Annuities in Canada: Turning Savings Into Guaranteed Income

You've been paying into an RRSP your whole working life, and nobody ever explains how to turn it back into something that arrives every month. An annuity is one of the ways. You hand a life insurance company a lump sum, and it pays you a fixed amount every month for as long as you live. You give up the money and any say over how it's invested. In exchange, the payment keeps coming whether you live another ten years or another thirty, and you can't get that guarantee from money you manage yourself. Most people who buy one cover the bills they can't skip, and leave the rest invested.

Key takeaways

• There are two kinds. One runs for a set number of years. The other keeps paying until you pass away, however long that takes.
• Once you've signed, you can't switch to a different type and you can't ask for your money back.
• If you buy with RRSP money, every dollar you're paid is taxable. From 65 it also counts as pension income, so you can claim the pension income amount, up to $2,000, and move up to half of it onto your spouse's return.
• If your insurance company fails, you keep $5,000 a month or 90% of what you were promised, whichever is higher.

Where the money in each cheque comes from

Every payment you get is built from three things. Part of it is interest your money earned while the company held it. Part of it is the lump sum you paid in, coming back a piece at a time. And part of it comes from the other people in the pool, because the annuity holders who pass away early never collect what they paid in, and that money goes to the ones who live longer.¹

That third piece is why a life annuity can pay you more than you'd dare take out of the same money yourself. You're sharing the risk of a long life with thousands of strangers you'll never meet. You're being paid for it. Written down it sounds grim. In practice it's how a company can promise you an income without knowing how many years it will have to pay.

A guaranteed investment certificate, or GIC, pays you until it matures. Your own portfolio pays you until you've spent it. With an annuity, the company carries the risk of how long you live.

What would $100,000 pay you?

Nobody can quote you a rate off a page. Every company prices its own annuities. The price moves with interest rates, and if you ask two providers on the same morning you'll get two different numbers for the same money.¹ The illustration worth holding in your head is $500 a month on $100,000, bought at age 65.¹ That's $6,000 a year. You'd have your whole $100,000 back by about age 82.

Age 82 is closer than it sounds. Out of 100 Canadians who make it to 65, roughly 68 are still alive at 82.² Roughly 36 are still alive at 90. If you live to 90 on that illustration you collect $150,000 for your $100,000. If you pass away at 75 you collected $60,000.

You can't know which of those you'll be. You're paying a company to carry that not-knowing for you. People who buy an annuity aren't trying to win the arithmetic. They're making sure that living to 95 never turns into a money problem.

Life, or a set number of years

You've got two kinds to choose between.³ A term-certain annuity pays you for a set number of years and then stops. A life annuity pays you until you pass away, however long that takes.

With a term-certain annuity you know exactly what you'll collect before you sign. The shorter the term, the bigger each cheque, and the less you end up with in total. On $100,000 the pattern runs like this, again as an illustration rather than a quote.¹

If your $100,000 buys	You'd get each month	And you'd collect in total
5 years of payments	$1,700	$102,000
10 years	$900	$108,000
15 years	$650	$117,000
20 years	$500	$120,000

One rule limits what you can pick. Say you're buying with money from a registered retirement savings plan, your RRSP, or from a registered retirement income fund, a RRIF. Your term-certain annuity then has to run to age 90.³ You can't pull $100,000 out at 71 and buy ten years of large payments instead. You don't choose the term. Your age sets it.

A life annuity works differently. Your payments usually stop when you pass away, and nothing goes to your estate.³ If you buy at 65 and pass away at 68, the company keeps what's left. Your children get nothing.

You can soften that. Every way of doing it lowers what you're paid each month.³ A guaranteed period keeps your payments going to your spouse, your beneficiary or your estate if you pass away inside it. A joint and survivor option carries them on while either you or your partner is still alive.¹ With a cashback option, your estate gets a single payment if you passed away before collecting a set amount, usually what you paid in. An indexing option lifts your payment with inflation instead of leaving it flat for twenty-five years.

How is annuity income taxed in Canada?

