Annuity vs RRIF: Which Pays a Retiree Better, and When a Life Annuity Makes Sense

A RRIF keeps your savings invested and lets you withdraw flexibly above a yearly minimum, but the money can run out. A life annuity turns a lump sum into a guaranteed income for life from an insurance company, but once bought it usually can't be changed or cashed in. Both can be funded from an RRSP, and from 65 both count as eligible pension income for the pension income amount and pension splitting (Canada Revenue Agency, checked October 2026).

Maybe your parent worries about outliving their savings, or the markets keep them up at night. Or the RRIF is shrinking faster than expected now that care is costing more each month. An annuity can take that worry off the table, at the price of flexibility. For many retirees the best answer is some of each.

What's the difference between an annuity and a RRIF?

See our RRIF minimum withdrawal guide for the RRIF rules.

Our take: For a parent who is healthy, worried about money and has no workplace pension, using part of the RRIF to buy an annuity that covers the basic bills is often the calmest choice. Keep the rest in the RRIF and a TFSA for care costs and emergencies.

How do annuity rates work?

The income you get for each $100,000 depends mostly on:

• Age when you buy: the older you are, the higher the payments, because they're expected to last fewer years.
• Interest rates at the time: the rate is locked in on the day you buy, so buying when rates are higher pays more for life.
• Options you choose: a guarantee period, a joint annuity or inflation indexing all lower the starting payment.

Rates change often and differ between insurers, so a quote is only good for a short time. Some retirees buy in stages, a portion every few years, to spread out the interest-rate risk.

What annuity options can you choose?

• Single life: highest payment; stops at death.
• Joint and survivor: pays as long as either spouse lives, sometimes at a reduced amount after the first death.
• Guarantee period (for example 10 years): if you die early, payments continue to your beneficiary until the period ends.
• Indexed: payments rise each year with inflation or a set percentage; the starting amount is lower.
• Term-certain: pays for a set number of years or to a set age, not for life.

How is annuity income taxed?

An annuity bought with RRSP or RRIF money is fully taxable as it's paid. From 65 it qualifies for the $2,000 pension income amount and for pension income splitting with a spouse. An annuity bought with non-registered savings is taxed more lightly, since part of each payment is a return of your own capital.

When does an annuity make sense, and when doesn't it?

Often a good fit: a healthy parent in their 70s, long-lived family, no workplace pension, and anxious about markets or about running out.

Usually not: a parent in poor health (the payments may stop soon), someone who needs a large sum soon for a retirement home deposit or care, or someone whose CPP, OAS and pension already cover the basics.

Before buying, make sure there's a power of attorney in place and that the family understands the decision is permanent.