A Case Study For Insured Annuities

Joan Smith, a retired 72 year-old widow found herself in a situation that many older Canadians face. Joan lived in a large four-bedroom home that she found very hard to maintain. Her three grown, financially independent children, along with her five grandchildren did not live near her.

Joan sold her home for a value of $500,000 and moved into a retirement community.

Joan's tolerance for risk was low and therefore, she was looking for a strategy that would provide her with the highest amount of income with the least amount of risk.

An insured annuity was suggested to Joan. This concept combines a prescribed life annuity and a life insurance policy that will guarantee an income and an after tax income of $23,897 per year. Joan's original investment will be fully restored upon her death and can be bequeathed to her heirs.

Here's how an insured annuity compares to the same investment made in a GIC.

An insured annuity should be considered as an important component of a larger diversified plan. It is important to discuss the suitability of this strategy with your CIBC Wood Gundy Investment Advisor and one of our Estate Planning Specialists**** who can help you determine your retirement and estate planning needs.

To learn more about insured annuities and how they could fit into your investment plans, the following articles are available:

 

Investment Assumptions
Capital $500,000
GIC Interest Rate 4.35%
Marginal Tax Rate 46.40%
Annual Guaranteed Annuity Income $48,641.73
Annual Taxable Portion $13,704.37
Annual Insurance Premium $18,385.00

 

Comparison
  GIC Insured Annuity*
Annual Income $21,750 $48,641
Income Tax Payable (10,092) (6,358)
Annual Insurance Premium NIL (18,385)
Net Income $11,658 $23,897

 

Analysis
     GIC Insured Annuity
Difference in Investment Income   $12,240
Effective Return After-Tax 2.33% 4.78%**
Effective Return Pre-Tax 4.35% 6.05%***

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