1. Avoid buying too young – or leaving it too late
In general, the older you are, the more annuity income you get for the same amount of money. This is because someone who is 75 likely won’t live to get as many payments as someone 10 years younger.
At the same time, don't delay too long before buying an annuity. Many companies do not sell annuities to people over the age of 80.
2. Buy when interest rates are higher
If you buy when interest rates are higher, you’ll get more income for the same amount of money. So it may be worth it to wait for interest rates to rise before you buy. Or you may want to stagger your annuity purchases over a few years. This reduces the risk of putting all your money into an annuity when rates are low.
If interest rates are low, it may be worth it to wait until they rise before you buy an annuity. That way, you’ll get more income for the same amount of money.
3. Pay only for the options you need
The more options you add, the lower your payments will be. Buy only the options that meet your specific needs. For example, if you have no dependants, it may be better to buy a basic annuity, which will give you the highest income. If you have life insurance, you may not need a joint-and-last-survivor life annuity.
4. Don’t pass up options you need just to get higher payments
Your regular payment amount is important. But it’s just as important to get the options you need. For example, if you don't have many other sources of retirement income, adding the indexing option can make sure your income keeps up with inflation. If you don’t, you could find that your payments will buy a lot less as the years go by.
5. Don't put all your savings into an annuity
There are always dangers in putting all your savings into just 1 type of financial product. What happens if you need extra cash quickly for a medical emergency? You can't get your savings out once you buy the annuity and you can't change your payments.
Choosing the right annuity: Frank was 2 months away from retirement when he and his wife Frances sat down to consider their options for an annuity. To see what decision they made and why, read Frank and Frances' story.
Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca