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Buy Now or Buy Later?

Good afternoon everyone,

We are often asked about the best age to buy an annuity and today we are going to give you some information which should help you to decide.

People want to receive the highest income and to meet that request we give you quotes from all the companies, along with various guarantee periods.

But timing is also important; do we buy now or later? If we buy now, our monthly income will be less but will waiting improve our position? This is answered by comparing a “DO-IT-NOW” quote with a “DO-IT-LATER” quote. If it takes too many years to make up the forsaken income, you have your answer.

BUT WHAT IF INTEREST RATES INCREASE; WON’T THAT MAKE A DIFFERENCE?

Well consider this. If interest rates across the yield curve increased (say by 2%) the impact on annuity incomes would be more significant for younger ages than for older ages. Considering the time value of money, a company will have the ability to earn higher yields for the younger clients for longer periods of time. For older clients the amount of time is shorter to take advantage of the higher yields.

If a company sells an annuity to a 80 year old, on average it doesn’t expect to pay income for that long a period. There is less time to take advantage of a possible increase in interest rates, especially when you consider most of the client’s deposit is being paid back faster than to a younger person.

For these older clients, mortality credits play a big role in the value they receive from an annuity, For younger clients it is more a combination of interest rates and mortality credits that provide the annuity value.

WILL INTEREST RATES INCREASE?

Here is a link to the Financial Post with information from Statistics Canada on that exact question

Our position remains the same. Only the RRSP holder and spouse can take advantage of the continuing income tax protection. When the RRSP holder or spouse passes away, there is no more tax protection.

And in most cases these days, a non registered annuity, is a replacement for a defined benefit pension.

But a DO-IT-NOW and a DO-IT-LATER quote will answer that question for you. In this context; Waiting is hoping!

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