Annuities provide a guaranteed income stream for life, which makes for easy, worry free financial planning.
This product is guaranteed to pay an income to the annuitant for their life. Life annuities have a guarantee period should the annuitant wish to have this income continue to a beneficiary upon their death. This guarantee period can vary (subject to the minimum requirement of the company) for as little or as long as the annuitant wishes, however it can never extend beyond the annuitant’s 91st birthday. Life annuities offer flexibility. For example, the annuity can be based on one person’s life or it can be based on joint lives. The income for a joint life can continue on to the second death and you have the option of adjusting the income after the first death. Life annuities also have the option of indexing or keeping up with inflation where the income will increase each year based on a specific percentage or the CPI.
Term Certain Annuity
This product is designed to pay income for a specific period of time and the income generated is calculated to pay back the principal plus interest. The most common use of a Term Certain annuity is for bridging benefits prior to retirement where the client only needs the income for a few years until their regular pension begins. These types of annuities can be used in the case of a parent or guardian passing away and leaving a lump sum for their minor dependent. The income stream is set up to pay income to the new guardian in trust for the child until the child is no longer a minor.
There are two different ways that non registered annuity income can be taxed which is on a “prescribed” or “non-prescribed” basis. A prescribed annuity means that the income generated will be an equal blend of interest and principal for the duration of the annuity. Therefore the tax burden to the person who purchases the annuity is even throughout the years. With non-prescribed annuity, the income paid in the early years will be interest, and the income in the later years will be principal. This will result in the owner having a higher tax burden in the early years with the interest income, but will have little to no taxable portion of the income in the later years. Keep in mind that with registered funds, regardless of the investment they are in, all the income is fully taxable.