For a 65-year-old male (born in 1957), $100,000 in a single life annuity nets between $551 and $571 per month, depending on the supplier; $250,000 generates between $1,399 and $1,461 a month. For a 70-year-old male (born in 1952), comparables are $625 to $640 per month and $1,578 to $1,634 a month.
For a 65-year-old female (born in 1957), $100,000 in a single life annuity nets you between $518 and $532 per month, depending on the supplier; $250,000 generates between $1,335 and $1,362 a month. For a 70-year-old female, comparables are $576 to $595 per month and $1,475 to $1,523 a month.
|65-year-old female||$100,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity||$518 to $532|
|65-year-old female||$250,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity||$1,335 to $1,362|
|70-year-old female||$100,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity||$576 to $595|
|70-year-old female||$250,000 in June 2022, 10-year guarantee period in a prescribed (non-registered) single life annuity||$1,475 to $1,523|
What are the different types of annuities?
As for whether to go the registered or prescribed route, for some, there’s little choice. All they have are registered investments. However, for those with significant taxable investments, fee-only planner Rona Birenbaum, of Caring for Clients, prefers “non-registered to replace non-registered fixed income… Annuities are particularly compelling for investors with taxable portfolios… The tax efficiency of non-registered prescribed annuities is hard to beat when compared to GICs and other conservative fixed-income investments.”
Choosing guaranteed periods reduces the risk of estate erosion in the case of premature death, and the lower taxable income can protect investors from Old Age Security (OAS) clawback.
Birenbaum says that leaving more to your estate and/or heirs by paying more for a longer guarantee period—say, 10 years or more—is worth the cost. Take a 65-year-old couple with a joint last-to-die annuity, non-reducing, which means payments continue for the life of both annuitants without reduction of payments upon the first death. A 20-year guarantee ensures that even if both pass away soon after this purchase, named beneficiaries would receive the remaining payments until 20 years of payments have been made. A $100,000 investment at Desjardins would yield $484 a month, of which only $176 a month is taxable. At a 20% tax rate, that would yield net annual cash flow of $450 a month.
Compare that to a GIC paying 4%, which generates $266 a month net of taxes. That’s “a big difference, especially if it helps avoid OAS clawback,” Birenbaum says. And if you value leaving a larger estate, then a slightly higher payment for a longer guarantee period for your heirs could pay off, depending when you die.
“I prefer a longer guarantee period than shorter. For example, if we used a 10-year guarantee in the example, the net monthly cash flow would be $455 a month. Only $5 per month more in cash flow to get $58,000 more in guaranteed payments if the annuitants die in year 10.”
Matthew Ardrey, wealth advisor for Toronto-based TriDelta Financial, says his firm has felt that annuity rates have been too low for some years, because interest rates are too low. “Does the rising rate environment change that? My answer would be not yet. Rates are still well below what they were when COVID hit—1.75% in Feb 2020, versus 1.00% today.” Also, he says, it’s likely we are going to get more hikes this year. Based on that alone, “I would wait for further rate increases before locking in my savings.”