Annuity Tutorial

Chapter 1. Types of Annuities

Chapter 1: Table of Contents

• Types of Annuities

  1. Single Life
  2. Joint Life
  3. Term Certain Annuity

• Registered and Non-Registered Annuities

• Factors that affect annuity income

• Advantages of an annuity

• Disadvantages of an annuity

Annuity Types

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

Single Life Annuities

Provides a series of income payments for your life. You cannot outlive your payments.

Joint Life Annuities

Provides a series of income payments for as long as you or your spouse live.

Term Certain Annuities

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

• Introduction

• Chapter 1

• Chapter 2. Why an annuity?

• Chapter 3

• Chapter 4

• Chapter 5

• Chapter 6

• Conclusion