# An annuity or a blend? Annie's story Add to ...

Annie has been a serious saver all her adult life. At 64, she has \$698,000 in Group RRSP savings through work. She wants to retire, and wants a plan that will give her the best income, plus some real peace of mind. She decides to look at two options. Here's how the numbers worked for her.

Option 1: A life annuity with a guarantee

With this option, Annie has a set income for life. She can also add a guarantee for a certain number of payments, even if she does not live to collect them herself. For example, with a 10-year guarantee, she'll get at least 120 payments. If she doesn't live to collect them all, the remaining payments will go to her estate. This chart shows the income she would get with different guarantees.

 Guarantee period Monthly income Five-year \$3,956 10-year \$3,900 15-year \$3,806 20-year \$3,676

Note: These examples do not reflect taxes that Annie will pay or the effect of inflation on her income.

Option 2: From RRSP to RRIF, then a life annuity

With this option, Annie starts with all her savings in her RRSP. She invests in a mix of stocks, bonds, and mutual funds. She will then set up regular withdrawals of \$4,000 a month from her earnings. It's like she has created her own annuity, but she can change her investments.

At age 71, she has to close her RRSP and move her investments over to a RRIF. She keeps up the same withdrawals, meeting the minimum withdrawal rule on her RRIF.

At age 75, Annie will close the RRIF and buy a life annuity. What income will she get? Here is how she figures that out:

• She estimates that her savings will grow 6% a year from age 64 to age 75.
• That means she'll have almost \$614,000 left in her RRIF to buy the annuity at age 75.
• She will buy a life annuity with a five-year guarantee.

If everything works out the way she plans it, she will get \$5,038 a month from her annuity at age 75. If she wants a longer guaranteed term of 10 years, she'll get a little less, around \$4,690 a month.

Annie decides: Annie chooses option two. She knows there's a risk that her savings may not grow as fast as she hopes. If that happens, she may have a lower income. Still, with today's low interest rates, she believes her best choice is to delay buying an annuity.

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