Can I change my mind after buying an annuity?

Generally no. Once past any short rescission period, an annuity purchase is irreversible: the lump sum is permanently converted to income. That is not a design flaw, it is what funds the guarantee. It is also the strongest argument for annuitizing only part of your savings and keeping the rest liquid.

How are annuity payments taxed?

It depends on the source of the money. Annuities bought with RRSP, RRIF, or LIRA funds pay fully taxable income, like any registered withdrawal. Annuities bought with non-registered money are taxed only on the interest portion, and a prescribed annuity spreads that interest evenly across all payments, keeping the taxable slice of each cheque small. From 65, annuity income also qualifies as eligible pension income for the pension credit and income splitting.

What happens to my annuity when I die?

A pure life annuity stops, full stop. That is why most buyers add features: a joint-and-survivor annuity continues paying your spouse for life, and a guarantee period ensures a minimum number of years of payments to your beneficiaries if you die early. Each feature lowers the monthly income, so buy the protection you need and no more.

Should I put all my retirement savings into an annuity?

Almost never. Full annuitization sacrifices all flexibility and estate value. The common-sense approach is a floor: guarantee your fixed expenses with the annuity plus government benefits, and leave the rest invested in a RRIF. Before buying any commercial annuity, also check whether deferring CPP or QPP would buy you more guaranteed income per dollar, because it usually does.

Annuity

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Quick definition

An annuity is a contract with a life insurance company: you hand over a lump sum, and the insurer pays you a guaranteed income, usually for life. It is the do-it-yourself version of a defined benefit pension, bought with your own savings.

Buying yourself a pension

Most Canadians without a defined benefit pension face the same retirement problem: turning a pile of savings into income that cannot run out. An annuity solves it directly. You give a life insurer a lump sum, and in exchange the insurer promises a fixed monthly payment, typically for as long as you live. Market crashes, low returns, living to 103: none of it changes your cheque.

The insurer can make that promise because it pools thousands of annuitants. Those who die early subsidize those who live long, which is why an annuity pays more per dollar than you could safely withdraw on your own. The trade is stark and irreversible: once bought, the capital is gone, converted permanently into income. Think of it as topping up CPP: another layer of guaranteed lifetime income, except you set the size.

The main types

The core choice is what the payments cover and for how long.

Common annuity types
Type	Pays until	Best for
Life annuity	Your death	Maximum income per dollar for a single person
Joint-and-survivor	The second spouse's death (often at 60% to 100% of the original amount)	Couples; the common default choice
Term-certain	A fixed number of years, regardless of survival	Bridging a defined gap, such as until a pension starts
With a guarantee period	Your death, but a minimum number of years (often 10) is paid even if you die early	Protecting against the sting of dying soon after buying

What sets your quote

Annuity pricing is bespoke. The same $200,000 buys different incomes for different people, driven by a handful of factors: your age (older buyers get more per month, because the insurer expects to pay for fewer years), your sex (women live longer on average, so receive slightly less per month), interest rates at purchase (the insurer funds your payments largely with bonds, so higher rates mean richer quotes), and the features you add, since every guarantee period, survivor percentage, or indexing rider is paid for with a lower starting income.

Rates matter more than people expect. When interest rates rose sharply in 2022 and 2023, annuity payouts jumped with them, and annuities went from an afterthought to a genuinely competitive option almost overnight. Indexed annuities, which increase payments with inflation, exist but cost noticeably more, which is why most Canadian annuities are sold without indexing. Quotes vary meaningfully between insurers, so always compare several.

Registered money, and the prescribed annuity trick

Where the lump sum comes from decides the tax treatment. Buying an annuity with RRSP or RRIF money keeps the tax deferral intact: nothing is taxed at purchase, and each payment is fully taxable as income when received, just like a RRIF withdrawal. A LIRA can also buy a life annuity, which is one of the two standard exits from locked-in money. An annuity is in fact one of the three permitted fates of an RRSP by the end of the year you turn 71, alongside converting to a RRIF and cashing out.

Non-registered money gets its own niche advantage: the prescribed annuity. Normally, interest income is front-loaded in the early years of a contract. A prescribed annuity instead spreads the taxable interest evenly over the whole payment schedule, so each payment is a level blend of taxable interest and untaxed return of your own capital. The result is a surprisingly small taxable slice of each cheque, which makes prescribed annuities one of the more tax-efficient income sources available to retirees with non-registered savings.

RRIF or annuity? Usually some of both

The classic retirement income debate pits the annuity against the RRIF. The annuity is longevity insurance: guaranteed income for life, no management, no market risk, but also no flexibility, and nothing left for the estate beyond any guarantee period. The RRIF is control: you choose the investments and the withdrawals (above the minimum), and whatever remains passes to your heirs, but you carry both market risk and the risk of outliving the money.

Framed as either-or, the debate is unwinnable, because the two products insure opposite risks. The pragmatic answer for many retirees is a partial annuity floor: annuitize enough to cover fixed essential expenses (housing, groceries, insurance) once combined with CPP or QPP and OAS, and keep the rest in a RRIF for flexibility, growth, and the estate. With the floor in place, a bad market year threatens your travel budget, not your grocery bill.

What if the insurer fails? Assuris protection

A lifetime promise is only as good as the company making it, so Canada backstops it. Assuris, the not-for-profit that protects Canadian life insurance policyholders, guarantees that if your insurer fails, your annuity income continues at up to $5,000 per month or 90% of the promised income, whichever is higher (as of July 2026). Retirees placing very large amounts sometimes split them across two or more insurers so each contract sits more comfortably within the protection.

In Canada

Annuities spent the 2010s out of fashion in Canada: with interest rates near zero, payouts looked meagre and retirees preferred to stay invested. The rate surge of 2022 and 2023 changed the math, and quotes remain far better than a decade ago (as of July 2026). Meanwhile, the decline of defined benefit pensions in the private sector means more Canadians arrive at retirement holding only account balances, which is precisely the problem the annuity was built to solve.

Canadians also hold a cheaper form of annuity purchase that is often overlooked: deferring CPP, QPP, or OAS. Each month of deferral buys more guaranteed, inflation-indexed lifetime income at rates no insurer matches. Many planners suggest exhausting that option before shopping for a commercial annuity.

Worked example

Pierre, 70, has $500,000 in his RRIF, plus QPP and OAS totalling $2,300 per month. His essential expenses run $3,600 per month, leaving a $1,300 gap that market swings make him nervous about. He uses $200,000 of his RRIF to buy a life annuity with a 10-year guarantee, which at his age pays roughly $1,300 to $1,400 per month for life (approximate; quotes vary with rates, sex, and features, as of July 2026).

His essentials are now covered by guaranteed income no matter what markets do or how long he lives. The remaining $300,000 stays in his RRIF for discretionary spending, emergencies, and his children's inheritance. If he dies within 10 years, the guarantee period pays the remaining guaranteed payments to his beneficiaries; after that, payments simply end with him, which is the price of the pooling that made the income so high.