What is the purpose of an annuity?

Or: What we DON’T know CAN hurt us

The purpose of a life annuity

The purpose of a life annuity – simply put - is to provide a stable and enduring source of income in your retirement years.

This unique form of investment is especially important if you don’t have a defined pension plan from your employer.

BMO RRSP Study: Eighty-nine Per Cent of Canadians Plan to Rely on the CPP/QPP to Fund their Retirement. Almost a third — 31% of Canadians — said they will count “heavily” on the government pension plan in their retirement. Thus a personal annuity makes sense.

Can you MANAGE your success?

You may have done well in life. You may have amassed a small fortune. But if you aren’t comfortable leaving all of it in the hands of a volatile market in your retirement years, it makes sense to put a slice of those earnings aside.

A life annuity NOW makes sense.

Life annuities deliver a steady source of monthly income.

They will help protect you in uncertain financial times.

They will ensure that at least a portion of your lifetime savings are SECURE. They are SAFE from global and domestic market volatility.

You can better plan your future.

A life annuity is a financial instrument that allows you to invest a lump sum of your savings, in return for a steady and predictable payout upon retirement. This payment, along with your CPP, OAS and other savings, will allow you to PLAN:

• Where you will live
• How you will live
• The quality of that lifestyle

More importantly, you will be able to determine TWO things, via a super simple formula of just adding up your anticipated monthly income upon retirement [monthly CPP, OAS, Life Annuity, draws from your remaining investments]:

1. How much you will have for those necessities of life, such as:

• rent/mortgage,
• hydro or gas bills,
• transportation,
• phone/internet bills,
• groceries and toiletries

2. How much you might have for “extras” in your retirement years:

• occasional or ongoing travel,
• special purchase items: tv, car, new furniture, etc.
• gifts to loved ones

When you know exactly what your monthly and yearly income will be, you can formulate a PLAN to ease into your retirement years.

Smart Investing, Timing and hard work:

If you are planning to live off your CPP, OAS and supplemental income drawn down from your investments, you need to have confidence that the stock market conditions and GIC/Term deposit rates will be in your favour over your retirement years.

You will have to find the time to review your portfolio monthly, to ensure you are on the right track.

If not, you have to make adjustments.

Thus, if you are not confident in your investing abilities, you’ll need to rely on a financial advisor’s expertise.

This will cost you.

Consider the alternative:

Although the implementation of life annuities in Canada goes back to 1908, not many Canadians are well versed in their usefulness as part of a well-balanced retirement portfolio.

This may be due in no small part to the aggressive muscling for investors’ cash in Canada by competing products. There are so many financial productions out there, it can be hard to wade through the cornucopia of choices.

In fact, last year RBC surveyed 1000 Canadians about annuities, with some surprising results. Among their top findings:

• Only 12% of us are likely to buy a life annuity for our retirement
• Only 28% of Canadians know that you do NOT HAVE TO MANAGE an annuity,

ALTHOUGH,

• 63% of us DO understand that annuities are a defined and steady stream of income that pays out for life.

Point number 3 is actually quite promising. Canadians are beginning to understand the purpose and mechanics of how life annuities work and why they are a serious and viable option for our retirement.

As a stand-alone adjunct to CPP and OAS payouts, or as part of a balanced portfolio which may include other investment vehicles such as GICs, stocks, Bonds, ETFs etc., life annuities are a consistent and sure payout.

There are few options out there that give you a fixed PREDETERMINED payout, for life.

So to answer the question: What is the purpose of an annuity?

The purpose of a life annuity is:

• STEADY INCOME.
• EVERY MONTH.
• FOR THE REST OF YOUR LIFE.

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