Money Market Accounts

Money-market accounts offer a much better rate of return than traditional savings accounts. These are generally the accounts to have. Drawbacks? They may cost more to maintain than a traditional savings account (very often free). They may have minimum starting or average balances, which will incur a fee if you don’t have enough invested. Money-market accounts have different rules on withdrawals, cheque-writing, and such features.

• Money Market Funds

Generally a slightly higher rate of return than money-market accounts. Money-market funds are invested in the safest of safe bets. They will generally earn a better rate of return than money-market accounts, but are also less liquid--though some might have cheque-writing privileges.

• Guaranteed Investment Certificates (GIC)

GIC’s are short- to middle-term investments that take a certain amount of money for a certain period of time, then return it with interest. GIC’s have different rates of return. The shortest-term GIC’s are usually 90-day issues. Their interest rate will be nearly that of a good money market. Longer-term GIC’s (between one and five years) will have better return rates. GIC’s charge a substantial penalty for early withdrawal, so these types of savings are not considered liquid.

Bonds, Bills, Notes

Bonds can also be a very safe way to invest over the long term. Typically the lowest-risk bonds deliver around 4% or so. The different flavors of bonds include the following:

• U.S. Treasury Securities

These come in three major types: treasury bills (mature in a year or less), treasury notes (mature in two to ten years), or treasury bonds (mature in more than ten years). The longer it takes a U.S. security to mature, the greater the yield will be. As these are considered about the safest investment in the world, they have an extremely low yield, compared to other bonds with the same maturity period. However, one generally doesn’t need to worry about the U.S. Treasury defaulting on its loans. Which is exactly what bonds are; money you loan to the U.S. or other government, at interest.

• Corporate Bonds

Corporate bonds pay more than the governmental types, and usually offer a fairly high rate of return for a safe investment. Companies are rated on what analysts believe is their creditworthiness: the ones with the highest ratings offer the bonds with the lowest returns, and vice versa. So, here, as with the rest of the investing world, the rule is that the more risk, the more possible earnings. The companies with the worst ratings issue what are known as “junk bonds”--highly volatile, but potentially lucrative, securities. (Sharp trading of junk bonds has led to huge instabilities for some institutions, or even collapse.)

Cash Balance Pension Plans

A less common type of employer-sponsored pension plan. Cash balance plans are defined-benefit programs, with all contributions coming from the employer.

The amount of the defined benefit is determined by the cash accumulated in an account at the end of a worker’s employment. It may be taken in a lump sum, or as an annuity.

The account is grown by an annual employer contribution (perhaps 4% of salary). The employee earns a certain percentage return on these contributions, which is mostly fixed. Though the money is invested, the employer takes both the risk and the reward, should the investments either surpass or fall short of the percentage return promised the employee.

Home Equity (Reverse Mortgages)



Saving one of the best for last! Equity in a home is one of the best and most common retirement investments available today. Seniors who do not have much invested in assets such as stocks, bonds, etc.--or even much cash on hand--often depend on the equity locked up in their home to support their retirement.

While some refinance, or sell the home upon retirement to take up residence somewhere cheaper, a reverse mortgage might just be the key for older couples looking to stay in their house, but at the same time profit from the equity they’ve built up in their home over a number of years.

Reverse mortgages are essentially loans from banks made against the equity built up in your home. When the retiree dies, or moves, the house is sold, and the total amount of the loan (plus interest) is deducted from the sale price, with the remainder going to any heirs.

Generally, people who take out reverse mortgages are over the age of 55, have built up considerable equity in their home, and are in need of supplemental income. Lenders handle reverse-mortgage advances in one of three ways:

• Lump sum--all the money at once.
• Annuity for a fixed period of time.
• Annuity until death
• Credit line

The amount available will be a calculation based on the retiree’s age, the house’s location and value, and the amount of equity built up in it. To run various annuity scenarios, try this annuity rate calculator.

Yet Reverse Mortgages Aren’t for Everyone

Only those in fairly dire need of additional income, in fact, should use this option. Why? First of all, the reverse mortgage, of course, reduces what’s available to your children or heirs. The loan rates are high, and lenders usually charge considerable amounts up front.

Realize, a reverse mortgage is a sort of last-ditch tool, so financial institutions know they have you over a log here. What’s more, the financial implications and mechanisms of reverse-mortgages are fairly complex. The applicable tax implications can be hard to compute, and there is very often a vast range of plans from which to choose.

In fact, some lenders, up until quite recently, used to take serious advantage of people who came to them for reverse mortgages. Though increased scrutiny and regulation over the past few years has cleaned things up a bit, it’s best to get good advice from someone you trust before you go into the process. The more information you have, the more you’ve narrowed down what it is you want, the better equipped you’ll be to strike the best deal for yourself and your retirement.

