Annuities
An annuity is a contract (usually with a life insurance company) that guarantees a series of payments in exchange for a lump-sum investment.
An easy way to get a handle on annuities is to think of them as the mirror image of mortgages. Although we talk about “purchasing” an annuity, you are actually lending your money to the issuer.
The issuer then invests those funds and contracts to repay you, with interest, in predetermined installments over a set period of time. This may be for an agreed-upon number of years, as in term-certain-to-age-90 annuities, or for life.
Benefits of Annuities
- Potential creditor protection
- Death-benefit guarantees
- Principal guarantees
Related Information
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Annuities FAQ
Frequently Asked Questions About Annuities
In this FAQ, we answer the most common questions asked about annuities as an investment option. If you have any specific questions, send us an email, and we would be pleased to help.
How Much Will An Annuity Pay Me?
The size of the installments you receive depends on three factors:
- The amount you have to invest. The more you put towards an annuity, the more money your annuity issuer can earn, and the higher the payments you’ll receive.
- How long you wish the payments to continue. This is called the term of the contract. The longer the term of your annuity, the smaller the installments will be. (If you choose an annuity that will pay you until you die, the amount you receive will be based on actuarial estimates of your life expectancy.)
- Long-term interest rates at the time you buy your annuity. The higher the prevailing rates, the bigger the installments will be, since the annuity issuer can make more from your savings.
Will I lock up my investments?
One drawback to going the annuity route is that you maybe locking up a deposit with set payout options. Once you purchase an annuity, you are locked in for the duration of the contract. That means you can’t increase your installment payments should you decide to take an expensive trip or make a major purchase. And if interest rates rise or the stock market begins to boom, you won’t be able to reinvest to take advantage of other investment options, unless the issuer of your annuity is willing to let you cash it in – usually at cost of what could be a prohibitive interest penalty.
What are some of the benefits of using annuities?
An annuity can be a good post-retirement investment, especially when prevailing interest rates are strong. An annuity provides a means of deferring taxes on the proceeds of your RRSP or RPP, along with a predictable stream of income. It relieves you of the responsibility of making further investment decisions. And it can be tailored to suit your needs and preferences with a variety of features and options.
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Consider Using Annuities and RRIFs Together
Consider Using Annuities and RRIFs Together
To get the best of both worlds – predictability plus flexible income and investment options – consider purchasing a life annuity with some of the proceeds from your RRSP, and putting the rest into a registered retirement investment fund (RRIF) or a life income fund (LIF), if your funds come from an RPP.
The annuity could provide you with a dependable income stream, while the money in your RRIF provides flexible investment options.
Important Information
Annuities are an insurance investment product made available through GP Capital Insurance Agency Ltd.
Investor Protection
Annuities provided by GP Capital Insurance Agency are covered by Assuris.
Client Relationship Document
We’ve developed a plain-language document that describes the relationship between you and your GP Wealth Financial Advisor or Planner.