OB Report
May 2019
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Guaranteed Income Options with Life Annuity Products

Insurance Specialist, Odlum Brown Financial Services Limited

OBFSL image_310For many clients, annuities may provide a solid foundation for guaranteed retirement income. Annuities can range from a simple life annuity to a more complex variable annuity (commonly referred to as guaranteed minimum withdrawal benefit plans [GMWB]). In this article we will exclusively discuss life annuities.

One of the most common questions we are asked is, “How much income would I receive from purchasing a life annuity?”

Several factors influence the income received from a life annuity, including the:

  • Demographic of the annuitant (i.e. gender and age);
  • Type of annuity purchased (i.e. single life or joint life);
  • Frequency of income payments received (i.e. monthly or annually);
  • Length of the purchased guaranteed payment period;
  • Type of funds used to purchase the annuity (i.e. registered, non-registered or pension); and
  • Other special features chosen (i.e. indexing).

One of the most important decisions to make before purchasing an annuity is finding a guarantee that suits your circumstances. A guarantee specifies what happens to the remaining capital when an annuitant dies. There are many options available, ranging from a zero guarantee (where payments stop when an annuitant dies) to a cash refund of the original annuity purchased (less the income received before death), payable to a named beneficiary. It is important to note that if an annuitant dies during a guaranteed period, the balance of the guaranteed payments is provided to the estate or beneficiary named. If the annuitant lives beyond the guaranteed period, the annuitant will still continue to receive payments for the duration of his or her life.

Here is an example of the lifetime monthly income you could receive from an annuity purchased with $100,000 of non-registered funds, providing a minimum 10-year guarantee.

OBFSL chart 688

Annuities purchased with non-registered funds have an added advantage, as only a portion of each payment is considered taxable income. As listed above, the monthly payment for a joint life annuity purchased for a male and female, aged 75, is $546. The “taxable” portion of this monthly annuity income payment would be $79, or $948 annually. In many cases, annuity income will also qualify for the annual $2,000 Pension Income Tax Credit, which can reduce or eliminate the tax otherwise payable on the annuity income.

You may wish to consider a life annuity if you seek:

  • Guaranteed income for life;
  • Higher monthly income than many other guaranteed income products provide;
  • Guaranteed payments without exposure to market volatility; or
  • Tax advantages for annuities purchased with non-registered funds (available in some cases).

To understand the many options for today’s annuity products and whether they may be suitable for your retirement income needs, please contact us through your Odlum Brown Investment Advisor or Portfolio Manager.

The information contained herein is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown to Odlum Brown Financial Services Limited may affect the applicability of any matter discussed herein to your particular circumstances. You should consult directly with your financial advisor before acting on any matter discussed herein. Individual situations may vary.

Odlum Brown Financial Services Limited is a wholly owned subsidiary of Odlum Brown Limited, offering life insurance products, retirement, estate and financial planning exclusively to Odlum Brown clients.