Retirement Planning with Annuities

According to Michael Aziz, regional vice president of individual insurance product sales at Desjardins Financial Security, annuities can be an important part of a retirement plan. "Annuities have become more than just a source of life-time income," said Aziz. "Some can be used as a charitable donation, and that's a very smart tax and estate planning strategy." We asked Aziz to give us a tour through the different types of annuities:

To start, what is an annuity?

An annuity is a long-term savings contract designed to provide you with guaranteed income.

How does it work?

An annuity allows you to convert your savings into regular income, which is paid out over a specified period of time or for life. For example, the funds are invested and then after a prescribed period of time the client receives an income at regular intervals for a pre-determined period of time or until their death, depending on the type of annuity chosen.

These payments are determined based on factors such as life expectancy and current interest rates.

What kinds of annuities are available?

There are four that are most common:

•    A life annuity provides a guaranteed and predictable income for life. It's safe from market fluctuations and can be reversible, meaning that when the person dies, the annuity payments continue and are paid to their beneficiary.

•    Term certain annuity provides a regular guaranteed income for a specified period. If the person dies before the end of this set period, the annuity is paid to the beneficiary.

•    Adapted life annuity, also called an impaired risk annuity, is designed to meet the needs of a person who has been diagnosed with a critical illness or whose life expectancy has been reduced. The payments the person receives are higher than conventional life annuity payments because they factor in their special circumstances.

•    A charitable annuity allows a person to support a favourite charity while still receiving a guaranteed regular income for a specified period or for life. He would also receive a tax credit for the donation.

To learn more about how to include annuities into your retirement plan, speak to your financial advisor. Or for more immediate answers, visit Desjardins Financial Security at www.desjardinslifeinsurance.com.

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