An Annuity is the only investment product that guarantees income for the rest of your life or the life of you and your spouse. It provides peace of mind knowing that you will never out-live your savings.
Annuities Enhance Income
Because the income is made up of part of the principal you invested and the interest that it earns, it is significantly higher than investments that pay interest only, such as a GIC. Let’s compare the payout of $500,000 annuity for a male, age 75 in a 40% marginal tax bracket.
The annuity provides an after tax return of more than 4x the income generated from a GIC. In order to generate the same after tax return from a GIC, you need to earn a rate of return of 12.6%. The annuity income is guaranteed for life.
The disadvantage is that you forfeit your principal when you die. If this is of concern to you, there are several ways to preserve your estate value, various guaranteed payment periods can be included to assure the payout of the capital invested.
An Insured Annuity preserves 100% of your capital for your estate. Consider the following example, which compares the investment of $500,000 in GIC at 2.4% with an insured annuity, for a man age 75.
The Corporate Insured Annuity Strategy
An insured annuity can be acquired by a private corporation. It also becomes a valuable strategy for removing the retained earnings from the corporation on a tax-free basis and for reducing or eliminating the capital gains payable on the shares.
The flexibility and utility of annuities allows you to choose the type that addresses your specific income and estate planning needs. These needs will typically include one of more of the following:
• Guaranteed retirement income for life
• Guaranteed income for nursing and long term care without depleting the estate
• Income for a specified period of time
• Gradual inheritance transfers
• Charitable gifting
• Alimony-Spousal support payments
• Tax and estate planning
Who Can Benefit?
If you are a retiree who is having trouble making ends meet, you can more than double your after- tax income. Since the income is guaranteed for the rest of your life, it removes the fear of outliving your money.
If you are a high income retiree who wishes to take advantage of the favourable tax treatment while preserving your estate, you can achieve the best of both worlds with an Insured Annuity.