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Options for Annuity Purchases and Investing Inheritance in Non-Registered Accounts


 

Exploring Strategies for Annuity Integration and Optimal Allocation of Inherited Funds


Question: What options are available for reflecting the annuity purchase she plans to make at the age of 75? Additionally, I want to explore alternatives for investing in my clients inheritance currently held in a non-registered account; what are some recommended options for this consideration?


Answer: Annuity Purchase Options:


  • Non-Registered Annuity: You can add a custom income source to represent a Non-Registered annuity. Choose the appropriate annuity type and enter the annual annuity payments with a start age of 75. Add an appropriate end age in the case of a Non-Registered Term Certain Annuity. To represent the purchase, add an Additional Income Need with a start and end age of 75, and an amount equal to (annuity_purchase_amount) / ((1 + inflation_rate) ^ (75 - current_age)).


  • Registered Annuity: The Registered annuity purchase does not have a straightforward solution in the current offerings. The best approximation would be similar to above, changing the Additional Income Need amount to ((annuity_purchase_amount) * (1 - effective_tax_rate)) / ((1 + inflation_rate) ^ (75 - current_age)). Estimate the effective tax rate as ((Taxes(base_taxable_income + annuity_purchase_amount) - Taxes(base_taxable_income)) / annuity_purchase_amount), where Taxes(x) represents the taxes payable on x dollars of taxable income - this can be determined on the EY site, for instance. Note that we cannot guarantee that the funds for the additional income need will even be sourced from Registered accounts as this will vary based on the strategy that wins out.


Investing Inheritance:


  • Receiving Inheritance: If you are receiving the inheritance, add it as a one-time deposit with the inheritance amount and an estimate of the age it's expected to be received at. Milestones will automatically allocate it appropriately to a Tax-Free Savings Account (TFSA) up to the limit and then to Non-Registered funds.


  • Giving Inheritance: If you are planning to give the inheritance, using a TFSA is the best vehicle, then Non-Registered, then Registered. Milestones automatically handles this optimization.


Keywords:Annuity Purchase, Investing Inheritance, Non-Registered Accounts

 

For more information or to clarify any questions about using the Milestones Retirement Insights tool for comprehensive retirement income planning, reach out to us at info@milestones-retirement.com 

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