An annuity is a contract with a life insurance company: you give them a lump sum today and they guarantee you income for life (or a fixed period). For decades, annuities were often dismissed as poor value compared to self-managed portfolios. But with higher interest rates, annuities have become more competitive — and for many Canadians, they solve a specific and serious retirement risk: outliving your money.
Pays income for as long as you live. Payments stop at death — there is no residual value unless a guarantee period is included. This is the purest form of longevity insurance.
Pays income for life, but guarantees a minimum number of payments (e.g., 10 or 15 years). If you die before the guarantee period ends, your estate or beneficiary receives the remaining guaranteed payments. Most common choice among Canadian retirees.
Covers two lives — typically spouses. Payments continue until both have died, often at a reduced rate (e.g., 60–75% of the original payment) after the first death. Provides income security for surviving spouses.
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, remaining payments go to your estate. Does not provide longevity insurance — the payments stop at the term end.
When purchased with non-registered funds, a prescribed annuity provides a level taxable income throughout the life of the contract. Only a portion of each payment is taxable (the interest element), with the rest being a tax-free return of capital. This improves after-tax income compared to a life annuity purchased with RRSP/RRIF funds (where the full amount is taxable).
| Feature | Registered (RRSP/RRIF funds) | Non-Registered (Prescribed) |
|---|---|---|
| Full payment taxable? | Yes | No — partial return of capital |
| Source of funds | RRSP/RRIF | Non-registered savings |
| Pension income credit | Yes (65+) | Yes (65+) |
| Pension income splitting | Yes (65+) | Yes (65+) |
Many financial planners suggest a blend: keep a RRIF for flexibility and growth potential, and use a portion of savings (perhaps 25–40%) to purchase a life annuity that, combined with CPP and OAS, covers your essential monthly expenses. This ensures your fixed costs are covered by guaranteed income while preserving a RRIF (and TFSA) for discretionary spending, emergencies, and estate goals.
Annuities from Canadian life insurers are protected by Assuris, a non-profit industry organization. If your insurer fails, Assuris guarantees up to $2,000/month in annuity income (or 85% of the promised monthly benefit, whichever is higher). For large annuities, consider spreading the purchase across multiple insurers.
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Open KOHO Free — Code 45ET55JSYAAnnuity rates vary significantly between insurers — shop widely. Use a licensed insurance broker or advisor who can access quotes from multiple insurers. Key variables to compare: monthly payment amount, guarantee period, indexing (inflation protection, if offered), joint-and-survivor reduction percentage, and refund-on-death provisions. Always get a formal quotation from at least three different insurers before purchasing.