Annuities have always been the foundation of a stable retirement income plan.  The prospect of a consistent, reliable income stream is very attractive to many baby boomers who simply want to ‘set it and forget it.’

Tom Castonguay, president at Shelter Bay Financial, says although today’s low interest rates can limit the appeal of regular annuities, the benefits of back-to-back annuities is are too great to ignore.

‘When you’ve seen your portfolio drop from 400k to below 300k and now still not be back to 400k your priorities change to preserving your nest egg.’  As boomers start their retirement years they want to enjoy retirement without the stress of market performance or the need for above average returns.

Insured annuities are one of the best options in the market today.  This strategy creates an income with a life annuity and preserves wealth with a permanent life insurance policy.  The concept is that, a client buys a permanent insurance policy and a life annuity for the same amount.  The income tax due on the annuity income is much less than a non registered GIC which generates surplus after tax revenue while preserving wealth (life insurance payout) for beneficiaries.

‘Due to the permanent nature of this strategy – it should only be used with non registered wealth that will not be required during the annuitant’s life time.  Once an annuity is purchased the decision cannot be reversed so careful consideration must be given to the plan.’ says Castonguay.

With the current low interest environment this strategy works best for larger amounts with those in the highest marginal tax bracket.  But for those looking for higher returns without taking on more risk this option is worth considering. 

Another nice advantage is that once a back-to-back is set up there are no more investment decisions to be made.  Longer term estate planning can be done while an individual or couple is healthy enough and able to make their own decisions.