Annuity 101

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annuityAn annuity is the simplest retirement income option. In exchange for a sum of money, an annuity from an Insurance Company provides you with a stream of payments.

The income payments you receive are made up of interest and principal and are determined based on:

  • Your age (and in certain cases, your spouse's age), for life annuities

  • Current interest rates

  • The length of time the payments are guaranteed

  • The amount of money used to purchase the annuity

The term "Annuity" is both a legal term ( specifically under the Insurance Act) and a financial term. There are a number of financial instruments that take the legal form of an annuity and this can at times be confusing if the term is not interpreted in context of its use. For example all of the following financial instruments take the form of a legal annuity contract; a segregated fund is a form of deferred annuity contract; a term certain annuity is an immediate annuity contract; a prescribed annuity is legally speaking an immediate annuity contract, etc.


A Steady Stream of Payments to You

Select the life income option and you will enjoy a steady retirement income from your pension funds along with the security that you will never outlive your money. And since the insurance company is managing your money, you won't have to worry about market fluctuations or other investment management decisions. You can relax while we do the work.

Payments Guaranteed by The Insurance Company

Your income payments are guaranteed by the insurance company regardless of the ongoing economic conditions. The insurance company manages the money used to purchase your annuity so you're not burdened with any investment decisions.

Tax Treatment

For immediate annuities, like a RRIF segregated fund, annuity payments will be taxed as income in the year that they are received. For non-registered funds, only the interest portion of each payment is taxed each year.

Life Annuities

Two types of life annuities are available.

  • Life annuity, no guarantee – A life annuity payable for your lifetime and ceasing upon death.
  • Life annuity, 5 to15 year income payment guarantee – A life annuity pays an income for your lifetime or for the guarantee period, whichever is longer. If you die before the completion of the guaranteed income payments, payment may continue to your beneficiaries or the current value of the remaining guaranteed payments will be paid to your appointed beneficiary. The life annuity is offered with guaranteed monthly income payments for anywhere from 5 to 15 years.

If the annuity is funded by RRSP or RRIF funds, the guarantee period cannot extend beyond age 90. If the annuity is funded by pension funds, the guarantee period cannot exceed 15 years.


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