508 / What should an individual consider when deciding whether to invest in a buffer or registered indexed linked annuity?

Individuals who wish to procure the more traditional income protection offered by annuities during retirement should think twice about the risks involved with registered indexed-linked annuities. Individuals who are already in retirement may be drawn to the potential for increased gains, but be unable to comfortably assume the greater risk of lost principal that is associated with registered indexed-linked annuities. This makes it important for these potential investors to understand the difference between the downside protection offered by registered indexed-linked annuities, and the “floor” provided by many other types of annuity products.

The floor offers a limit below which the product’s earnings is guaranteed not to fall, but registered indexed-linked annuities only limit the investor’s risk of loss by a certain percentage—which can impact the investor’s principal investment, as well as earnings on the investment.

Another risk associated with registered indexed-linked annuities lies in the complexity of the products. Many taxpayers may not fully understand the risk that they are assuming, which can lead to unpleasant future surprises.