Annuities 101: Retirement income options to consider
If you've done your homework for Retirement 101, you probably know you need to close your registered retirement savings plan (RRSP) by Dec. 31 of the year you turn 71. This means you'll need to transfer your RRSP funds to a retirement income vehicle.
You may be thinking that's where a registered retirement income fund (RRIF) comes in. But there's another retirement income option people often overlook:1 an annuity.
How do annuities work?
An annuity is a financial contract you buy from a provider like a life insurance company. It gives you a steady stream of income once you retire. You can opt to receive this income at different frequencies depending on the kind of annuity you select: monthly, quarterly, semi-annually or annually.
Depending on the type of annuity you choose, this income stream may be guaranteed for your lifetime.
What are my options for an annuity?
There are a few different types of annuities to consider. Here's a breakdown of three common options.
Single-life annuities. These types of annuities provide you with a steady source of income for the rest of your life. While payments only last while an annuity holder is alive, one of the main benefits of this option is that it comes with a higher monthly payment compared with other types of annuities.
Joint and survivor annuities. For couples, joint and survivor annuities can provide a reliable way to fund your retirement years. After your or your partner's passing, the surviving spouse or common-law partner will continue to receive some or all of the payment, depending on the option chosen.
Fixed-term annuities. Also known as a term-certain annuity, fixed-term annuities offer you guaranteed income for a set period of time. As the annuity holder, if you die before the fixed period is up, your beneficiary or estate will receive the remaining payments. Since there's no lifetime income guarantee, fixed-term annuities cost less—but it's important to know there's a risk of outliving the term.
The bottom line? A RRIF isn't the only option when it comes time to transfer your RRSP funds. If you're nearing retirement and thinking about an annuity, we’re happy to work with you to engage a qualified specialist.
1Only 11% of CIBC retirement poll respondents expected an annuity to provide part of their retirement funds, while 22% of respondents did not know what an annuity was. (https://www.cibc.com/content/dam/personal_banking/advice_centre/tax-savings/retirement-income-tax-en.pdf)