Purchasing a Retirement Annuity

Life insurance companies offer various types of annuities to investors who want to convert their registered13 or non-registered capital into periodic fixed or growth payments:

  • during their lifetime (life annuity);
  • during their lifetime and the life of their spouse (survivorship annuity);
  • for a specified period (annuity certain, e.g. until age 90).

The total amount received from an annuity acquired with registered capital is taxable whereas only the interest portion of an annuity acquired with non-registered capital is taxable.

Factors Influencing Annuity Amount

Health, age, sex, capital available and long-term interest rates when the annuity is purchased, as well as the issuer selected, are important basic factors that will have some impact on the amount of the annuity.

In addition, the protection that can be obtained with respect to an annuity to protect the capital and/or the beneficiaries of the estate, e.g. guarantee, reversibility and indexing. There is an inherent cost to these factors that will be reflected in the amount of the payments offered.

Protection if Financial Institution Granting Annuity Goes Bankrupt

The Assuris14 organization is a non-profit corporation that protects insured Canadians if their life insurance company goes bankrupt. If you are a Canadian citizen or resident and you purchase a product from a life insurance company that is a member of Assuris, you are protected up to certain limits. For example, if an insurer goes bankrupt, Assuris guarantees annuity contract holders payment of 85% of the expected monthly income up to a maximum of $2,000 per month. In the case of annuities purchased from financial institutions other than insurers, no amount is insured by either the Canada Deposit Insurance Corporation or the Autorité des marchés financiers.

13 RRSP, RRIF or other registered plans.

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