Annuity Canada: Retirement Income Guide 2025

How annuities provide guaranteed lifetime income in Canada — payout rates, types, pros and cons, and when to consider one.

What Is an Annuity?

An annuity is a financial contract with an insurance company: you hand over a lump sum of capital, and in exchange the insurer provides guaranteed monthly payments for the rest of your life (or for a fixed term). Annuities are the only financial product that can guarantee you will not outlive your money.

In Canada, annuities are sold by life insurance companies and are regulated provincially. They are particularly attractive when interest rates are high, as payout rates rise with bond yields.

Annuity Payout Rates in Canada (2024–2025)

With interest rates elevated compared to the 2010s, annuity payouts in 2024–2025 are among the most attractive in 15 years. A 65-year-old purchasing a life annuity can expect approximately:

Purchase Amount	Monthly Income (approx.)	Annual Payout Rate
$100,000	~$500–$540/month	~6.0–6.5%
$250,000	~$1,250–$1,350/month	~6.0–6.5%
$500,000	~$2,500–$2,700/month	~6.0–6.5%

Joint-life annuities (covering both spouses) pay slightly less — typically 10–15% lower — in exchange for guaranteeing payments until both partners have passed away.

Types of Annuities Available in Canada

• Life annuity: Payments for life only; highest payout but no residual value at death
• Life annuity with guarantee period: Payments continue to estate if you die within the guarantee (e.g., 10 years)
• Joint-life annuity: Continues to surviving spouse after first death
• Term-certain annuity: Fixed payment for a set number of years (not life-contingent)
• Indexed annuity: Payments increase annually (e.g., 2%/year); lower initial payout, better long-term

Prescribed Annuities: The Tax Advantage

A "prescribed annuity" purchased with non-registered (after-tax) money receives favourable tax treatment: instead of being taxed as fully taxable income, each payment is treated as a blend of capital return and interest, dramatically reducing the taxable portion — especially in the early years.

RRSP/RRIF Annuity: Registered Funds

You can purchase an annuity directly from your RRSP or RRIF at any age. The full payment is taxable as ordinary income (since the RRSP funds have not yet been taxed). This is a legitimate alternative to converting to a RRIF, particularly for those who prefer guaranteed income over managing investments.

When an Annuity Makes Sense

• You are worried about outliving your savings
• You dislike investment risk and market volatility
• You want predictable income alongside CPP and OAS
• Interest rates are high (making annuity payouts more attractive)
• You have health conditions that suggest average or shorter life expectancy (annuities become less attractive)