If you, or your financial adviser, have the investing skills to earn
more than the annuity, you will come out ahead by taking the cash.
That's because RRIFs offer more flexibility and tax
savings than annuities (see the pros and cons of annuities at TSI Network) or a lump - sum withdrawal (which in most cases is a poor retirement investing option, since you'll be taxed on the entire amount in that year as ordinary income).
(Retiring allowances, RRSP withdrawals
other than annuity payments, and death benefits can't be split.)
Many times I find that annuities with income riders that have no upfront bonus have a higher contractually guaranteed
payout than annuities with bonuses.
If we assume you earn, say, a steady 5 % annual return on your mix of stocks and bonds, you could draw $ 645 a month, or $ 100 a more a
month than the annuity pays, and your stash would until about age 85.
Part of that return will come in the form of dividends from Canadian stocks, which qualify for the dividend tax credit and are consequently taxed at a lower
rate than annuity or pension payments.
In this way, especially in a low interest rate environment, a MEC may result in a higher leveraged
position than an annuity when it comes to the proceeds passed to the named beneficiary.
The cost of insurance is typically
less than an annuity's M&E charges until the younger person is in their fifties.
RIAs know there are lots of products
other than annuities to choose from, though none are quite like annuities so insurers have to make a case for how RIAs can use annuities to complement a retirement portfolio.
Wouldn't that plan work just as well, if not better,
than an annuity?
That's because RRIFs offer more flexibility and tax savings
than annuities (see the pros and cons of annuities on TSI Network) or a lump - sum withdrawal (which in most cases is a poor retirement investing option, since you'll be taxed on the entire amount in that year as ordinary income.
Registered Retirement Income Funds offer more flexibility and tax savings
than annuities or a lump - sum withdrawal.