You just retired at 65 and want a steady income on top of CPP and OAS to cover your basic bills.
Why it fits: A life annuity creates a reliable "pension" for your essential costs, so the rest of your savings can stay invested for growth and extras.
Annuities
A guaranteed paycheque for retirement that you cannot outlive.
An annuity turns a lump sum of savings into guaranteed regular payments, for life or for a set number of years. It takes market and longevity worries off your plate so you can enjoy retirement with a steady, predictable income.
Overview
An annuity is a contract with an insurance company that turns your savings into a guaranteed income stream. You pay a lump sum once, and the insurer sends you regular payments, for life or for a set period. It works a lot like creating your own personal pension.
Because payments are guaranteed by the insurer, an annuity removes two big retirement worries: a market crash shrinking your savings, and living longer than your money lasts.
Choosing the right annuity
Annuities can be shaped to fit your needs. The main choices are:
- Life or term-certain: income for your whole life, or for a fixed number of years.
- Single or joint and survivor: income for you alone, or for as long as you or your spouse is alive.
- Guarantee period: makes sure payments continue to your beneficiary if you pass away early.
- Indexing: payments that rise each year to help keep up with the cost of living.
- Immediate or deferred: payments that start right away, or at a later date you choose.
Registered and non-registered annuities
You can buy an annuity with money from an RRSP, RRIF or pension, which makes it a registered annuity, and the payments are taxed as regular income. If you use savings that have already been taxed, it is a non-registered annuity, and only the interest part of each payment is taxed. We compare rates from Canada’s leading insurers to help you get the highest guaranteed income for your situation.
How it works
- 1
Choose your type of annuity
Decide whether you want income for life, for a set number of years, or for as long as you or your spouse is alive. You can also add a guarantee period.
- 2
Pay a lump sum
You give the insurer a lump sum, either from savings, an RRSP, a RRIF or a pension. Payment amounts are based on your age, the interest rates at the time and the options you pick.
- 3
Receive guaranteed payments
The insurance company sends you the same payment every month, quarter or year. Market ups and downs do not change your income.
- 4
Protect your loved ones
With a joint and survivor option or a guarantee period, payments can continue to your spouse or beneficiaries after you pass away.
Key benefits
Income for life
A life annuity keeps paying for as long as you live, even if you reach 100, so you never run out of money.
No market worries
Your payments are set when you buy the annuity and do not go down if markets fall.
Simple to manage
There are no investment decisions to make and no withdrawals to plan. The payment simply arrives on schedule.
Spousal protection
A joint and survivor annuity keeps income flowing to your spouse after your death, at the full amount or a reduced amount you choose.
Tax-efficient options
Non-registered annuities can use prescribed taxation, which spreads the taxable interest evenly over the years and can lower your tax in the early years.
Probate savings
When you name a beneficiary, any remaining guaranteed payments or lump sum can go directly to them instead of through your estate.
Who it’s for
You and your spouse rely on your savings, and you worry about the surviving partner having enough income.
Why it fits: A joint and survivor annuity keeps paying for as long as either of you is alive, giving both of you peace of mind.
You turned 71, converted your RRSP to a RRIF, and you are tired of watching your balance move with the markets.
Why it fits: Using part of your RRIF or RRSP to buy a registered annuity locks in guaranteed income and removes the need to manage investments.
Pros & cons
Pros
- Guaranteed income that does not depend on the markets
- Can provide income for your whole life
- Options to protect a spouse or beneficiaries
- No ongoing investment decisions
Things to consider
- Once purchased, your money is usually locked in and cannot be cashed out
- Fixed payments may lose buying power to inflation unless you add indexing
- Payout rates depend on interest rates at the time you buy
How it compares
| Annuity compared with a RRIF and a GIC | Annuity | RRIF | GIC |
|---|---|---|---|
| Income guarantee | Guaranteed for life or a set term | Not guaranteed; depends on investments | Guaranteed interest for the term only |
| Market risk | None | Yes if invested in markets | None |
| Access to your money | Usually none after purchase | Flexible withdrawals above the minimum | Locked until maturity in most cases |
| Risk of running out | None with a life annuity | Possible if you live a long time | Possible once savings are spent |
| Best for | Covering essential costs with certainty | Flexibility and growth potential | Short-term safe savings |
Run the numbers
Annuity payoutEstimate the guaranteed monthly income a lump sum could provide.Frequently asked questions
What is the difference between a life annuity and a term-certain annuity?
A life annuity pays you for as long as you live. A term-certain annuity pays for a fixed number of years, such as 10 or 20, or to a certain age, and then stops. If you pass away before the term ends, the remaining payments go to your beneficiary.
What is a guarantee period?
A guarantee period, such as 10 or 15 years, makes sure payments continue for at least that long. If you die before it ends, your beneficiary receives the remaining payments or their value. It lowers your payment slightly but protects your family.
How are annuity payments taxed?
Payments from a registered annuity bought with RRSP or RRIF money are fully taxable as income. For a non-registered annuity, only the interest portion is taxed. A prescribed annuity spreads that interest evenly over the payments, which often means less tax in the early years.
What is a deferred annuity?
With a deferred annuity, you buy now but payments start later, for example at age 70 or 75. This can lock in future income and act as insurance against outliving your savings.
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