As you know, of course, annuities and GICs are not the same thing. Annuities provide guaranteed income for life, or for a fixed period, and can be purchased from insurance companies, agents and consumers. And a GIC is primarily a savings vehicle, which can be purchased from banks, trust companies, credit unions and investment firms.
In most cases, buying an annuity means exchanging your money—a lump sum—for a lifetime payment similar to an annuity. It is a fixed, guaranteed income for life, with no worries about interest rates, stock market crashes, bankruptcy, etc.
On the other hand, buying an annuity means making a long-term commitment to an unknown future. And you will no longer have access to your original money.
Consider this example: If you want to buy a new car, you cannot go to the insurance company and ask for more money. It's not your money anymore.
I think you are considering GICs as an alternative because you are aware of the long-term risks associated with annuities, and you may want to maintain control and flexibility over your money.
A GIC can provide you with guaranteed income over time and control over your money; however, there is no guarantee of future interest rates or lifetime income. You may find it difficult to get monthly income from a GIC portfolio. This will prompt you to create a GIC ladder with different maturity dates so that cash is available when needed. A staggered approach may have a lower total return than the five-year return you use compared to an annuity.
Think about the different ways you—and the world—might change in the next 25 years. Check interest rates, inflation, your lifestyle and spending habits, and more. Inflation is probably the biggest risk you will face when buying a life annuity.
If you buy a $100,000 annuity, what other financial resources do you have now? What will come to you in the future? What can you use to cope with any changes in your life? It is important that you know the answers to these questions.
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