If you’re a baby boomer who’s worried about outliving your income, you’re not alone.  According to a recent survey, 82% of Canadians say their finances are causing them increased anxiety. And with good reason: traditional sources of guaranteed income, such as pensions, are not available to everyone, and life expectancy is increasing around the world. In fact, Canadians are living twice as long as they did in 1900.

But before you panic and start hoarding canned goods and gold coins, there are some steps you can take to secure your financial future and enjoy your golden years. One of them is investing in annuities, which are contracts that pay you a fixed amount of money every month for life or for a certain period of time. Annuities can provide you with peace of mind and protect you from running out of money in retirement.

Here are some tips to help you understand how annuities work and how they can benefit you.

An annuity is a contract between you and an insurance company. You pay a lump sum or a series of payments to the insurer, and in return, the insurer agrees to pay you a regular income for a specific time period or for life. The amount of income you receive depends on various factors, such as the type of annuity, the amount you invest, your age, your gender, the interest rate, and the payout option you choose.

Annuities come in two main types: deferred and immediate. A deferred annuity allows you to accumulate money tax-deferred until you decide to start receiving payments, usually at retirement. An immediate annuity starts paying you income right away after you make a single payment to the insurer.

Annuities also come in different flavours: fixed and variable. A fixed annuity pays you a guaranteed amount of income that does not change over time. A variable annuity pays you an income that varies depending on the performance of the underlying investments that you choose.

Annuities have several advantages that can help you achieve your retirement goals. Here are some of them:

• Annuities provide a regular, guaranteed source of income that can last for as long as you live or for a certain period of time. This can help you cover your essential expenses and maintain your lifestyle in retirement.
• Annuities protect you from market fluctuations and inflation. Unlike other investments that may lose value or generate low returns, annuities pay you a fixed or variable amount of income regardless of how the markets perform or how prices change.
• Annuities offer tax benefits. The money you invest in a deferred annuity grows tax-deferred until you start receiving payments. The money you receive from an immediate annuity is taxed only on the portion that exceeds your original investment.
• Annuities can be customized to suit your needs and preferences. You can choose from different types of annuities, different payout options, different features, and different beneficiaries.

What happens to your annuity after your death depends on the type of annuity and the payout option you choose. There are several types of payout options that determine how long the payments will continue and who will receive them after your death. Here are some common options:

• Life only: This option pays you an income for as long as you live, but stops when you die. This option provides the highest monthly income, but does not leave anything to your beneficiaries. So, YES, the money dies with you. However,  if you have no beneficiary, this could be the best option for you.
• Life with period certain: This option pays you an income for as long as you live, but guarantees a minimum number of payments for a certain period (such as 10, 15, or 20 years). So, NO. If you die before the period ends, your beneficiary will receive the remaining payments until the period ends.
• Joint life: This option pays an income for as long as either you or your spouse lives. The income may be reduced when one spouse dies, depending on the option you choose. So, NO. 
• Joint life with period certain: This option combines the features of joint life and period certain options. It pays an income for as long as either spouse lives, but guarantees a minimum number of payments for a certain period. If both spouses die before the period ends, the beneficiary will receive the remaining payments until the period ends. So, NO.

The payout option you choose affects the amount of income you receive from your annuity. Generally, the longer the payments are guaranteed and the more beneficiaries are included, the lower the monthly income.

However, if your annuity is still in the accumulation phase when you die, meaning that the payments have not begun yet, many plans provide an annuity death benefit to your beneficiary. Typically, this lump-sum payment is the greater of the account balance or the total of all premiums paid, although some plans provide additional options.

Just to give you some idea, here are the rates from one of the insurance companies most recently: 

Guaranteed Income Rates for Life as of Oct 10th, Guaranteed period 10 years:

                       Current Annuity Annual Payout Rate %  

Male Age 65                         7.19%

Male Age 70                         8.00%

Male Age 80                       10.07%

Female Age 65                     6.84%

Female Age 70                     7.53%

Female Age 80                     9.46%

Bonus feature: With annual Automatic Income Resets, if avaialble, you are not tied to the same payout rate for life.

