Use this chart to compare annuities with fixed income investments and higher growth investments. You can see how they may help you achieve guaranteed income, safety, and/or growth after you retire.
|
Option |
Guaranteed income |
Safety |
Growth |
|
Annuity |
You can get a fixed income for a fixed period of time, or for the rest of your life By paying extra, you can choose an option that lets you pass income on to your spouse when you die |
You don’t have to invest your money yourself You don’t have to worry about losing money on investments |
Your income is set and will not grow By paying extra, you can choose an option that will adjust your annuity to the cost of living |
|
Fixed income investments |
No lifetime guarantee You know how much you’ll make based on interest rates, but rates may change from year to year When interest rates drop, you may have to withdraw money from your savings for income |
With investments that guarantee interest, you know how much you’ll make You can choose low-risk investments such as GICs You’ll need to stagger the terms (e.g., one, two, three, four, or five years), or ensure you have some short-term GICs in order to provide the cash flow to withdraw money each year |
Your savings may grow more slowly, but they will be safe |
|
Growth investments |
No lifetime guarantee You don’t know how much you will make each year In a bad year, you may have to withdraw money from your savings for income |
If you invest in stocks or mutual funds, there is always the risk you will lose money You can choose lower risk options that, together, might pay more than a life annuity |
You can invest for growth, but you give up safety and a guaranteed income You have a better chance of keeping up with the cost of living |
Tips
- Some experts say that if a pension or retirement income fund is the only source of income you have, you’ll need to be more aggressive as an investor. This is to help your money grow faster than prices rise.
- Watch interest rates. When they are low, it’s hard to generate a good income from guaranteed investments. You may want to put some of your money in stocks and equity mutual funds. Just be careful to balance investment risk and return.
- If you choose mutual funds, make sure they are strong funds with a solid record of good performance.
- Make sure some of your investments are easy to turn into income when you need it.
- If you aren’t really sure what mix of investments is right for you, a balanced mutual fund can be a good place to start. These funds invest in a mix of blue chip stocks, bonds, and cash.
Remember: The choices you make for your retirement savings will affect the rest of your life
It’s important to get the right balance of income, safety, and growth for you. If you’re not sure what to do, talk to a professional adviser.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.
