Many Canadians do not have access to a company pension plan with a guaranteed income stream at retirement.

Annuities are an opportunity to an exchange of a lump sum of money deposited to a financial institution i.e. a life insurance company, for a series of guaranteed regular income payments monthly or annually to the client. Annuity payments contain a blend of interest and return of principal. Annuity payments can continue for a chosen period of time or for the lifetime of one or two individuals.

You cannot out live a life annuity. Life annuities are designed specifically to provide income in retirement that is guaranteed for life no matter how long you live.

One should consider putting a portion of their investments into an annuity to generate income to equal their projected living expenses. Annuities can be indexed to partially pace inflation and keep up with the rising costs over time.

Annuity payments can be guaranteed to continue after death through the use of joint annuitants and payment guarantee periods. An annuity can be set up as a “Joint and Last Survivor” contact that allows the life insurance company to base the annuity contract on the lives of the two spouses, so the income stream continues even after one spouse passes away.

Non registered annuities have income tax advantages if they qualify as prescribed annuities over the life of the annuity. Clients can receive more income than interest from a traditional GIC and pay less tax on the income as it is partially a return of interest and principal over time.

The taxable portion of the annuity income qualifies for the pension income tax credit and pension income splitting starting at age 65.

Annuities have an important role in retirement income planning and pension planning. Please seek quality advice and expertise to determine if an annuity income makes sense for you.