Annuities can help you avoid running out of money in retirement and provide you with peace of mind and security. You can customize it to suit your needs and preferences. You should choose an annuity that matches your goals and expectations.

Remember that annuities are not the only solution for your retirement income. You should also consider other sources of income, such as CPP/QPP, OAS, GIS, RRSPs, TFSAs, etc., as well as your spending and saving habits.

Retirement is supposed to be a time of relaxation and enjoyment, not worry and stress. By investing in annuities, you can avoid running out of money in retirement and live the life you deserve. Remember that it’s never too late to start planning and saving for your future. The sooner you take action, the better off you’ll be. So don’t delay, start today!

And remember to have fun along the way. As George Burns said, “You can’t help getting older, but you don’t have to get old.” So keep smiling and stay young at heart!

If you would look at your options, Contact us to learn more.

Related links:

Annuity Sales jumpo on high interest rates

A $1 Million Annuity will score you this much every month

Annuity break-even point falls by five years

*Insurance Kit and those associated with the information on this website are not professional accountants, unless specified otherwise. Please always seek the advice of a professional accountant prior to making any tax or pension related decisions. 

Life expectancies have never been higher. People are living longer than ever these days. In the 1920s, men and women could expect to live until 59 and 61, respectively. By 2020, those numbers had jumped to 80 and 84. 

That’s great news for seniors who want to enjoy their golden years, but not so great for their bank accounts. How can you make sure you don’t run out of money before you run out of time?

Here are some tips to help you stretch your retirement assets:

• Estimate how long you’ll live. This is not an exact science, but you can look at your health, family history, and lifestyle. If you’re fit as a fiddle and your grandparents lived past 100, you might want to plan for a long haul. If you’re a couch potato with a heart condition and a fondness for bacon, maybe not so much.
• Take inventory of your assets and debts. List everything you own and owe, from your home and pension to your credit card and car loan. Subtract your debts from your assets to get your net worth. This is how much money you have to work with.
• Review your pension plan. If you have a defined benefit plan that pays you a fixed amount for life, lucky you! You can skip this step. If you have a defined contribution plan that depends on how much you save and invest, pay attention. You need to make sure your savings will last as long as you do. You might want to consider buying an annuity that guarantees income for life.
• Delay starting your government benefits. If you can afford to wait until age 70 to collect your Canada Pension Plan and Old Age Security, do it. You’ll get 42% more money every month. That’s a lot of extra doughnuts.
• Draw down your assets wisely. Don’t withdraw more than 4% of your total assets per year, or better yet, 3%. And don’t forget about inflation and taxes. Some investments are taxed more favourably than others, and some benefits are clawed back if your income is too high. Talk to your financial advisor about the best strategy for you.
• Plan for health care costs. Health care is expensive, especially if you need special equipment, surgery, or long-term care. Make sure you have enough money set aside for these expenses, or buy insurance to cover them.
• Plan your estate. Don’t leave a mess for your loved ones when you die. Make a will that spells out how you want your assets distributed. Use charitable donations or trusts to reduce taxes on death. Buy life insurance to cover any remaining taxes or debts.

We know someone learned these tips the hard way when her father passed away. He had no will, no insurance, and no savings. He left behind a mountain of bills and debt. It was a nightmare that she thought she would never wake up from.

Don’t be like this father. Plan ahead and enjoy your retirement!

Contact us to learn more.

Related links:

Canadians are living longer and it's changing the financial equation for retirement | Financial Post 

 Canadians projected to live longer, but can they afford it? | CBC News 

*Information provided here is based on material provided by Industrial Alliance.  Insurance Kit and those associated with the information on this website are not professional accountants, unless specified otherwise. Please always seek the advice of a professional accountant prior to making any tax or pension related decisions. 

