GICs vs Annuities: Gifts and Guarantees that Last a Lifetime
Many of us are drawn to GICs and bonds because of the guarantees associated with both the principal and the interest. However, in the last few years, interest rates have declined considerably, and it’s tough to generate sufficient income and maintain our principal. Here’s an alternative that may work for you, and satisfy your desire to be generous to the church.
Let’s take the example of John and Mary Smith, ages 70 and 68. In addition to their other investments and pensions, they have a GIC for $100,000 that is coming up for renewal. Their belief in God’s generosity to them creates a desire to be generous in thanksgiving. They want to give a gift in addition to their regular offering. Their bank is offering a renewal rate of 2.4% guaranteed for 5 years. That provides them with a gross income of $2,400 annually. However, they have tax to pay on the interest and it is taxed at the top marginal rate, which is just over 47% in Ontario. Their net income drops to $1,272 a year. In order to generate the income, they can’t make a donation of capital. What can they do?
How about an annuity that pays a minimum of 5 years, but pays as long as either John or Mary is alive? If they purchased a JLS 100% survivor annuity that guarantees to pay them the net amount of $1,272/yr, they could purchase that annuity for only $23,733, leaving them the option of giving Redeemer a gift of over $76,000! If they wanted to net $2,400/yr after tax, that annuity would only cost $44,652, which still leaves them an option of giving Redeemer over $55,000. In this last example, the Smiths end up with more money in their pockets after tax, and Redeemer receives a substantial gift of capital for future ministry. The Smiths can donate up to 75% of their income for charitable purposes, and if they cannot claim it all on their current tax return, they can carry forward the unused donation for up to 5 taxation years.
The table below illustrates how GIC and annuity incomes compare.
GIC vs Gift Annuity
There are choices and tradeoffs that apply to you. One of the tradeoffs you make with an annuity is the loss of capital to your heirs. For more information on estate replacement gifts, click here. These should be discussed with your family and your advisors, in consultation with the parish leadership. If you wish to explore this gift option in more detail, please contact the church office, or the Chair of Stewardship, Peter Bennett.
Please click on the following links for additional Stewardship information:
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