Provided through WCS Financial Services/BridgeForce Financial Group, one of the largest Canadian owned and operated Managing General Agency.
Types of Annuities
An annuity pays you a set monthly income for a set period of time. How annuities work is quite simple – you pay a lump sum up front and get a monthly income over several years. There are two types of annuities:
Term-certain annuity: You are guaranteed a set monthly income for as long as you want (up to age 90). If you die before you receive all your payments, the remaining funds go to your estate.
Life annuity: With a life annuity you get a set monthly income for life. When you die, all payments stop and no money goes to your estate. However, you can also choose options and guarantees, (i.e. 5 yr, 10 yr, etc.) which pay your monthly payment to your beneficiaries even if you die. You can also purchase a joint annuity so that there would be payments to a beneficiary if you die before the guarantee has expired. You can also choose to have your income increase to keep pace with inflation. All these choices have an effect on the amount of money you would receive (but these will reduce your monthly payment).
Annuity Factors to Consider
Annuities are attractive to people who like the security of receiving guaranteed monthly payments. There are several factors that influence your annuity income:
- Your age: the older you are, the higher the monthly payment.
- Your health: the more health problems you have, the more money you will get.
- Your gender: men will receive more money than women (because they don’t live as long as women)
- Type of annuity: you get the highest income with a basic annuity that covers just yourself. Adding special options will reduce your income.
- Interest rates: the higher the interest rate when you buy your annuity, the more money you will get.
- The dollar amount: the more money you put into your annuity, the more income you get back.
- The length of time: the longer you want payments to continue after your death, the less income you will receive while you’re living. If you opt for payments to stop upon your death, the more income you will receive each month.
Assessing an Annuity for YOU
Is an annuity a good choice for you? Before you buy an annuity, think carefully about how well it fits with your overall financial plan and personal situation because once you buy it, you’re locked in. Here are a few questions to get you started:
- How important is a regular, secure income to you?
- How important is it that you provide income to loved ones after your death?
- How worried are you about inflation in the years to come?
- How will taxes affect your annuity income?
Buying an annuity is a major purchase. While it offers a guaranteed income it comes with a certain amount of risk. Not sure if an annuity is a good option for you? Talk to Jacqui McFarlane.