Annuities can provide a reliable source of future income in exchange for a premium or series of premiums. The accumulated value of your annuity will grow as you make deposits and interest is credited at a pre-determined rate. There are two main types of annuities, deferred and immediate.
Deferred annuities may suit individuals who are saving now and want the safety of a guaranteed rate of return. You choose how often you want to contribute: monthly, annually or occasionally.
You can contribute to a deferred annuity within a Registered Retirement Savings Plan (RRSP). The contributions up to specified limits are tax-deductible and the accumulation inside the plan is tax-deferred as well. You can contribute up to $5,000 per year to a deferred annuity within a Tax Free Savings Account (TFSA). Accumulation inside the plan is tax-exempt, as are withdrawals from the plan.
You also have the option to contribute to an annuity on a non-registered basis.
At Foresters, your net premiums can be invested in a Daily Interest Account or one of six Guaranteed Income Accounts. The larger your original deposit and the longer your term, the higher your interest rate.
An immediate annuity is also called a Single Premium Immediate Annuity (SPIA). With immediate annuities you provide a lump sum of money and the annuity provides an income stream immediately. You can choose how often you want to receive your income payments: monthly, quarterly, semi-annually or annually.
Immediate annuities suit people who are already retired and want to fix the amount of income they will have every month. An SPIA is an important RRSP maturity option. SPIAs are also suitable for ensuring regular income from the proceeds of life insurance.