RRSPS and TFSAs are helping Canadians save for retirement, but few are taking advantage of an annuity to guarantee an income.
By Katrina Caruso
We’re living longer, and a longer life means more retirement years for which to save. No wonder 62% of Canadians aged 55 to 75 worry that they’ll outlive their savings, according to the results of an Ipsos survey conducted for RBC Insurance. Almost half—45%—of those not yet retired say they aren’t at all confident that they’ll be able to afford the retirement they hope for.
The survey gives a pretty clear picture of what people want that retirement to look like. The priorities of the respondents were to live in their own homes for as long as possible (80% of those surveyed), to own a car (72%), and to travel once a year (68%).
Respondents reported using RRSPs (only 45%) and Tax-Free Savings Accounts, or TFSAs (39%), to help them save for retirement, but only 12% said they were using or planning to use an annuity to provide a steady flow of income.
What is an annuity? Annuities are bought with cash (RRSP and RRIF savings can be invested in an annuity) and provide a pre-determined amount of monthly revenue for a fixed amount of time (or for as long as a person lives). People can choose when to begin receiving their annuity payments, either immediately or in the future; the latter are known as deferred annuities. The monthly income provided by the annuity can be fixed or variable, depending on the type of annuity chosen. An important consideration is that you can invest only some of your retirement savings in an annuity, keeping some in reserve, so that the annuity payments cover fixed expenses and your savings cover anything else.
The main positive aspect of annuities is that the income they provide is predictable, and so they can provide peace of mind. For most folks, having a monthly income makes it easier to manage money day to day.
If you’re thinking about re-evaluating your options when it comes to your financial planning, consider speaking to your financial advisor and asking whether an annuity would be right for you.
Photo: iStock/Judith Dzierzawa.