Annuity Tutorial
Chapter 1. Types of Annuities
Chapter 1: Table of Contents
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Types of Annuities
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Registered and Non-Registered Annuities
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Factors that affect annuity income
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Advantages of an annuity
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Disadvantages of an annuity
Annuity Types
Lets take a look at the types of annuites that are available in Canada.
- Single Life Annuities
- Joint Life Annuities
- Term Certain Annuities
Provides a series of income payments for your life. You cannot outlive your payments.
Provides a series of income payments for as long as you or your spouse live.
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
