A Retirement Income Option
Under the law, you may keep your RRSP until the end of the year in which you turn 71; you must transfer your RRSP into retirement income before December 31 of that year. You have several retirement income options: A RRIF, an annuity or a combination of the two.
The capital in your RRSP may be used, in full or in part, to buy an annuity.
It's simple. Use your capital to purchase an annuity from a financial institution. You will receive regular payments. You can purchase the annuity with money held in your RRSP as well as non-registered funds outside of your RRSP.
The annuity amount is based on:
- the amount of capital used to purchase the annuity: the higher the amount, the higher the payments
- interest rates at the time of purchase
- your age at the time of purchase
- the number of years you will be guaranteed of receiving your payments
As long as you receive payments, your capital will bear interest equal to the rates in effect at the time of purchase; this rate will never change. This way, you will always be protected from plummeting interest rates. You may also guard against inflation and opt for an indexed annuity.
The main advantage of an annuity is its stability. When you purchase an annuity, you know exactly how much you will receive. This makes it quite easy to manage your budget!
- Only a life insurance company, such as Desjardins Financial Security may offer you an annuity.
- You are provided with predetermined payments for the rest of your life and, in some cases, that of your spouse.
- It is possible to guarantee the payment of an annuity for a specified period of time. If you die during this period, your spouse will continue to receive the pension until the end of the warranty term. With no surviving spouse, the designated beneficiaries receive an amount equal to the present value of the payments for the remaining term.
- The contract may include a survivor clause where, after your death payments will be made, in full or in part, to your spouse for his or her lifetime.