Registered and Insured Annuities

What is a registered and insured Annuity?

While investment in mutual funds, stocks, bonds, and other market instruments may provide income in your later years, their potential benefits come with one considerable caveat: the returns these investments may potentially bring are variable. That is, they are subject to change depending on market fluctuations.

Annuities present an interesting, often underused counterbalance to wealth stored in volatile investment vehicles. After paying a lump sum, annuity payments are paid out to an individual over regular intervals to supplement their post-employment life. When used in conjunction with other wealth investment instruments, annuities provide you with a known “minimum income” to bring an element of certainty to your retirement plan.

Registered Annuities

When you purchase registered annuities with funds from your RRSP or RRIF, you’ll be receiving a fixed annuity that counts towards regular taxable income. However, these types of annuities have many tax advantages, especially for investors aged 65 – 70. During this time in your life, tax on your annuity will essentially amount to nothing, allowing for a largely tax-free source of income in your later years.

When you receive your annuity payment, what you’re essentially receiving is half “principal” and half “interest” from your initial investment. This puts the periodic income you receive at a tax advantage. However, when you purchase an uninsured annuity, there comes a point of diminishing returns to your tax benefits.

Drawbacks to registered and uninsured annuities

While a registered annuity is a great product to help fund your retirement, it may not benefit from certain tax benefits (check also tax free savings accounts) that federally insured annuities do. For example, the income earned from a registered annuity will still count as taxable income, whereas payouts from a qualifying federally insured plan will not.

Insured annuities

Insured annuities come from Canada’s government or your previous employer. These types of annuities reduce your taxable income when you purchase them as well as increase after-tax income later in life – especially compared to GICs and federal bonds. You also won’t have to worry about waiting for these types of investments to mature like you will with bonds and GICs, as benefits start immediately once your plan is enacted. You can even structure an annuity like life insurance by finding a plan with survivor’s benefits and the ability to continue its terms for your beneficiaries.

Insured annuities also have the following benefits:

One piece of a larger plan

Think of your annuity as a “safety net” for when your other investment opportunities have the potential to fall short of your expectations. While annuities present a unique way to take advantage of stable income through retirement and possibly even for your beneficiaries, payments from this singular source may not be a sustainable way to structure your retirement. By complementing this instrument with an IPP or TFSA, you will help keep your plan strong and stable.

Learn more from MLD Wealth Management

You deserve to have a source of financial consistency that you can count on. When you work with MLD Wealth Management’s financial advisors in finding the perfect annuity to fit your needs, you’ll receive the globally recognized quality of service and dedication to performance that our company has become known for. Book your consultation with one of MLD Wealth Management’s associates today to put this little-known income vehicle to use for you today.

 

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