An annuity has always been a great source of income in retirement. With current interest rates increasing due to the government of Canada’s attempt to combat rising inflation, now may be a good time to lock in a life annuity with possible higher income payouts.
An annuity has always been a great source of income in retirement. Of course, this is in addition to other pension income sources such as the registered retirement income fund (RRIF), life income fund (LIF), old age security (OAS), and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP).
Life annuities provide guaranteed income for life, and rising interest rates when the annuity is purchased can result in higher payouts. With current interest rates increasing due to the government of Canada’s attempt to combat rising inflation, now may be a good time to lock in a life annuity with possible higher income payouts.
If you are worried about outliving your retirement income and do not have sufficient coverage with a defined benefit pension plan, you can address this longevity risk with an immediate life annuity or deferred income annuity.
A deferred income annuity allows you to purchase a plan now and receive income much later in the future.
Why would you defer a life annuity payout? Suppose you have other current sources of income, but they are not guaranteed to last a lifetime. In that case, you can delay receiving money from your life annuity and spread out your income so that you never run out of retirement income for life.
Prevailing lower interest rates over the past couple of years haven’t made annuities the most attractive option, especially as you can keep growing your retirement savings in the financial market through a registered retirement savings plan (RRSP), RRIF, or LIF.
However, with rising interest rates, life annuities may look more attractive. You should definitely not make a decision to purchase a life annuity solely based on higher interest rates.
Instead, create a retirement plan that captures a complete picture and factors in your total retirement income sources, how much you need when you retire, your dependents/beneficiaries, and your life expectancy.
You’re not left in the lurch with these important decisions. Our experienced planners and advisors are ready to help you.
Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice. Everyone’s situation is unique, and this article cannot apply to every person. The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.
