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Discussion Starter #1 (Edited)
Assume a 70 year-old at the cusp of retirement with a 1m portfolio, half of which is in an RRSP (soon to graduate into an RRIF) and half in non-registered accounts with no taxes due. The old sport would like to annuitize half of his portfolio using a single premium immediate annuity with a 10 year guarantee and no COLA. The other half will be invested in VBAL to be harvested at a 3% withdrawal rate with inflation adjustments. He will receive an average CPP and other benefits he may qualify for. He has kids who could benefit from an inheritance, but that is not his priority. Make other assumptions as needed.

Which half of his portfolio should he annuitize: RRIF or non-registered?
 

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If you annuitize the non registered won't the vbal have to be drawn down at the prescribed rrif rate, which I think begins at 5 or 6 % and rises from there.
Anyway I like your question.
 

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Discussion Starter #3
If you annuitize the non registered won't the vbal have to be drawn down at the prescribed rrif rate, which I think begins at 5 or 6 % and rises from there.
Yes, that is one of issues that comes to mind. One has more control over the non-registered account and how to draw it down, while income taxes have to be paid on mandatory distributions from the RRIF. The RRIF allows for tax free deferral on the remaining funds.

Another aspect is how the annuity is taxed. Income from an annuity bought in the RRIF will be fully taxable from the beginning, but annuity bought with non-registered funds will be taxed less, especially in the first few years.
 

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Yes, that is one of issues that comes to mind. One has more control over the non-registered account and how to draw it down, while income taxes have to be paid on mandatory distributions from the RRIF. The RRIF allows for tax free deferral on the remaining funds.

Another aspect is how the annuity is taxed. Income from an annuity bought in the RRIF will be fully taxable from the beginning, but annuity bought with non-registered funds will be taxed less, especially in the first few years.
I would also annuitize the RRIF for the primary reason that crystallization of VBAL in non-reg can be 'managed' as/when required. Buying an annuity with the RRIF also spreads the taxable proceeds out over one's remaining life and also provides some longevity insurance (risk of living too long and running out of money) along with CPP and OAS.
 

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Discussion Starter #5
I would also annuitize the RRIF for the primary reason that crystallization of VBAL in non-reg can be 'managed' as/when required. Buying an annuity with the RRIF also spreads the taxable proceeds out over one's remaining life and also provides some longevity insurance (risk of living too long and running out of money) along with CPP and OAS.
Whenever I look at my RRSP, I think to myself part of these funds will be going to taxes. So another advantage of annuitizing the RRIF is that if the investor dies prematurely, notwithstanding the 10 year period certain clause, portion of the money lost was taxes due. In a non-reg account, the principal is owned free and clear by the investor. In a TFSA, the principal and gains are the investor's to keep.
 

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Discussion Starter #8
Websites like 2019 Best Annuity Rates in Canada - LifeAnnuities.com don't require identification. They won't be exact quotes but so what?
Interesting to see the 20 year guarantees. If the monthly payment is $500 for a 70 year old, then the annuitant (or beneficiary) is guaranteed to get back (over 20 years) 120k for a 100k purchase. That is a CAGR of 0.92%, which is comparable with what long bonds pay, plus a longevity insurance. Not a bad deal (credit and tax issues aside).
 

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Discussion Starter #9
I just came across this paper by Blanchett and Finke that compares buying annuities from tax-sheltered vs taxable accounts (in the US). Thought I should include it here since their findings are completely counter to my intuition.

Although the use of assets from retirement accounts to purchase retirement income annuities seems intuitively appealing, nonqualified annuities provide a tax deferral benefit not offered by traditional assets held within taxable accounts. A retiree who purchases an annuity from a qualified account gives up this deferral benefit. If the retiree holds other assets within a nonqualified taxable account, he or she must consider the opportunity cost of giving up this potential benefit – particularly if the retiree was investing in tax inefficient assets in which gains are taxed more frequently or at a higher marginal tax rate.
They use a sophisticated method to target after-tax real returns that shows buying immediate or deferred annuities in a non-registered account is more tax efficient for most marginal tax rates.

 
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