What is an annuity?

An annuity is an insurance product that provides income in retirement. There are two types of annuities: immediate and deferred. Immediate annuities provide income right away, while deferred annuities allow you to grow your money over time and then receive income later on.

Annuities are a popular retirement income option because they offer guaranteed income for life. This can be a valuable source of security for retirees who are worried about outliving their savings.

There are several different types of annuities, so it's important to understand how they work before deciding if one is right for you.

Immediate annuities

With an immediate annuity, you start receiving income payments right away. You can choose to receive payments for a set period of time, such as 10 or 20 years, or for the rest of your life.

The amount of income you receive each month is based on a number of factors, including your age, gender, health, and the interest rate.

Deferred annuities

A deferred annuity allows you to grow your money over time before you start receiving income payments. This can be a good option if you want to delay taking income until you're older or if you're trying to maximize your tax-deferred growth potential.

With a deferred annuity, you can choose to receive income payments for a set period of time, such as 10 or 20 years, or for the rest of your life. The payments will be based on the factors mentioned above, as well as the value of your annuity at the time you start taking income.

There are two main types of deferred annuities: fixed and variable.

Fixed deferred annuities offer a guaranteed rate of return on your investment. This means you know exactly how much income you'll receive each month, regardless of what happens in the stock market.

Variable deferred annuities, on the other hand, offer the potential for growth, but there's also the risk that your investment could lose value. With a variable annuity, your income payments will fluctuate, depending on how the investments in your account perform.

No-lapse guarantee

Some annuities come with a no-lapse guarantee, which means your income payments are guaranteed for life, even if the value of your investment goes down.

This type of guarantee can be especially important if you're relying on your annuity for income in retirement.

Annuity riders

Annuity riders are optional features that you can add to your annuity contract for an additional cost. Riders can provide additional income, protection from market losses, or long-term care benefits, among other things.

Not all annuities offer riders, so it's important to ask about them when you're shopping for an annuity.

Annuity payouts

When you're ready to start taking income from your annuity, you can choose from a variety of payout options.

The most common payout option is a life annuity, which pays income for as long as you live. This option can provide a secure source of income, but it does mean that you won't have anything left to leave to your beneficiaries.

Other payout options include a term-certain annuity, which pays income for a set period of time, and a joint-life annuity, which pays income for as long as either you or your spouse is alive.

Annuities can be a complex topic, so it's important to speak with a financial advisor to learn more about how they work and whether or not they're right for you.

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Always seek advice from your financial planner. If you are a member of one of the BC Public Sector Pensions plans, you can see what the Pension Corporation says about your situation. Their pages provide a detailed summary of your options.