Canada | Personal Finance

How an annuity can help balance your retirement portfolio

For retirees who are looking for predictability and dependability, annuities can be part of the solution. Here’s how they work.

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senior couple using laptop to examine their finances togetherAnnuity payments are set when you sign the contract and depend on many factors, including your age, gender and the length of the term (Getty Images/10,000)

When it comes time to convert their RRSPs, most people choose Registered Retirement Income Funds (RRIFs). Popular as they are, however, they’re not for everyone. An annuity has some attractive features compared to an RRIF.


With an annuity, you provide a lump sum of money to an insurer who then provides regular payments for the term of the annuity. The lump sum can come from your RRSP, RRIF, TFSA or a non-registered account.

There are different kinds of annuities. As Faisal Butt, an adviser at Edward Jones, explains, some run for a fixed period, while others provide payments for your lifetime—and in some cases a portion of the payments or even the full amount can continue to your spouse if you die during that predetermined period. 


Annuity payments are set when you sign the contract and depend on many factors, including your age, gender and the length of the term (the longer the term, the lower the payments, if all other factors are equal). Prevailing interest rates also play a major role.

“If they are high when you buy the annuity, your payments will be higher than they would be if rates were low,” says Butt. “And the payments don’t change for the duration.” 

Once payments have started with an annuity, it’s very difficult to make changes in most situations. But even though you cannot control your investment mix as you would with an RRIF, you gain predictability and dependability, says Michael Deepwell, CPA, CA, principal at Lamp Financial. 

“With an annuity, you receive a guaranteed level of income,” he says. “If that is more important to you than retaining control over your investments, then an annuity is a great choice compared to the risk of outliving your money.”   


He adds, however, that it’s not an either-or choice: “You can convert a portion of your RRSP or RRIF to an annuity,” he says. “Think of it as creating your own pension payment. In addition to your other guaranteed income streams (government benefits and an employer defined benefit plans, for example), an annuity can provide for your expected lifestyle costs. You can manage the remaining RRSP/RRIF funds yourself.”

As always, make sure to discuss your options with your financial adviser and tax accountant before making any decisions.


CPA Canada has a full suite of resources that can help with retirement planning, including Understanding RRSPs and TFSAs and The Procrastinator’s Guide to Retirement. To plan a financial literacy session in your community, see Planning for retirement