As retirement nears, the focus changes from building your nest egg to converting it into income. But how can you avoid outliving your money?
- How long might you need your money? Get an estimate with this life expectancy calculator.
One way to generate an income that’s guaranteed for life is to buy a life annuity from an insurance company. You pay the insurer a certain amount of money, and the insurer commits to paying you a specified monthly amount for the rest of your life. Annuity income is not affected by market volatility, which is one reason annuities are an attractive retirement income option.
There are some important conditions to be aware of. Once you commit to the terms of an annuity, it cannot be changed. On your death (or in the case of a joint annuity, on the death of the last surviving annuitant), there is no death benefit payable to your beneficiary beyond any guarantee period.
That’s why it’s important to understand and choose an annuity that works best for you. For example:
- A life annuity will make payments as long as you live.
- A joint life annuity will make payments as long as either you or the second person (the joint annuitant — commonly a spouse) lives.
- Single and joint term-certain annuities for a specific period are also available that will pay the balance to your beneficiary if the last surviving annuitant dies before all benefits are paid.
What’s a guaranteed period?
You can also choose a guaranteed period such as 5 or 10 years. This means that if the last annuitant dies during the guaranteed period, a death benefit will be paid to your beneficiary. The longer the guarantee period is, the smaller your regular cheques will be.
Where leaving an estate is your priority, you can use just some of your retirement savings to buy an annuity. For example, you can calculate how much you need to cover monthly expenses over and above the income you expect to receive from your MPF. This approach will allow you to invest the balance of your nest egg in a diversified portfolio of stocks, bonds and other investments that is consistent with your risk tolerance and that you can leave to your heirs.
Buying an annuity could be part of an integrated strategy to convert your retirement assets into the streams of income you need for a secure retirement. Your financial advisor can help you develop a customized plan that meets your personal objectives.
Sheryl Smolkin, June 01, 2017, Looking for guaranteed retirement income? Think about an annuity [Web page] . Retrieved from Canada Sun Life Corporate Website read the article
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