What is a prescribed annuity?

Annuities, Calgary

One of the challenges for creating retirement income is that interest rate yields have dropped so far over the past 30 years and now taxes are increasing - it's what we call adding 'insult to injury'. If you are over the age of 60 this is something that you may want to consider as a way to set up a guaranteed income stream for life. A guaranteed source of income is great for your fixed expenses like property taxes, vehicle registration, and insurance, medical expenses, annual vacation, grandkids education, etc. There are other features you can add to an Annuity like joint life survivor, 5-year payout to a beneficiary and fixed term.

What is a Prescribed Annuity?

Bill is aged 65. If Bill were to buy a Prescribed Annuity Contract he could use his $100,000 to earn an income of approximately $5906.00/yr. (amount is based on age and gender). A Prescribed annuity is set up in such a way that a portion of your income is a return of your capital and a portion interest. So, in Bill's situation, he would only pay taxes on $980, at a 30% tax rate that would only be $294.00. That means Bill would be getting $5612.00 a year from his annuity for the rest of his life.

Who would benefit from a Prescribed Annuity?

  • If you are 60+ and looking for a guaranteed source of income that will last the rest of your life
  • You have some non-registered money sitting in a GIC or cash at the bank
  • You do not want your nest egg exposed to the volatility of the stock market 
  • You want to minimize the tax payable on your income
  • You want to take advantage of the current tax-rate before the new rules take effect on Jan. 1/17
  • Consider the following Example below:

The Downside of Annuities:

  • The payout isn't indexed to inflation. It's a fixed amount for the rest of your life. It is possible to add an inflation buffer, but again, that will reduce your payout.
  • You no longer have access to the deposit if you want it or need it for something else.

We are licensed to sell annuities in Alberta and can help you explore if this is an appropriate strategy for you. Give us a call at 587-755-0159 or complete the form below and we will contact you with a quote. We are independent Brokers and can shop with more than a dozen insurance companies to find you the best rates and the best Annuity for you. Compare Rates Here.

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