Factors to consider

There are many factors to consider with your broker. One issue we looked at above is whether to buy all at once or over a period of time. Here is a partial list of other issues:

Using your RRIF (or RRSP) or non-registered funds

Are you better off purchasing with registered or non registered funds? If buying with non-registered funds (i.e. outside your RRSP or RRIF), is it beneficial for you to elect to have the annuity treated as a prescribed annuity, i.e. making uniform over the lifetime of the annuity the percentage of each monthly payment which is considered to constitute a return of capital (and therefore not taxable). The alternative is that the portion considered a return of capital start off low, and increase over time.

Raising the funds by selling shares or bonds?

Consider the impact on your asset allocation if you need to sell off other investments to finance the annuity purchase. Also consider the tax considerations.

Timing

Check how the amount of the monthly payments will vary depending on your age at time of purchase. Are you better off to postpone the purchase? Would it be advantageous to delay the start of payments for a period of time?

Cannex/ solvency checks

Insist that your broker give you a copy of the results of the Cannex research showing the level of the annuity offered by various insurers. Also ask the broker to give you for each insurer the credit ratings from AM Best and/or DBRS. Should you split the annuity in the light of credit concerns?

Single vs. split purchases

Are you better off to buy the annuity from several insurers to increase your Assuris protection? Or to split the purchase between you and your spouse.

Other possible variations

Would you like an annuity which is fully or partially reversible, i.e. which is payable until the death of you and your spouse?

Would you like an annuity with capital reserved (i.e. which ensures that the total payments paid at least equal to the amount of the premium, despite a premature death), or is guaranteed (that is to say, the annuity is guaranteed for a minimum period, for instance 10 years), despite your death.

Do you want indexed payments?

Instead of monthly payments, would you like payments to be made paid at a lower frequency, for example, each quarter or year? What would be the impact of any of these variations on the amount of the annuity?

Conclusion

We hope that this commentary will be useful if you are considering the purchase of an annuity. Your comments are welcome. We do not hold ourselves out as insurance or annuity experts, and you should seek expert advice if you decide to purchase an annuity.