By Pascale Hansen

As a business owner in Canada, securing your retirement income is a critical consideration. As you transition from your active career to retirement, ensuring that you have a stable and predictable income stream can protect you from market volatility and unexpected expenses. One financial product that can help achieve this is an annuity.

What is an Annuity?

An annuity is a financial product that you purchase from an insurance company, providing you with a series of payments over a certain period, which could be for a fixed term or the remainder of your life. There are several types of annuities, including fixed, variable, and indexed annuities. Each type offers different features and benefits, making it essential to evaluate which aligns with your retirement goals.

When Should Business Owners Consider Buying an Annuity?

Predictable Retirement Income: If you seek stability in income during retirement, an annuity can provide guaranteed monthly payments. This predictability is attractive, especially if your business income is variable or if you've relied heavily on business income during your career.

Longevity Planning: With advances in healthcare, many Canadians are living longer. An annuity can be a suitable option to mitigate the risk of outliving your savings. Lifetime annuities ensure that you receive income for as long as you live, which can be vital for your long-term financial health.

Asset Preservation: If you're concerned about the erosion of your savings through market downturns, an annuity can offer a safe harbor. This is particularly relevant if you've accumulated significant wealth through your business and want to preserve this for your retirement years.

Tax Considerations: Business owners often benefit from tax-deferred growth of their retirement savings. Annuities can offer tax advantages as you typically only pay tax on the income you withdraw during retirement, which may be advantageous for your overall tax strategy.

Transitioning from Business Income: As a business owner planning to exit your enterprise, you may want to ensure that your retirement income isn't solely reliant on the sale of your business or residual earnings. Annuities can provide a supplement to your income, ensuring financial security as you adjust to this significant change.

Who is Best Suited for Annuities?

Retirees Seeking Stability: Individuals close to or in retirement who seek predictable income may find annuities particularly beneficial. Since business owners often have unique income scenarios, such financial products can offer peace of mind.

Conservative Investors: If you are risk-averse and prefer stable, guaranteed returns over volatile investments, annuities align with your risk tolerance. They provide a buffer against economic downturns, which can be crucial for maintaining your desired lifestyle in retirement.

Individuals with Health Concerns: If you have health issues or a family history of serious health conditions, an annuity can be advantageous as it secures income regardless of your lifespan. A deferred annuity can also help increase the amount available upon payout if you defer payments until later.

Those with Irregular Income Sources: For business owners who may have income streams that fluctuate or those relying on dividends or profits from their business, an annuity provides consistent payouts that can buffer against lean years.

For Canadian business owners, deciding to purchase an annuity can be a strategic step in securing a stable retirement income stream. By understanding your financial needs, lifestyle goals, and the unique characteristics of annuities, you can make an informed decision that aligns with your retirement strategy.

Before proceeding with the purchase of an annuity, contact us to ensure you take full advantage of the benefits they can offer while aligning with your broader financial planning goals.

Pascale Hansen is the Founder, CEO, and Financial Strategist at Zada.

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