Afraid of outliving your money? Here’s why annuities might be for you

My comments of a recent article by Craig Wong, The Associated Press “Afraid of outliving your money? Here’s why annuities might be for you

Jamie Golombek managing director for tax and estate planning at CIBC Wealth Advisory Services is correct; an annuity provides guaranteed funds, usually monthly, to meet your continuing needs after your regular pay cheque ends.

And Crystal Wong, senior regional manager at TD Wealth Financial Planning is incorrect in trying to compare annuities to “alternative investments”. There are none. You either guarantee your income with an annuity or you don’t; your choice.

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Does new RRIF legislation in the 2015 budget help you?

RRIF: Changes to the RRIF minimum withdrawal amounts are designed to let you preserve more of your retirement savings and most companies will adjust your minimum income as of January 1 2016.

2015-rrif-minimum-withdrawals-smBut if you are drawing income from a RRIF/LIF, you could benefit from reduced minimums starting now.

While a RRIF now allows you to shelter more capital it results in less income . And is that what you want? All tax sheltered income is taxable at the 2nd death of a couple, so is taking less worthwhile? You can leave tax-paid capital and goods to your beneficiaries, so it is your tax sheltered investments that you should use before you use any non-registered funds.

Click here for the Best 2015 RRIF Interest Rates

TFSA: Thanks to proposed budget changes, you can now contribute up to $10,000 annually to a TFSA (Tax-Free Savings Account). Boost your contribution to enjoy increased tax-free savings.

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Life Annuities Are Your Paycheque

Most of the conversation about life annuities centre around investment comparisons.

And these are some of the questions.

What if the money was invested and you took out x% each year? What about bonds? What about GICs where we get to keep the capital?

…. click here to continue reading Life Annuities Are Your Paycheque 


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Video: Rob Carrick – Why you shouldn’t dismiss annuities

The questions about annuities are a common theme in financial discussions.

If you’re worried about your financial return on an annuity, remember that it is not an “investment” which you can compare to stocks, bonds, GIC’s.

However if you want to be guaranteed a cheque every month for the rest of your life to pay your bills, an annuity is what you need. It will give you a greater return than a GIC, the interest on which is 100% taxable. Above all else, it will give you security.

Don’t confuse investments and annuities; they serve the same goal, through different channels similar to a boat and a plane going to the same country.


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Save Taxes With A Life Annuity

The last week of October this year saw a large benefit for two or more million pensioners from the Conservative Government.

Keith MacIntyre, a tax partner with Grant Thorton in Halifax was quoted a saying that “it can save retirees a considerable amount of money” and  that “pension income splitting can be a gigantic benefit for people. ”

How to start your calculation

The higher income spouse or common law partner, should assume most or all of the  housing expenses, leaving the lower income partner with more money to invest.

And this action has run on effects. Reducing the income of the lower income partner could reduce or eliminate the clawback of the Old Age Security payments or the age credit for the higher income spouse.

Neither of these benefits should be overlooked. And there can be further tax savings if both partners can claim the pension income credit.

Life Annuity Retirement Benefits

Life annuities from a company pension plan can also be split, no matter the age.

And for those over 65, RRIF and life annuity payments from a RRSP can also be split by filing a joint election form.

So for pensioners it is the real income that is split as opposed to the family tax cut. So if, for example one receives $750 a month and the other $250, they can each receive $500 monthly if they are at least 60 years of age.


If all this seems a bit much, we suggest you speak to an accountant; they are the experts.

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Two Phases of a Life Annuity

There are two phases for a life annuity purchased in Canada.

  1. The accumulation phase in which you make deposits and earn interest over the years.
  2. The distribution phase in which insurance company makes life annuity payments until the death of the annuitants named in the contract.

An alternative is a term certain annuity contract so that the distributions in income is over a fixed time period.

The 2 phases of the life annuity combine for an annuity which makes regular payments until death or the end of a guaranteed period if death occurs earlier.

The accumulation phase is well understood by all Canadians, you need to save and invest for your retirement.

But what most people have difficulty with is the distribution phase when they have to decide to switch from accumulating money to using it as income.

And the basis of those fears are that you will run out of money before you die. And that is backed by fears of low interest rates, stock market collapses, thievery and loss of mental control.

And that is why people buy life annuities; a life annuity gives you control even if at some later stage of your life, you are unaware of your capabilities.

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An Annuity’s Taxable Portion Explained

Often my clients, who buy non-registered life annuities, ask me to explain why the lowest premium on a quote table attracts a less taxable portion than the highest premium.

And now I have a definitive answer (I hope).

The greater the capital you invest into such a life annuity, the greater the return of capital you will receive in each life annuity payment. Thus the taxable portion of each payment is lower!

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Should you consider an annuity?

My comments to “Should you consider an annuity?” by Kevin Press at

Mr Press has emphasized perhaps the most important element in the purchase of annuities today.

As the largest seller of life annuities in Canada, in which we specialize at, we find that that most people seem to believe that it is 1-5 year GIC rates which set the scenario for the payouts which is not true at all.

And even if long term bond rates do rise,there is still no guarantee that annuity rates will go up. And of course you are getting older and losing time to enjoy the income.You might want to read ” Retirement Income; income that lasts a lifetime ” which you can find here. Hopefully it will give you some ideas.

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Forcing seniors to outlive their savings

From the C.D. Howe Institute: Outliving Our Savings: Registered Retirement Income Funds Rules Need a Big Update

Click here for the full pdf report: Outliving our Savings

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Change RRIF drawdown rules: C.D. Howe

In this article “Change RRIF drawdown rules: C.D. Howe” from Investment Executive not only makes some good points but raises a big issue I have been discussing with my clients over the last 2 or 3 years.

We are living longer but not necessarily better in the sense that sitting staring into space is not really a lifestyle.

Most people know diddly squat about finances. They’ve been paid a salary all their lifetimes,taxes have been deducted at source,pension monies have been allocated and generally they’ve been in a financial warm blanket.

Now it,s all over and they’ve got a lump sum,payments from which to replace their salaries.

Well it,s not that simple.Now they have to make decisions on their own and they are paralyzed as they have never had the experience of handling hundreds of thousands of dollars at one time.Their financial experience has been limited to not spending too much on food and buying GIC’s with their savings.

Now comes along this great whack of money and they need to make some decisions.Reading books only confuses them as it is their situation which concerns them,not examples.

But they find out they have 2 real choices; a RRIF or an annuity.And the RRIF has a built in fail system if you live too long.But with no real grasp on your finances during your lifetime,you are certainly not going to become a wizard in your retirement and make meaningful comparisons.

So you buy your RRIF, perhaps not realizing that you are being forced to withdraw capital as well as interest to meet the minimum your capital is not earning enough money to meet that payment each year.

But I disagree with making the minimum payments smaller or allowing withdrawals at will as most people will not have the skills to manage money as they age.If they didn’t have the skills growing up,they,re not going to become smarter when they age.Allowing withdrawals at will is really the 2 foxes and the hen deciding on what to have for dinner.

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