Annuity Tutorial

Chapter 1. Types of Annuities

chapter 1 types of annuities
Chapter 1. Types of Annuities

Chapter 1: Table of Contents

Annuity Types

Lets take a look at the types of annuites that are available in Canada.

  1. Single Life Annuities
  2. Provides a series of income payments for your life. You cannot outlive your payments.

  3. Joint Life Annuities
  4. Provides a series of income payments for as long as you or your spouse live.

  5. Term Certain Annuities
  6. Provides a series of guaranteed income payments for a chosen period (e.g. 5, 10, 15, 20 years).

Registered and Non Registered Annuities

The funds to purchase an annuity can be from a registered plan or a non-registered plan.

Registered Funds

You can convert the following list of registered plans into an annuity policy.

  • RRSP - registered retirement savings plan
  • RRIF - registered retirement income fund
  • RPP - registered pension plan
  • DPSP - deferred profit sharing plan
  • Locked-in RRSP / LIRA / RLSP
  • LIF / LIRA / RLIF / PRIF

Non-Registered

You can use any of the following funds to buy an annuity policy.

  • Savings/Chequing Account
  • GIC - guaranteed income certificate
  • TFSA - tax free savings account
  • Stocks
  • Mutual Funds

Factors that affect annuity income

The amount of income provided through an annuity is determined by the:

  • Type of annuity selected
  • Amount of money invested
  • Age
  • Sex
  • Payment guarantee selected

Advantages of an annuity

  • Provide a regular income stream for retirement
  • Payments will continue, unchanged, for life or the designated term regardless of Interest rate fluctuations
  • As part of a diversified retirement income plan, annuities reduce risk, add stability
  • Ideal to top-up retirement income
  • Annuities can create personal pension plans for those without pension plans
  • Annuities can be integral to estate planning (i.e. death benefit guarantees, appointment of beneficiary to avoid probate, if any and create potential creditor protection, etc.)
  • Suitable for investors who can’t or don’t want to actively manage part of or all of their capital
  • No one knows how long they will live, and with a life annuity, you can never outlive your money; joint life annuities can also protect their spouse’s income

Disadvantages of an annuity

  • The loss of investment value due to an early death, though cash refund annuities are available
  • The income amount is fixed
  • Purchasing power reduces with inflation – if an indexed annuity is not selected
  • Your ability to draw lump sums from your fund is gone

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The Hughes Trustco Group | Website: LifeAnnuities.com | Email: info@trustco.ca | Toll Free: 877-842-3863