|
|
|
|
Legal Line® provides Free legal information to Canadians through its website, telephone and fax-on-demand systems.
1,000 topics are covered within 35 areas of law...
Search...
Ontario|Investments & SecuritiesRRSPs and RRIFs 283 Annuities: RRSP maturity option at age 69 If you are turning 69 and must wind up your RRSP, one of the choices you have is to purchase an annuity. An annuity is a fixed annual allowance provided by an investment. An annuity can provide a guaranteed regular income for the rest of your life or for a specified number of years. The amount of income provided through an annuity is generally determined at the time of purchase and depends on a number of factors, including the following 5:
1. the amount of money deposited,
2. the current interest rate,
3. your age,
4. your sex, and
5. the number of years for which the company promises to make payments.
You decide how often you wish to receive payments, for example monthly or annually, and if you wish your payments to be indexed to help offset inflation. Although none of the RRSP proceeds will be taxed at maturity when you set up the annuity, the annuity payments themselves will be taxed as you receive them. However, currently up to $1,000 per year of the annuity income may be exempted through the pension income tax credit.
There are three general kinds of annuities:
1. "term certain" for "fixed term" annuities, payable to you or your estate for a fixed number of years;
2. "single life" annuities, payable to you as long as you live; and
3. "joint and survivor" annuities, payable as long as you or your spouse is alive.
If funded with RRSP money, legislation requires a "term certain" annuity to expire by the time you or your spouse reaches age 90. On the other hand, a "joint and survivor" annuity guarantees an income for the lifetimes of the annuitant and his or her spouse. This could be well beyond the age of 90 in the case of one or even both spouses. This type of annuity can also have a minimum guaranteed payment period to provide a death benefit in the event that both annuitants die prematurely. A "single life" annuity with no minimum number of payments pays the highest amount of income but no death benefit.
The available options, and their effect on the monthly annuity payment, which you will receive, should be discussed with your life insurance licensed financial consultant. One should consider cash flow requirements, one's general estate plan, and other related factors before making a decision. Prevailing interest rates must also be considered to determine whether annuities alone, or a combination of annuities and Registered Retirement Income Funds, might provide greater flexibility and returns.
For more information about investment options, refer to other sections of Legal Line . For investment advice, speak with a lawyer, or a qualified investment advisor.
THE STOCK MARKET
|