An annuity converts your savings into guaranteed income you can't outlive. Here's how they work, what they pay, and when they make sense for Canadian retirees.
An annuity is the closest thing most Canadians can get to buying their own private pension.
An annuity is a contract with a life insurance company. You hand them a lump sum of money; they promise to pay you a fixed income for the rest of your life (or a set period). The key appeal is simple: you cannot outlive it.
This is the longevity problem that haunts retirement planning. If you live to 95 — increasingly common — a RRIF portfolio that seemed comfortable at 65 can run dry. An annuity eliminates that risk by transferring it to the insurance company.
In exchange for that guarantee, you give up flexibility. Once you buy an annuity, the money is gone — it belongs to the insurer. There's typically no cashing out, no estate value (unless you added a guarantee period), and no investment growth beyond what the fixed payments represent. It's a deliberate trade-off: security over flexibility.
The insurance pooling concept: Annuities work because insurance companies pool longevity risk across thousands of customers. People who die early subsidize payments to those who live longer. This is why annuity payments are often better than what you'd generate withdrawing from a portfolio at a "safe" rate — the pooling mechanism lets you draw down capital without worrying about outliving it.
Canadian annuities come in several varieties. The right type depends on your tax situation, risk tolerance, and estate goals.
Pays a fixed income until you die, no matter how long you live. Can include a guarantee period (e.g., 10 or 15 years) — if you die within the guarantee period, payments continue to your estate or beneficiary. Without a guarantee period, all payments stop at death. Higher payout without guarantee; lower payout with guarantee.
Pays for a fixed number of years — say, 10 or 20 years — regardless of when you die. If you die before the term ends, your estate continues receiving payments. No longevity protection after the term ends. Useful for specific income gaps (e.g., bridging to CPP/OAS).
Purchased with non-registered funds. The income is taxed favourably: rather than having large taxable components early (as with regular annuities), the taxable income is "leveled" throughout the annuity term. This produces a lower average effective tax rate — a meaningful advantage for non-registered savings.
Purchased with RRSP or RRIF funds. All payments are 100% taxable as regular income (same as RRIF withdrawals). No special tax treatment — but allows you to convert registered savings into guaranteed income rather than managing a RRIF portfolio. A common choice at RRSP maturity (age 71).
There are also joint and survivor annuities — designed for couples, paying income as long as either spouse is alive (sometimes at a reduced rate after the first death). These are important for couples where one person has significantly higher longevity risk or fewer other guaranteed income sources.
Annuity rates improve when interest rates are higher — making 2026 a better environment than the near-zero years of 2020–2021.
Annuity rates are closely tied to long-term Government of Canada bond yields. After significant rate increases in 2022–2024, rates declined modestly in 2024–2025 — but remain meaningfully higher than the rock-bottom environment of 2020–2021, when annuity rates hit historical lows.
As a rough benchmark for 2026, a 70-year-old male purchasing a life annuity with no guarantee period can typically receive approximately $600–$650 per month per $100,000 invested. A 70-year-old female would receive somewhat less (roughly $560–$620/month) due to longer average life expectancy. Joint annuities for couples pay less than single-life annuities.
Adding a guarantee period (e.g., 10 years) reduces the monthly payout by approximately 3–7%, depending on age and insurer.
Rates vary significantly between insurers and change frequently. The numbers above are illustrative estimates. Always compare quotes from multiple insurers through an independent broker before purchasing. A difference of $30–50/month may seem small, but over a 20-year retirement, it adds up to $7,200–$12,000. Get at least three quotes.
| Age at Purchase | Monthly Income (per $100,000) | Annual Income | Break-even Age* |
|---|---|---|---|
| 65 (male) | ~$510–$560/month | ~$6,120–$6,720 | ~82 |
| 70 (male) | ~$600–$650/month | ~$7,200–$7,800 | ~83 |
| 75 (male) | ~$720–$780/month | ~$8,640–$9,360 | ~84 |
| 70 (female) | ~$560–$610/month | ~$6,720–$7,320 | ~85 |
*Break-even age is roughly when cumulative annuity payments equal the original lump sum. After break-even, you're "in profit" on the longevity bet. Rates are illustrative for 2026 and will change.
The two main ways to convert registered retirement savings into income — both have real merits depending on your situation.
For more detail on RRIF mechanics, see our RRIF withdrawal guide. Many retirees end up using a hybrid approach — keeping a RRIF for flexibility and emergency access while using an annuity to cover baseline living expenses (rent/mortgage, groceries, utilities) alongside CPP and OAS.
Annuities make more sense for some retirees than others. Here's who benefits most.
See our guide on CPP/OAS bridge strategies for how annuities can fit into a broader retirement income plan, and our DB pension vs RRSP guide for context on guaranteed vs. self-managed income.
The partial annuity approach: You don't have to annuitize everything. Many financial planners recommend "flooring" — buying just enough annuity income (combined with CPP and OAS) to cover essential expenses, while keeping a RRIF for discretionary spending and emergencies. This balances security and flexibility.
Annuities are sold by licensed life insurance companies. The rates vary enough that shopping around genuinely matters.
The major life insurance companies offering payout annuities in Canada include:
The practical advice: don't buy directly from your bank's annuity product without comparing. Rates vary by 5–15% between insurers for the same product. Use an independent life insurance broker who can request quotes from multiple companies simultaneously — at no additional cost to you (brokers are paid by the insurer).
Annuities are irreversible. Once you purchase and the free-look period has passed (typically 10 days), you generally cannot cancel or change the annuity. Make sure you understand exactly what you're buying before signing. Consider speaking with a fee-only financial planner for an independent second opinion on whether an annuity is right for your situation.
For context on the broader retirement income picture, see our pre-retirement investing strategy guide for how to approach the transition from saving to spending.
Bottom line: Annuities are a legitimate, underused tool in Canadian retirement planning. In an era of adequate interest rates and real longevity risk, converting a portion of registered savings into guaranteed lifetime income deserves serious consideration — especially for retirees without a defined benefit pension. Get multiple quotes, understand the trade-offs, and don't let the irreversibility scare you away from a decision that could provide decades of financial peace of mind.
Annuities are one piece of the puzzle. Learn how RRIF withdrawals and CPP/OAS fit into a complete retirement income strategy.
RRIF Withdrawal Guide → CPP & OAS Strategy →This article is for educational purposes only and does not constitute financial, insurance, or investment advice. Annuity rates change frequently and vary between insurers. The figures quoted are illustrative estimates for 2026. Consult a licensed insurance broker and/or fee-only financial planner before purchasing an annuity. Annuities are regulated insurance products; ensure your insurer is a member of Assuris (Canada's life insurance consumer protection organization).