The account you buy it out of decides everything. If you buy with RRSP or RRIF money, every dollar you're paid is taxable income.⁴ If you buy with money you've already been taxed on, only the earnings part is taxed. You already paid tax on the rest of it.⁵

No tax is taken off when you move the money across. Your RRSP issuer doesn't withhold tax on the amount you use to purchase an annuity.⁴ You pay the tax later, on the payments as they arrive. They reach you in box 16 of a T4RSP slip, and you report them on line 12900.⁴

There's a tax break here that a plain RRSP withdrawal never qualifies for. Once you turn 65, your annuity payments count as pension income.⁶ That's worth two things to you. You can claim the pension income amount, up to $2,000 federally.⁶ Up to half of that income can also go on your spouse's or common-law partner's return instead of yours.⁷

If you take the same money out of your RRSP as a straight withdrawal, neither of those is open to you, at any age.⁶ A withdrawal is just income you owe tax on. An annuity turns the same registered savings into something the tax system treats as a pension.

If you buy before 65 you don't get the credit or the split early either, unless your payments reach you because your spouse or partner passed away.⁶

What decides how big the cheque is

Two people can hand over the same $100,000 on the same morning and be offered different amounts.¹

• Your age when you buy. The older you are when you sign, the more you're paid, because the company expects to write you fewer cheques.
• Interest rates on the day you sign. Whatever rate you can get that day is written into your contract for good, and you'll still be carrying that year in your eighties.
• Your sex. Annuities in Canada are priced on it. Women live longer on average, so a woman is quoted a smaller monthly payment on the same money.
• Your health. Some providers pay you more when your health is poor, because they expect to be paying you for fewer years.
• The kind you buy, and how long it runs. A five-year term and a twenty-year term on the same money are very different cheques, and a life annuity is different again.
• The options you add. A guaranteed period, a survivor benefit or indexing each pull down what you're paid each month.
• How much you're buying with. Many providers may ask you to put in at least $50,000.
• Who you buy from. Companies carry different costs and price differently, so the same request gets you different answers.

Two things matter before you sign. One is how the company is rated. The other is how long it's been writing annuities.³ The up-front commission or sales fee belongs on the same list, because you pay it out of the same lump sum.

Nobody can work your monthly payment out from the outside, and you can't work it out yourself. To see it you have to ask providers for a quote, and people who do this usually collect more than one in a single day, because the answers won't match.

If the insurance company goes under

You're handing a large amount of your money to one company, and trusting it to still be standing in twenty-five years, and in thirty if you live that long. That's a fair thing to lie awake about. There is protection if it happens.

Your annuity income is covered by Assuris, a not-for-profit that steps in when a life and health insurance company fails. If yours fails, you keep $5,000 a month or 90% of what you were promised, whichever is higher.⁸ Say your annuity pays $6,500 a month. You aren't cut back to $5,000. You keep $5,850, which is 90% of it. At $500 a month you're nowhere near the line, so the whole payment is covered.

If you're paid quarterly your figure is $15,000, twice a year it's $30,000, and once a year it's $60,000.⁸ You don't apply for any of this. There's no claim to file. You get the cover as long as your company is a member, and Assuris publishes the member list.⁹

One wrinkle if you take the indexing option. Assuris works out your cover on the payments you're getting on the day the company fails, and after that your payment moves with the covered amount instead of the original one.⁸

What Joanne is deciding, and what Frank is doing first

You'll probably recognize yourself in one of these two more than the other.

Joanne is 61 and single, with her last few years of teaching ahead of her. She's been putting money into an RRSP for three decades and has never once taken a dollar back out. She's weighing whether to turn $100,000 of it into a monthly payment and leave the rest invested, so her rent and her groceries get covered by something that arrives whether the market is up or down. She'll ask for a quote at 61 and one at 66 and lay them side by side, because her age is the single biggest thing moving that payment. You can watch her start on it in "The Question That Keeps Her Up," where three decades of paying in run into the problem of taking it out.

Frank is 52 and self-employed, with no pension being built for him anywhere. He isn't deciding whether to buy an annuity yet, because at 52 a company would expect to pay him for far too long to quote him anything worth having. For now he just needs to keep at least the $50,000 many providers ask for inside registered savings, so that turning some of it into a guaranteed income is still on the table at 65.

So who actually buys one?

Most people who buy an annuity aren't putting their whole retirement into it. They're buying enough guaranteed income to cover the bills that arrive every month whatever else is happening, and keeping the rest where they can still reach it.

