It appears that interest rates aren’t going up after all. Not for a while at least, and maybe not for quite a while.
It is hard to believe that they would, with governments around the globe heavily in debt, and having to pay interest on that debt. For the economy at large, that’s a good thing. But for income-oriented investors, it’s another story.
Retirees looking to secure at least a base level of income through safe investments are having difficulty with GIC rates and bond yields so low. Many are looking for alternatives.
I’ve talked about it before, and today I am going to talk about it again: the insured annuity. If you are looking for a way to obtain a decent level of after-tax income but are not willing to take any risk, this is about as good as it gets. And as far as timing goes: if you haven’t done it already, you should consider doing it now.
What is an
Insured Annuity?
In a nutshell, an insured annuity is a combination of a prescribed annuity (an annuity purchased with non-registered assets) and an insurance policy.
The annuity provides lifetime income with the added benefit of preferential tax treatment. Since prescribed annuities report level interest for the duration of the annuity, and because annuity income consists (in part) of a non-taxable return of your capital, annuitants receive enhanced after-tax income compared to other fixed-income investments such as GICs.
The income generated from the annuity then pays for the other component of the insured annuity, the life insurance policy.
The life insurance guarantees that your beneficiaries receive an amount equal to the original annuity investment.
This means that you don’t have to worry about an annuity purchase eroding the size of your estate because your beneficiaries will receive the value of your estate through insurance proceeds.
Benefits of an Insured Annuity
Retirees choose to go with insured annuities for four main reasons:
First, they receive a greater after-tax income; next, an annuity may make the retiree eligible for increased government benefits; third, an annuity guarantees a lifetime income; finally, an insured annuity will leave the retiree’s estate intact.
Who Benefits from an Insured Annuity?
An insured annuity may not be the answer for everyone. Ideally, this fixed-income investment is suited for individuals or couples who:
• Are insurable and between the ages of 65 to 80;
• Are dissatisfied with current low interest rates;
• Want to minimize investment risk while maximizing after-tax retirement income;
• Seek to maximize government benefits and lower taxes Desire a guaranteed income for life;
• Desire a guaranteed income for life
• Want to leave a tax-free gift to their heirs.
Depending on your situation, there are a number of different ways to structure an insured annuity to maximize after-tax income and government benefits, and/or to achieve complex estate planning objectives.
For more information on this or other ideas, please feel free to call or email.
For PDF versions of this or previous articles please email jim.grant@raymondjames.ca .
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only. Securities are offered through Raymond James Ltd., member CIPF.Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member CIPF. For more information feel free to call Jim at 250- 594-1100, or email at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.
