Q – I would like a guaranteed income stream from my investments, but the return on GICs and T-bills is very little these days. A friend of mine just purchased an annuity and highly recommends it. What is an annuity, and will it provide guaranteed income? – Melissa T., Fort Erie, Ontario
A – An annuity is an insurance-based income product. Putting it very simply, when you purchase an annuity, you essentially buy a contract under which the issuing company (usually an insurance company) invests the lump sum you provide and guarantees a fixed, regular payout over the life of the annuity contract.
There are several types of annuities. For example, a “Term Certain Annuity” guarantees a set monthly income for as long as you want, up to age 90. If you die before all payments are received, the balance will go to your estate. Another option is a “Life Annuity,” which guarantees a set monthly income for as long as you live. However, payments stop when you die, and no money will go to your estate.
Annuities are complex products, and it is important that you understand how interest rates and other factors affect how much income you will receive. It may not be advisable to invest all of your investments into an annuity – this will depend on your investment objectives and risk tolerance. I recommend seeking the advice of your financial planner and/or a licensed insurance agent to discuss annuity options and how they might best fit into your overall retirement plan. – R.T.
