Annuity Income Details

This form collects the additional information needed for the type of annuity you selected. The fields shown will depend on the annuity type and whether it has already been purchased or is planned for the future.

For an annuity that has already been purchased, enter its original cost if requested.

For an existing prescribed annuity, also enter the portion of the annual payment that is taxable. This amount should be available from the insurer or on your tax information.

For a future registered or prescribed annuity purchase, select the account from which the purchase will be funded and the percentage of that account’s balance to be used.

The account balance available at the future purchase date will be calculated in the TIME MACHINE. The future annuity income will then be estimated using the annuity payout rate you enter.

The annuity payout rate is the annual income paid by the annuity divided by its purchase cost, expressed as a percentage. It is not an investment rate of return.

For example, an annuity paying $500 per month for each $100,000 of purchase cost has an annual payout rate of 6%:

100 × ($500 × 12) ÷ $100,000 = 6%

Ignoring inflation and the time value of money, the approximate number of years required to receive payments equal to the original purchase cost is 100 divided by the payout rate. With a 6% payout rate, this would be approximately 16.7 years.

Actual payout rates depend on factors such as the annuitant’s age, the annuity’s features, interest rates and the insurer. For a future purchase, use a reasonable estimate and try different assumptions in the TIME MACHINE.

If a future registered annuity will be purchased before its payments begin, enter the planned purchase date and the expected annual growth rate between the purchase date and the income start date.

A registered annuity is purchased with funds from a registered retirement account, such as an RRSP, RRIF, DCPP, GRSP, DPSP or PRPP. The complete list of eligible accounts available to you will be shown in the funding-account menu.

Payments from a registered annuity are treated as taxable income. They may be eligible for pension income splitting with a spouse, depending on the source of the funds, the recipient’s age and whether the annuity was received following the death of a spouse.

An RRSP must mature by the end of the year in which its annuitant turns 71. Registered funds not used to purchase an annuity will be converted in the TIME MACHINE to an RRIF or LIF at the age specified for the account.

An advanced life deferred annuity allows payments from qualifying registered savings to begin as late as the end of the year in which the annuitant turns 85. Transfers are subject to both a percentage limit and an indexed lifetime dollar limit.

IMPORTANT: The MoneyReady App does not currently enforce all legal limits governing registered annuity or ALDA purchases, including limits on the amount transferred and the timing of the purchase. Confirm that a planned transaction is permitted before implementing it.

A prescribed annuity is generally purchased with non-registered funds. Funds may also be withdrawn from an account such as a TFSA and used to purchase the annuity.

Part of each prescribed-annuity payment is taxable income and the remainder is treated as a return of capital. Under prescribed taxation, the taxable portion is generally level throughout the payment period.

For an annuity that has already been purchased, enter its annual taxable amount. For a planned future prescribed annuity, the TIME MACHINE will estimate both the payment and its taxable portion.

A prescribed annuity cannot be deferred or indexed in the MoneyReady App.

This optional field is used only when estimating the taxable portion of a future prescribed life annuity. For a joint annuity, enter the gender of the younger spouse. If no gender is selected, the estimate will use the average of male and female life expectancies.

A structured settlement provides a stream of payments arising from the settlement of a legal claim. The MoneyReady App treats income entered as a Structured Settlement Annuity as non-taxable. Use this income type only when that tax treatment applies to the settlement.

Enter the annuity’s guarantee period as stated in the annuity contract.

If you have a spouse, you can also enter the percentage of the annuity payment that will continue to the surviving spouse after the annuitant’s death and beyond the guarantee period. Enter the terms that apply to the actual or proposed annuity contract.

The annuity details will be saved and used in the TIME MACHINE to calculate the annuity payments and their tax treatment.