Now that we have looked at some comparison investment possibilities, let’s take a closer look at annuities and fixed annuity calculators.

Types of Annuities & How Canada Differs from the US



There are basically three main types of annuities. There are:

• Life Annuities – these annuity investments pay the account holder a guaranteed amount each year for as long as they live. Here’s how it works: the person and the life partner buys a $250,000 annuity with a life and 25 year guarantee that pays $1200 a year. Following either death the survivor would continue to be paid $1200 a year for life.
• Term-Certain Annuities – these annuities are like the example we mentioned earlier in this article. The person purchases an annuity that will pay them a certain amount of money per year for a set period of time like 10 years or 20 years or 30 years.
• Variable Annuities – this type of annuity involves investing the account holder’s funds in something with a variable return, like stocks. The income amount the account holder will receive will vary depending on the performance of the stocks over time.

In the US, all three types are commonly used; however, in Canada, variable annuities – which again are annuities that are tied to the stock market – are not available.

Annuity 101 - What Are the Advantages of an Annuity?

Depending on the type of annuity you purchase there are a couple of big advantages that are apparent right away.



With a Life Annuity:

• You are guaranteed to receive money for the rest of your life. If you live a long time, you could be well ahead at your death.
• You don’t have to worry about outliving your income – payments will continue until you die
• You can also designate a joint or survivor option that will continue your payments to a spouse or loved one

With a Term-Certain Annuity:

• You get guaranteed income for a set period of time – that means your income is not dependent on the fluctuations of the stock market. If your income is tied to the stock market and the stock market crashes, as it has been known to do from time to time, you could be in serious trouble.
• You can designate a beneficiary to receive your payments in the event of your premature death.

One More Thing to Keep in Mind About Annuities in Canada …

With registered funds, payments are taxed as income in the year that they are received. For non-registered funds, only a portion of each payment is taxed.

By the way, non-registered annuities are not registered with the Canadian government. These accounts are typically offered only by insurance companies. These policies are more flexible than registered accounts and may have tax advantages and no contribution limits.

To see what type of payments you could receive and how much of an initial deposit you would need, try this annuity payment calculator.

What are the Disadvantages of an Annuity?

• One of the biggest disadvantages is that you may die before all your payments have been disbursed, meaning you should have a guarantee period.
• Joint annuities that offer features such as a guaranteed term and designate a beneficiary, typically reduce the amount of payment.
• A problem with term-certain annuities is that you may outlive the payments leaving you with no income source for your later years. See how long a certain payment amount would last with this annuity financial calculator.

How Much Can You Receive from an Annuity Per Year?

To determine how much you could receive you can play around with different numbers using the deferred annuity calculator located here.

You can actually determine a number of things with this annuity calculator – for example, you can use it to determine the payment amount that would deplete the account in a set number of years. You can also use the annuity calculator to determine amounts needed to generate a specific payment amount.

In addition, you can use the lifetime annuity calculator to determine the number of years you can receive a certain payment amount with a specific initial lump sum.

In other words, a good income annuity calculator like that provided by Hughes Trustco can clear up a lot of questions and provide you with the information to determine whether you want to move forward and, if you do, how to best proceed.

You can start using the annuity estimate calculator right here. Hughes Trustco also offers annuity factor tables, annuity best rates, annuity quotes online and more.

When Should You Buy an Annuity?

If you end up deciding that an annuity is the right retirement investment vehicle for you one of the most important decisions you will have to make is when to buy it.

Of course, this decision will depend a great deal upon your income needs and current financial status. You may want to consider a few things when attempting to make this decision:

• Do you want to have more money early in retirement to pay for travel or to pursue new hobbies?
• Do you want to have more money later in retirement when health care costs and living accommodations may be more expensive?

One more thing to consider as you attempt to answer the above questions, is that waiting to open an annuity can result in higher payments received. That means if you currently enjoy good health and have good family genes waiting a few years to open the annuity could ensure you have a higher income later on.

For your reference, many experts say 70 is the ideal age to buy an annuity. Others claim 65 is best. Still others say to wait as long as possible but to always be aware of your health status – you don’t want to wait too long and miss out altogether!

Again using an immediate annuity calculator like the one available here can help you see how much of a deposit is needed to generate a certain amount of yearly payment for a certain amount of years.

When you play around with an annuity payout calculator it can be very interesting to see how long an amount like $100,000 can last. It is also interesting to see what types of payments are available.

The annuity calculator offered by LifeAnnuities.com is available here.

