What is an annuity?

Got questions about annuities?

Whether you know it as an annuity, a life annuity or a guaranteed life annuity, the benefits all lead to one certainty: You’ll enjoy the security and convenience of a guaranteed income – for life or for your choice of term – without the ongoing (and potentially stress-inducing) investing decisions.

That’s because annuities are easy to use. Once you define the parameters (more on that later), you can set it and forget it!

How do annuities work?

You can use funds from most savings plans (including RRSPs and TFSAs) to purchase an annuity, which provides you with a guaranteed income. How much income you get depends on the amount you deposit, along with factors like your age and life expectancy, as well as the type of annuity and current interest rates. The regular annuity payments that you receive are based on your desired lifestyle and needs. They can even be indexed each year to help you keep up with the cost of living.

Annuity payments typically end upon the death of the annuity owner. Therefore, be sure to include a life annuity beneficiary in the contract terms. This death-benefit provision allows you, the owner, to designate an annuity beneficiary – a spouse or another loved one – to receive a payout: the greater between the remaining money or a guaranteed minimum (based on your agreed-upon terms). A life annuity beneficiary usually has the choice of a lump sum or a stream of payments.

Who are annuities for?

Annuities are usually used for retirement planning – either to fuel your retirement income, or as a way of rounding out your income to maintain your desired retirement lifestyle.

If you have a Registered Retirement Savings Plan (RRSP), by the end of the year in which you turn 71, you must close your account and choose one of the following options:

The decision to choose between an annuity and a RRIF depends on factors like your risk tolerance and your desired income. Keep in mind you can opt for a balanced approach by purchasing an annuity with a portion of your RRSP funds, and transferring the rest to a RRIF.

An annuity can also function as an investing option for anyone, at any age, who could benefit from a predictable income.

Let’s say that you’re just starting out. Annuities can provide a regular, base-level income stream while you get settled in your career. To purchase an annuity, though, you will need to have saved enough to sustain your income for your desired length of time.

Or let’s say you’re already down the saving and investing path. An annuity can offer a bit of freedom or breathing room, helping you bridge an income gap during a job transition or a major (possibly, unexpected) life event.

Finally, if you’re someone who finds themselves strategizing around tax time, take note: annuities can be extremely helpful in limiting your recorded income, thereby maximizing your annual return.

What are other annuity benefits?

In addition to providing a secure paycheque (for however long you need it) and helping to limit the income tax you pay, here are other ways that annuities can prove useful.

A way to choose your income

With their range of flexible options, annuities are designed to help you meet your income needs. You choose your time horizon (for life or a specified term), your payment type (whether it’s indexed to inflation) and your payment frequency (whether you get paid monthly, quarterly or annually). Your paycheque amount is totally up to you!

A way to supplement your income

Instead of becoming your main source of income, annuities can supplement other sources. Think an extra, “part-time” paycheque, if you’re working. Or padding your retirement income stream – from investments, company pensions, Canada Pension Plan (CPP), Old Age Security (OAS), RRIFs or Life Income Funds (LIFs) – if you’d prefer a little extra comfort, flexibility or fun.

A way to protect your income

Bringing financial stability, your established income will not change, despite any interest-rate and market fluctuations. And for even more peace of mind? Co-operators Life Insurance Company is a member of Assuris – a non-profit, industry-funded organization that provides a guarantee for Canadian policyholders in case their life insurance company fails.

So, what do you think? Are you ready to secure your monthly income?


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*In the province of Quebec, the authorized representatives are Financial Security Advisors who have been duly certified by the Autorité des marchés financiers.

The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional tax advisor on tax related matters. Mutual funds are offered through Co-operators Financial Investment Services Inc. to Canadian residents except those in Quebec and the territories. Segregated funds and annuities are administered by Co-operators Life Insurance Company. Co-operators Life Insurance Company and Co-operators Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and security of the personal information that we collect, use, retain and disclose in the course of conducting our business. Visit www.cooperators.ca/en/PublicPages/Privacy.aspx for more information. Co-operators® is a registered trademark of The Co-operators Group Limited.