Annuities and estates

Q – I am worried about protecting my income during retirement. At the same time, I want to leave something to my grandchildren in my will. I’ve heard that annuities can provide a guaranteed stream of income. But once the annuity is paid out, there won’t be much left for my estate. Do you have any advice on the best type of annuity in this case? Thanks. – Peter G., Welland, Ontario


A – There is no doubt that we are living in trying times and protecting your retirement income is top of mind for most investors. An annuity is basically a contract you buy, usually from an insurance company, under which the company guarantees you’ll receive a specified income flow for a specified period of time. Standard annuities are not designed for growth or residual value. They’re designed simply to pay out the agreed income for the duration of the contract. If you die before the contract ends, the residual will go to your beneficiaries, but that may not be much. If the contract expires before you die, the payments end and there typically is no residual.

However, you might consider what’s called an “insured annuity.” This type of annuity has two components: a “prescribed” annuity and life insurance policy. It typically provides more after-tax cash flow than you’ll get from the dismal interest earned on a GIC in today’s market.

The insured annuity is really geared for a conservative investor with at least $100,000 invested in GIC-type assets looking for income protection. Typically, you would purchase the annuity with non-registered funds and then purchase a life insurance policy that equals the amount of capital used to purchase the annuity. The annuity would provide you guaranteed cash flow for life. You would use part of the income that you get from the annuity to pay the premiums on the insurance policy. When you die, the insurance company pays the death benefit to your beneficiaries, thereby replacing the capital used to purchase the annuity.

Annuities are a complex product and come with all sorts of variations. It’s best to talk to a licensed insurance advisor to see if this strategy makes sense for you. – R.T.

Robyn Thompson, CFP, is the founder of Castlemark Wealth Management, a boutique financial advisory firm, specializing in customized financial, investment, insurance, and retirement planning. Phone 416-828-7159 or email today to rthompson@castlemarkwealth.com for a no-obligation, no-charge Castlemark Integrity Financial Planning consultation.

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The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.