Where Should You Buy an Annuity?

Where you choose to buy an annuity can be important because different providers will offer different incomes. This is because annuity providers set their rates based on a variety of factors such as:

• Operating costs
• Annuity type
• Age and gender of the account holder’s
• And more

LifeAnnuities.com, which created this annuity calculator, offers annuities from top providers like Sun Life and Equitable Life.

Sun Life is a financial services company that serves millions of people in Canada, the United States, the U.K., Asia and more. Sun Life Canada offers both life annuities and term-certain annuities that help Canadians cover basic retirement expenses without the threat of outliving their money.

Equitable Life is another leading financial services provider which offers Canadians life and certain-term annuities that deliver income during their later years.

You can use LifeAnnuities.com annuity calculator to determine how much money you could receive from an annuity as well as how much money you would need to deposit when opening the account. Click here to test the company’s annuity calculator out.

Who is LifeAnnuities.com? The company offers clients and visitors information on segregated funds, life annuities and life insurance that they can NOT easily find anywhere else. Click here to learn much more about the company. Click here to take advantage of its state of the art annuity calculator.

At the company’s lifeannuities.com site, you can learn more about annuity products, annuity guarantee, annuity prices Canada, annuity joint ownership and more.

A Few More Things to Consider When Getting an Annuity …

Annuity income in Canada is protected at 100% for monthly payments up to $2,000 and at 85% for amounts above that threshold. (Update: as of May 25, 2023, Assuris now guarantees up to $5000/month or 90%.)

This is because Canadian life insurance companies are required to be members of Assuris, which is a consumer protection agency comprised of all the insurance companies.

Another thing to keep in mind is that annuities, once the contract is signed and put into effect, cannot be changed or cancelled.

That means you can’t change the terms if you decide later that a different type of annuity would better fit your circumstances.

Conclusion

People are living longer these days – in fact, experts tell us that the average life span is going up about three months for each year that passes.

That means thanks to healthier lifestyles and a higher quality of medical care you must prepare for a long retirement – one that stretches three or four decades or more is no longer out of the question.

Advances in genetics and biotechnology have some experts suggesting that many people will soon be living into their 120s. All that extra time means extra planning for you – if you are not prepared you could run out of money and that could be catastrophic.

That is what makes an annuity such a potential good investment. It will provide you with a set amount of money each year – and if you get a life annuity you can count on having that amount of money for the rest of your life!

To learn much more about how much an annuity can offer you in retirement take advantage of LifeAnnuities.com annuity calculator here.

The company has carefully created an accurate annuity calculator that allows prospective clients to get a clear idea of what they need to deposit to generate the retirement payments that will allow them to live comfortably and pay their bills.

The annuity calculator also allows users to generate a lot of other beneficial information.

RECAP: Frequently Asked Questions

What is an annuity and how does it work?

With an annuity, the account holder makes a lump sum deposit all at once. Then he or she receives a set amount of money each month for a specific time period, like 10, 20 or 30 years, or for life. This retirement tool provides Canadians with a steady retirement income that is not affected by market fluctuations or other factors.

Are annuities taxable in Canada?

If you have a registered annuity, payments are taxed as income in the year that they are received. If you have a non-registered annuity, a portion of each payment is taxed. Non-registered accounts are not registered with the Canadian government and may offer some advantages – like unlimited contribution amounts and tax advantages.

How much do annuities pay?

The amount paid by an annuity is calculated when the policy is purchased and depends on a number of factors, including interest rates and how long a person is expected to live. One thing is for sure, after you buy an annuity you cannot make changes to it – so you can’t increase or decrease the amount you receive. Your regular payments – and payment times, such as monthly, quarterly or yearly, are locked in and can’t be altered for any reason.

Are annuities a good investment for retirees?

The answer to this question depends on each individual retiree’s needs and financial situation. Most seniors can indeed benefit from an annuity as it provides a steady, set income for them in retirement. They can count on receiving a certain amount of money each year no matter what the stock market or real estate market or bond market does. That peace of mind can be very beneficial.

What is an annuity calculator?

An annuity calculator is an online program that allows users to enter information and learn exactly what deposit amount and payment amount will allow them to reach their desired income. Annuity calculator users can also see how changing deposit and payment amounts can allow them to stretch out the deposit. Hughes Trustco has built an annuity payment calculator and that annuity calculator is now available on this web page.

Life Annuities.com Inc.’s annuity payout calculator is free to use. Just click this link – annuity calculator – to begin using it. The truth is you shouldn’t open an annuity account without first taking advantage of an annuity calculator to get a better idea of the numbers involved.