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Using annuities for other financial planning goals Add to ...

​In addition to providing a guaranteed income, annuities can be used for 2 other financial planning goals:

  1. To provide money for your beneficiaries or estate

  2. To leave a gift to charity

1. Money for your estate: An insured annuity

An insured annuity is a life annuity combined with a life insurance policy. You get a steady stream of income for life – and your beneficiaries receive a lump sum amount at your death.

Here is how it works:

  1. Buy the annuity – You buy a prescribed life annuity with a lump sum from your non-registered money.

  2. Receive tax-efficient income – Some of the annuity income is interest income, which is fully taxable. The rest is not taxable. This generates higher after-tax income than investing your money in a fully taxable investment – like a GIC.

  3. Pay life insurance premiums – A portion of the annuity income is used to make premium payments on a life insurance policy with a value equal to the cost of the annuity.

  4. Provide cash for beneficiaries – At your death, your beneficiaries or estate receives a tax-free lump-sum payment from the insurance policy.

Get advice before you buy: Consult with a financial adviser before buying an insured annuity or charitable gift annuity. These are specialized strategies and are only advantageous in certain situations.

2. Money for charity: A charitable gift annuity

A charitable annuity can be an effective way to generate retirement income and support a charitable cause.

Here’s how it works:

  1. Make a lump-sum donation to a charity – The charity uses this money to buy an annuity from an insurance company on your behalf.

  2. Receive a tax receipt – You get a donation receipt for the difference between the purchase price of the annuity and the total income from the annuity that you’re expected to receive.

  3. Receive tax-efficient income – You receive guaranteed monthly payments, which are taxed either partially or not at all depending on your personal circumstances.

Guaranteed Minimum Withdrawal Benefit (GMWB) products: GMWB products are a type of annuity that provides guaranteed retirement income that can increase with investment gains in your portfolio and with certain bonus features. Learn more about GMWB products.

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

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