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Annuities are essentially series of fixed payments paid to you at a specified frequency over the course of a fixed period of time.


Annuities are either ‘registered’ (funded by money from a RRSP) or ‘unregistered’ (funded by money from any source upon which taxes have already been paid). The purpose of an annuity is to create an ‘income stream’ for the annuitant over a period of time from a large ‘lump’ of cash that you have received from a matured RRSP or investment. That period can be ‘fixed’ (eg. 10 years) or ‘Life’ (guaranteed to be paid for as long as you live).


The income stream from a ‘life’ annuity is guaranteed by the insurance company (only insurance companies can offer these plans) to last the rest of the annuitant's life, even if he or she should live much longer than originally expected. Life annuities can be either ‘straight-life’ annuities or ‘life annuities with a guaranteed term’. With a ‘straight-life’, should the annuitant die sooner than expected, the payments will cease and there is no further value in the plan.


However, you can choose to put your money into a plan that will guaranty a certain fixed period of payments – paid out to your beneficiaries even if you die before that period has ended. For example, a “Life with 10 Years Certain” plan means that if you die after just 5 years, the plan will continue to pay out for another 5 years to your beneficiaries. This is called a ‘life annuity with guaranteed term’.


For retirement purposes, the annuity will allow you to spread out your taxable RRSP income over your lifetime. Remember, a potential disadvantage is that the return on the investment is ‘fixed’ on the date that you purchase the plan and does not change. The advantage of course is that you are assured of receiving a guaranteed income for the rest of your life regardless of what happens in the market.


Different life insurance companies offer different plans and different rates. Ask to shop the market for you and your precious retirement savings!

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