Have you been thinking about retirement planning? Are you worried if your savings will last through retirement? If you wish you had a steady income stream through retirement then annuities could be the solution to your worries.
What is an annuity?
An annuity is an insurance contract that converts a lump sum of money into a steady income stream. You use your retirement savings to create own defined benefit pension plan. Annuities offer a guaranteed stream of income that can provide peace of mind and financial stability in your golden years.
Can you benefit from an annuity?
Consider an annuity if you:
- Want a guaranteed pay cheque for life
- Are in good health with a long-life expectancy
- Worry that you may outlive your retirement savings
- Want an attractive return on your investments but prefer a hands-off approach to managing investments
- Wish you had a pension plan from your employer
Key advantages of annuities:
- Guaranteed Lifetime Income – Annuities provide a guaranteed income stream for as long as you live, eliminating your risk of outliving your savings. Along with CPP and OAS, they can cover your basic fixed expenses through retirement.
- Protection Against Market Volatility – Unlike investments tied to market performance, annuities offer a fixed and predictable source of income. They also obviate the need to manage your own investments and provide a sense of security and stability in your retirement years.
- Estate Planning Benefits – Many annuities include death benefit provisions, which can be valuable for estate planning. These benefits ensure that your beneficiaries receive at least your initial investment if you pass away early, before receiving all your payments. This can provide an additional layer of financial protection for your loved ones.
- Creditor Protection – For some individuals, particularly self-employed professionals and business owners, the creditor protection offered by annuities can be highly valuable. Annuities being an insurance contract pay out the benefit payments only to your named beneficiaries, protecting them from creditor claims.
Let’s see an example of how Sarah, age 65, benefits from an annuity
Sarah decides to purchase a $200,000 immediate fixed annuity with a 20-year guarantee period. Based on her age, gender, and the current interest rates, the insurance company offers her a monthly payment of $1,042 for the rest of her life.
This means that regardless of how long Sarah lives, she’ll receive $12,508 per year from this annuity. If she lives to:
- Age 85 – she will receive total payments of $250,080 ($12,508 x 20 years)
- Age 95 – she will receive total payments $375,120 ($12,508 x 30 years)
- If she dies before the end of her guarantee term of 20 years then her beneficiaries will receive the $1,047 per month until the end of the 20-year term
The guaranteed nature of this income allows Sarah to budget effectively for her basic living expenses, knowing that this $1,042 monthly payment will continue regardless of market conditions for as long she lives.
If you would like to know more about how annuities can help you manage the risk of you outliving your money, let’s chat.