Annuities vs RRIFs

This page compares two types of retirement income plans, registered life annuity and Registered Retirement Income Fund [RRIF]. A registered life annuity can only be purchased through a licensed life insurance person representing a Canadian Life Insurance Company, while a RRIF can be purchased through either an insurance company or a bank. The annuity can be purchased with a lump sum of registered money from one or more of existing registered retirement savings plans [RRSPs], registered pension plans [RPPs] or registered retirement income plans [RRIFs].

The latest you can use RRSP money to purchase a registered life annuity is by the end of the year in which you become age 71 with first annuity payout starting in January of the year in which you become age 72. You must receive a full year of annuity payments in the year that you become age 72 with regular payments being paid to you for the rest of your life. You are not restricted from first rolling some or all of your RRSP investments into a RRIF by the end of the year in which you become age 71 and then sometime later, using part or all of what is left in your RRIF investment to purchase a registered life annuity. You are allowed to have both RRIFs and registered annuities at the same time.

A RRIF is a registered payout plan that you can establish with almost any financial institution such as a life insurance company or a bank. You can simply walk into any bank to arrange a RRIF. You may transfer investment assets to the financial institution for this RRIF from one or more of your existing RRSPs. The financial institution you choose, subsequently liquidates sufficient assets each year from this RRIF to make payments to you according to a minimum withdrawal government legislated schedule. According to this schedule, you must take at least minimum annual withdrawals, but if you prefer, you can take as much as you want. It’s your money and you can deplete it as fast as you want. It is necessary to choose and manage investments for this RRIF, whether it is with an insurance company or a bank. You must continue to pay attention to any investments in your RRIF to make certain that these investments will continue to provide growth and income for the duration of your retirement years.

You can start a RRIF at anytime, but you must start it no later than the end of the year in which you turn 71 years old. Once a RRIF is started there can be no more contributions made to the plan nor can the plan be terminated except through transfer to another RRIF, transfer to an annuity or your death.

Which is better for you at this time in your life?

The tables below briefly summarize a few factors you might want to consider when making your decision between an annuity or a RRIF.

 

Life Annuities RRIFs
You can spend every income payment without worry because the same paycheque is guaranteed for your lifetime and will never expire while you are still alive. RRIFs withdrawals continually draw down capital even with minimum legislated withdrawals, so paycheques become smaller and often expire before or around your age 90.
You can have more than one life annuity at one or more life insurance companies. You can have more than one RRIF at one or more banks or life insurance companies.
You cannot take lump sum withdrawals from your annuity. Annuity paycheques remain level for your lifetime unless you have initially requested indexing of your annuity income of up to 5% per annum. You can make lump sum withdrawals from your RRIF at any time. The result of such action is that your RRIF paycheques will become smaller as your capital depleates.
Neither you or your spouse are required to make any investment or management decisions. The single or joint life annuity paycheque you have chosen while you still have all your faculties is payable for your lifetime. You need to monitor the investments which are in your RRIF[s], whether your RRIF[s] is/are with a bank or an insurance company. Consider that you may have to make investment decisions in your declining years when complicated financial decisions may not be as easy to make.