Today we Canadian’s are living longer. One of the biggest concerns that aging Canadians have is outliving their retirement savings. On top of this, many of us would like to leave a legacy of some sort to our families and other beneficiaries.
Low interest rates are the ‘new normal’ while the stock market continues to enjoy a gravity-defying ride (so far) that cannot last forever. Many investors, especially aging Baby Boomers on the cusp of retirement, can’t afford to sustain losses on their portfolios. They need security of income and want to leave an estate to their family and/or charity.
Annuities have long been recognized as one of the best secured investments available. An annuity pays income at regular intervals, usually monthly, starting either immediately or at some date in the future.
A ‘term certain’ annuity pays out for a specified number of years, while a life annuity makes payments for as long as you live. A joint life annuity makes payments for as long as either you or your spouse lives. However, after death, the money is no longer available to give to heirs—and this last detail presents an unwelcome challenge for people who are unaware of the insured annuity strategy.
An insured annuity provides a unique combination of an annuity plus permanent life insurance. This type of annuity includes many attractive features:
■ You receive regular payments while you are alive;
■ You cannot outlive this source of retirement income;
■ You maintain your estate for your beneficiaries;
■ You increase your after-tax income;
■ You are assured of the security that comes with an annuity investment option;
■ Your estate will be able to bypass probate; and
■ You can use it as an effective solution for yourself or your corporation.
Insured annuities offer tax advantages: An insured annuity is also very tax-effective. Annuity payments consist of two parts: interest income plus return of capital. The capital part is not taxed. While the interest portion is taxed, the tax hit is often much less than with interest that other types of investment pay, which is always taxed at a relatively high rate.
Insured annuity vs. GIC: With today’s low interest rates offered on 5 year GIC’s, insured annuities offer significantly more after tax income, even after the life insurance payment is deducted. Insured annuities also offer many estate planning advantages which include eliminating probate fees and other associated costs, taking weeks instead of months to process, maintaining privacy and protection from creditors. Just remember that the main drawback of an insured annuity is the loss of liquidity for that capital. Investors need to have other funds to have access to for emergencies and must qualify for the life insurance coverage.
There are a number of different annuity options available today, so check with a trusted financial advisor as to which option might be the best fit for your needs, plus as was mentioned above – for couples there are joint and survivor options that continue payouts to the survivor after the first death.
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