Updated: April 2025  |  bremo.io financial guides

Annuities in Canada 2025 — Should You Buy One?

An annuity is a financial product that converts a lump sum of money into a guaranteed stream of income — typically for life. In Canada, annuities are sold by insurance companies and offer complete certainty about your income, but at the cost of flexibility. Understanding when they make sense is an important part of retirement planning.

How Annuities Work

You pay a single premium (lump sum) to an insurance company, and in return, they promise to pay you a fixed monthly income for a specified period or for the rest of your life. The amount you receive depends on your age, gender, the amount invested, and current interest rates.

In a higher interest rate environment, annuity payouts are more generous because insurers can earn more on the premium. This makes 2024-2025 a more favorable time for annuities than the ultra-low-rate years of the 2010s.

Types of Annuities in Canada

Life Annuity

Pays income for as long as you live. If you die early, payments stop. Some include a guarantee period (e.g., 10 years) so payments continue to your estate if you die before the period ends.

Joint and Survivor Annuity

Continues paying income to a surviving spouse after the annuitant dies, at either the same amount or a reduced percentage (e.g., 60%). Important for couples who want to ensure neither partner outlives their income.

Term-Certain Annuity

Pays income for a fixed period (e.g., 10 or 20 years), regardless of whether you are alive. If you die before the term ends, payments continue to your estate. Not a true longevity product — more of a fixed-income substitute.

Prescribed Annuity

A tax-efficient type of annuity for non-registered (after-tax) money. Each payment consists of partly return of capital (non-taxable) and partly interest (taxable), and the ratio is fixed for the life of the annuity, creating consistent tax treatment.

Registered vs. Non-Registered Annuities

Annuities can be purchased with RRSP, RRIF, or LIRA funds (registered annuity) or with non-registered money (prescribed annuity). For registered annuities, the full payment is taxable income. For prescribed annuities, only the interest portion is taxable.

Pros of Annuities

• Guaranteed income for life — eliminates longevity risk
• Simple and low maintenance — no investment decisions required
• May be tax-efficient (prescribed annuities)
• Provides peace of mind, especially for conservative retirees
• Attractive in high-interest-rate environments

Cons of Annuities

• Irrevocable — once purchased, you cannot access the lump sum
• No inflation protection (unless you pay for an indexed annuity, which costs more)
• If you die early, the insurance company keeps the remaining premium
• Not ideal if you have significant assets to leave as inheritance
• Payouts are sensitive to timing — poor returns in low-interest periods

Who Should Consider an Annuity?

• Seniors with no defined benefit pension who need guaranteed income
• Those who fear outliving their savings
• Retirees who find investment management stressful
• People with significant RRIF balances who want to reduce mandatory withdrawal complexity

Advanced Life Deferred Annuity (ALDA)

Since 2020, Canadians can purchase an Advanced Life Deferred Annuity (ALDA) using up to 25% of their RRIF, RRSP, or pension funds (to a lifetime maximum of $160,000 indexed to inflation). Payments don't start until age 85, protecting against extreme longevity. Premiums paid into an ALDA are excluded from RRIF minimum calculations.