A First Home Savings Account (FHSA) is a savings account from the Federal Government that is set to be available for Canadians on April 1s, 2023. It allows individuals to save money for their first home purchase, providing tax benefits and other incentives to help them afford a home.

The Tax-Free First Home Savings Account is a new type of account that works much like an RRSP or TFSA because it combines the features of both. For example, when you contribute to your FHSA, your taxable income will decrease by the same amount for that year.  Additionally, when you withdraw from your FHSA to purchase a qualified property, that money will be tax-free.

• Must be Canadian residents, at least 18 years old.  
• You cannot own a home in the calendar year that the account is opened nor in the 4 years preceding that.  That means you are considered a new home buyer if you and your spouse have not owned a home for up to 5 years.  
• The FHSA account is meant for primary residences and not investment or leisure properties.  
• You can have more than one FHSA, but you cannot exceed your yearly or total contribution limit.
  

The FHSA works very similarly to an RRSP or TFSA, with a few key differences. You will need to open an account with any Canadian financial institution or bank that offers these accounts. Once you open an FHSA, some of the contribution rules will include:  

• A contribution limit of $8,000 per year with a maximum lifetime contribution limit of $40,000.  
• The unused contribution room in this account cannot be carried forward.  
• Any contributions you make to these accounts can also lower your taxable income by an equal amount. 
• If you open an account this year, even if you don't have money to put in yet, in 2024, you’ll have $16,000 of contribution room available.
  

Some of the withdrawal requirements and applicable tax consequences include: 

• No tax consequences if the withdrawal is for the purchase of a first home. The FHSA must also be closed within 1 calendar year of the first withdrawal, and the holder of the account will no longer be eligible to open another FHSA.  
• Withdrawals that are not related to a first-time home purchase will be considered taxable income.  
• Different than RRSP, FHSA withdrawals do NOT need to be paid back.  
• You CANNOT use both the Home Buyer's Plan from an RRSP and FHSA for the same home purchase.
  

When you contribute to your FHSA, you can invest your money in allowable investment assets like stocks, bonds Segregated funds mutual funds, ETFs, and GICs.   

• If the funds in your FHSA are not used within 15 years of opening the account, you will need to close the account or the funds within can be transferred to a Registered Retirement Savings Plan (RRSP)
• As the account holder, you can transfer the funds from within to an RRSP or a RRIF.  When you withdraw the amount from these other accounts, the taxes will be paid as normal.  
• If you transfer funds from your FHSA to an RRSP or RRIF, you will not be limited by the RRSP contribution room.
  

If you're looking for some additional home-buying support, there are a few other programs and plans available to you.  

• The Home Buyers' Plan (HBP) -  a program that allows home buyers to borrow up to $35,000 from their RRSPs towards the purchase of your first home under certain conditions. 
• The First Time Home Buyer Incentive (FTHBI) provides eligible buyers with 5% or 10% off the price of the home they're buying. To qualify for this program, you must have purchased or plan on purchasing a resale or new build home that is less than $500,000.  
• The Home Buyer's Tax Credit (HBTC) is a non-refundable tax credit that provides buyers with $10,000 for the purchase of an existing home, which would provide up to $1,500 in tax relief to eligible home buyers. 

If you're thinking about purchasing your first home or are in the process of doing so, a First Home Savings Account can be an excellent way to help you achieve this goal while enjoying all the benefits it offers.  Some of the advantages of the FHSA include tax-deductible contributions, tax-free earnings, and the ability to use funds from your account at any time for anything related to your home purchase. 

There’s almost no downside to opening the FHSA and contributing earlier. Whether you're ready now or in the future, consider opening a First Home Savings Account to help you on your journey to homeownership. Book a coffee chat with us to learn more.

Related links:

Design of the Tax-Free First Home Savings Account

*Information provided here is based on material provided by Canada Life.  Insurance Kit and those associated with the information on this website are not professional accountants, unless specified otherwise. Please always seek the advice of a professional accountant prior to making any tax related decisions.