Without a pension at work, everything past your government cheques rests on a portfolio you have to keep managing into your eighties, and people in that position buy annuities more often than anyone else. Anyone with a good defined benefit pension, the kind that pays a fixed amount every month until you pass away, tends to skip them, because their employer already bought them one. Single people land closer to buying than couples do, because there's no second income in the house if the first one runs short.

Most buyers end up somewhere in between, with a partial purchase. Enough to cover housing, food and the bills that don't care what the market did, bought at 65 or later, with the rest of their money left invested. That still doesn't tell you which one you are. You'll usually see it once you put two real quotes beside what your own money would pay you, and working out whether you have enough gives you that second figure.

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Common questions

Can I buy an annuity with my RRSP after I turn 71?+

At the end of the year you turn 71 your RRSP can't stay an RRSP. An annuity is one of your three choices, alongside transferring to a RRIF and taking the cash. That deadline's when a lot of people look at annuities for the first time.

Is an annuity better than a RRIF?+

They don't answer the same question. A RRIF keeps your money invested and it'll make you take out a minimum every year, so what you end up with depends on the market. An annuity fixes your payment and takes the market out of it, and you're giving up access to the money in exchange.

Will an annuity affect my Old Age Security?+

If you bought it with registered money, every payment is taxable income, so it lifts your income for the year. That can matter if you're close to the Old Age Security clawback.

What happens to the money if I pass away early?+

With a plain life annuity your payments stop, and there's nothing left for your estate. A guaranteed period, a joint and survivor option or a cashback option each change that, and each one lowers what you're paid every month. Where a lump sum does reach your estate under a guarantee, Assuris covers it too, up to $100,000 or 90% of it, whichever is higher.

How much money do I need to buy one?+

Many providers may ask you to put in at least $50,000. Below that you might not be able to buy an individual annuity at all, whatever else your situation looks like.

Further reading

• Pensionize Your Nest Eggby Moshe A. Milevsky and Alexandra C. Macqueen🍁 Canadian

  The Canadian book that works through turning part of your savings into a pension you cannot outlive, and what you hand over to get it.

Sources

1. FCACAnnuities: what each payment is made of, the $100,000 illustrations for life and term-certain annuities, the joint and survivor and cashback options, the minimum purchase, what the amount is priced on, and changing or cancelling a contract. Accessed 2026-09-04.
2. Statistics CanadaTable 13-10-0114-01, complete life table, 2022 to 2024: survivors at ages 65, 75, 82 and 90. Proportions derived. Accessed 2026-09-04.
3. OSCHow annuities work: term-certain and life annuities, the age 90 rule for money from an RRSP or RRIF, what a plain life annuity gives up, the guaranteed period and indexing options, up-front commissions and sales fees, and buying from a company with a high credit rating. Accessed 2026-09-04.
4. CRAReceiving income from an RRSP: the options at the end of the year you turn 71, no tax withheld on amounts used to purchase an annuity, and annuity payments in box 16 of a T4RSP reported on line 12900. Accessed 2026-09-04.
5. CRAT5 slip, box 19, accrued income from annuities: the amount reported is the earnings part of a general annuity. Accessed 2026-09-04.
6. CRALine 31400 pension income amount: up to $2,000 federally, the age 65 condition, and the list of RRSP amounts that do not qualify. Accessed 2026-09-04.
7. CRAPension income splitting: up to 50% of eligible pension income, including RRSP annuity payments where the transferring spouse or partner is 65 or older. Accessed 2026-09-04.
8. AssurisPayout annuity: protection of $5,000 a month or 90% of the promised monthly income benefit, whichever is higher; the quarterly, semi-annual and annual figures; lump sums under a guarantee period; and indexed annuities. Accessed 2026-09-04.
9. AssurisHow am I protected: cover is automatic for policies with a member life and health insurance company. Accessed 2026-09-04.

Educational, not financial advice. Figures verified against primary sources on the date shown.

The money you'd buy with is usually money you were about to move anyway, and the RRIF minimum withdrawal rules set out the alternative you'd be turning down. Your government cheques are guaranteed income you already own, so when you start your Canada Pension Plan changes how much more you'd need to buy. If a large registered annuity would lift your income, the Old Age Security clawback is worth checking against. Every other retirement guide is in the retirement hub.