Edit Annuity income

For annuities that you have already bought, you are asked for the cost and additional information if it is a deferred annuity (when the premium is paid several years before payments begin).

For future planned annuities, you are asked from which account the money will be drawn from, and the percentage of the account balance to convert to the annuity. The most difficult entry is the annuity payout rate. This is the yearly income you will receive divided by the total cost of the annuity (as a percentage). Note this is not the rate of return. Insurance companies quote payout rates, or often monthly income per $100,000.00 premium. In the latter case, the payout rate is 100 X monthly income X 12/100,000. Payout rates depend on the age and health of the annuitant, current and expected interest rates, features of the annuity, and vary between insurance companies. It is thus impossible to predict what the payout rate will be in the future, however, the MoneyReady App allows you to play with different scenarios. As a very simplistic guide, you want the payout rate to be greater than 100/(number of years you expect to receive the income). Another way to say this is that the number of years you need to receive the payments to not lose money on the investment, should be greater than 100/(payout rate). This ignores inflation.

Registered annuities are bought with registered savings, such as your RRSP, DCPP, or RRIF. Income from these annuities is eligible for income splitting with a spouse. A registered annuity can be deferred. If you set that up you will need to enter the growth rate of the funds between the time the annuity is bought and the time the income starts. Annuities are optional, any registered funds not transferred to an annuity will be converted in the TIME MACHINE to an RRIF or LIF at the age specified when you entered the account (in ACCOUNTS and INVESTMENTS).

The tax rules require an annuity purchased with registered retirement funds to begin when the annuitant turns 71. Your income from such annuities is 100% taxed as income. A new type of registered annuity has been available since 2020. This advanced life deferred annuity (ALDA) would permit you to use up to 25% of registered funds, up to a lifetime limit ($180,000 for 2026), to buy an ALDA that could commence payments as late as age 85. If you do not need the mandatory withdrawals from your RRIF to live on, you can consider the ALDA for deferring tax longer than with an RRIF.

Important note: The MoneyReady App is not currently imposing any limits on either the timing of the transfer or the amounts that can be transferred to registered annuities. This allows for the consideration of any scenario, but you will need to check with professionals before implementing any plan.

Prescribed annuities can be bought with non-registered funds. You can also withdraw funds from your TFSA to buy a prescribed annuity. A portion of the income from such prescribed annuities is taxable, as some of the income comes from taxable growth and the rest is a return of capital. In a prescribed annuity, the interest portion is evened out to remain constant. For current annuities, you are asked for the yearly taxable amount of the annuity so that the TIME MACHINE can adequately calculate taxes owing each year. For planned future prescribed annuities, the amount and the taxable amount will be calculated in the TIME MACHINE. Prescribed annuities cannot be deferred, and they cannot be indexed.

A structured settlement is a stream of payments to a person who won or settled a lawsuit. The defendant funds the settlement. These resolutions differ from lump-sum settlements because of the way the money is paid over time. Income from these is not taxable.

For all of these, if there is a spouse, you can also enter the percentage of the payment amount that continues to the surviving spouse of the annuitant. A guarantee period is sometimes included, such that the annuity will continue to pay out to a surviving spouse, or pay a lump sum to the estate.