Retirement Income Enhancer: How an Insured Annuity Can Boost Your Retirement Income

The GIC Trade-Off

If you're nearing or in retirement and want guaranteed supplemental income with full capital preservation, a Guaranteed Investment Certificate (GIC) is the obvious first choice. The catch: GIC income is taxed as interest at your full marginal tax rate, and in most rate environments, the pre-tax yield is modest.

A More Tax-Efficient Alternative

An insured annuity strategy takes the same lump sum you'd otherwise put into a GIC and splits it into two pieces:

1. A life annuity, which pays you a regular income for the rest of your life, taxed preferentially compared to interest income

2. A permanent life insurance policy, funded by a portion of that annuity income, which replaces the capital used to purchase the annuity when you pass away

Structured this way, the strategy can produce a guaranteed, lifetime, pre-tax-equivalent rate of return that's meaningfully higher than a GIC alone.

The Benefits

• A higher amount of net spendable income compared to a GIC
• Income guaranteed for life
• Preferential tax treatment on the annuity income
• Capital replaced at death and paid directly to your heirs
• Beneficiaries that can be changed at any time
• No probate fees on the life insurance death benefit

Illustrative Example

For a 65-year-old non-smoker in regular health, using non-registered funds at a 4.0% GIC rate and a 40% marginal tax rate, this structure has historically produced an income increase in the range of 30% or more compared to holding the GIC alone. For a 70-year-old under the same assumptions, the increase can be even larger, since annuity payout rates improve with age.

Rates and assumptions change over time, so any specific numbers should always be run current for your age and health at the time you're considering this strategy.

Is This Strategy Right for You?

An insured annuity strategy isn't for everyone — it works best for those who have non-registered capital they don't need to keep liquid, want to maximize guaranteed lifetime income, and also want to preserve an estate for their heirs. If that describes your goals, it's worth running the numbers for your specific situation.