Interest Rate Hikes Spark Interest in Annuities: A Safe Investment Solution for Guaranteed Income How would you like to have an investment that is considered safe and will pay you a guaranteed income every year for the rest of your life? Amidst today’s financial uncertainty, annuities are witnessing a resurgent popularity, catering to dentists who are seeking secure and stable solutions to safeguard their savings while ensuring a steady income stream with tax-efficient options. Annuities, offered by trusted insurance companies like Desjardins Insurance, Canada Life and Manulife have re-emerged as an attractive option because they provide a guaranteed source of income. If you’re looking for financial security over the longer term, annuities could be the answer. Understanding Annuities An annuity is a financial agreement, or contract, between an individual investor and an insurance company. The individual purchases an annuity, either with a lump sum or multiple payments, and the insurer guarantees to pay out a steady income in return. The insurance company invests these funds and pays them back to the annuitant at regular intervals, determined by the annuitant. These income payments are typically based on factors such as life expectancy and prevailing interest rates at the time of purchase. Similar to life insurance, annuities come in two types: term and life annuities. Term annuities offer a guaranteed income for a specific period, known as the guarantee period. This can be anything from one year to 50 years. At the end of the term, the annuity payments stop. Life annuities provide income payments until the annuitant’s death, regardless of when that occurs. Depending on factors like age and the source of funds, certain restrictions may apply. For both, the periodic payment amount is fixed at the time of purchasing the annuity and is not affected by market fluctuations or declining interest rates. Investors also have some options as to how the money used to purchase the annuity is invested. For example, Desjardins Insurance has a responsible investing annuity which incorporates environmental, social and governance factors into the selection and management of their investments. Mary is 68. She purchases a life annuity for $100,000 from a registered plan on October 19, 2023. That’s equivalent to an annual return of 6.03% for the rest of Mary’s life, assuming she lives to age 95. She will receive $632.72*/mth for the rest of her life–guaranteed. 28% of clients are worried about outliving their investment portfolio.1 30 | 2023 | Issue 6 SupportingYour Practice
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