Purchasing Annuities in Canada 2025: Provider Guide

1.   Menu Home › Canada Resources › Annuities in Canada: Retirement Income M… LATEST NEWS CANADA RESOURCES Annuities in Canada: Retirement Income Made Simple Annuities in Canada: Retirement Income Made Simple  by Ben Nguyen May 26, 2025, 6:21 am  258 Views What Is A Void Cheque? Why It Matters in Canada?  How To Write A Cheque In Canada? Guide in 6 Simple Steps  What is Retirement Age in Canada?  What is Adjusted Cost Base (ACB) and Why It Matters?  Body Mass Index (BMI) in Canada: Tips for Healthy Living  Annuities in Canada help you save for retirement Retirement can span decades yet research shows 60% of Canadians worry about outliving their savings. With pension plans declining and market volatility a constant threat, guaranteeing lifetime income is vital yet challenging. This is where annuities in Canada can play a pivotal role. Annuities provide the security of income that cannot run dry, no matter how long you live. Read on to learn how annuities work, weigh the pros and cons, and assess if integrating annuities into your retirement plan can help maximize certainty while avoiding the angst of unknown longevity. What Are Annuities? An annuity is a financial product offered by insurance companies that provides guaranteed income for a set period or for life in exchange for a lump-sum payment or a series of payments. Annuities allow you to convert your retirement savings into a predictable stream of income.

2. This can provide retirees with financial security, knowing they will receive steady payments regardless of market conditions and for as long as they need them. How Do Annuities in Canada Work? You purchase an annuity contract from an insurance company by paying a lump-sum premium or regular premium payments. In return, the insurer provides scheduled payments on a monthly, quarterly, semi-annual, or annual basis. Payments can cover a specific term or last your entire lifetime. Lifetime annuity payments continue until death, even if this extends past life expectancy. Annuities have two main phases: Accumulation Phase This is the period when you contribute premiums or a lump-sum payment to purchase the annuity product. You fund the annuity by making either: One lump-sum payment from your savings Smaller payments over time leading up to retirement Annuitization Phase This begins when the insurance company starts making regular income payments to you based on the details of your annuity contract. Annuity income payments can be made monthly, quarterly, semi-annually, or annually. Once the annuitization phase starts, the insurance company will make regular payments to you for a fixed period or for life. These payments are generated from the funds you contributed, as well as potential investment growth in the case of deferred annuities. Common Sources of Funds for Purchasing Annuities

3. You can buy annuities in Canada through insurance companies There are six typical sources that individuals draw from when purchasing an annuity: Registered Retirement Savings Many use funds from Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Funds (RRIFs) to buy an annuity. These tax-deferred savings vehicles are designed to provide funds for retirement income. Non-Registered Investments Individuals may also use proceeds from non-registered investment accounts held outside RRSPs/RRIFs to purchase annuities. These could include stocks, bonds, mutual funds, and bank deposits. Sale of Business or Property Some annuity buyers may fund the purchase by selling a business, commercial real estate, or other valuable property before or upon retirement. Inheritance Receiving an inheritance of cash, investments, or property could provide a lump-sum windfall that facilitates the purchase of an annuity. Pension Lump-Sum Some pensions allow retirees to take the commuted value of their pension as a one-time lump-sum payment. This cash could be directed into an annuity. Maturing Investments GICs, bonds, and other maturing fixed-income investments leading up to retirement provide set amounts of cash that could be used to buy an annuity. What Are the Main Types of Annuities in Canada? There are three main types of annuities to suit different financial situations and needs: Life Annuity A life annuity guarantees income for as long as you live. Payments continue until death, providing protected income you cannot outlive. However, life annuity payments generally cease upon death, so no funds go to beneficiaries. This income protection comes at the cost of not leaving an inheritance. Term Certain Annuity A term certain annuity pays income for a set period you select, such as 10 or 20 years. This allows your beneficiaries to receive any remaining income if you pass away before the term ends.

4. The tradeoff is term certain annuities have lower payment amounts than comparable life annuities. Variable Annuity A variable annuity invests the contributed funds into underlying investments with variable returns, such as equities. The income payments fluctuate based on the performance of the investments. Payments may be higher if investments do well, but lower if they underperform Comparison of the Three Primary Annuity Types Here’s how the key features of the three main annuity types compare: Feature Life Term Certain Annuity Variable Annuity Annuity Payment Duration Lifetime Fixed term period Lifetime Payments Guaranteed for Yes No No Life? Payments Continue to No Yes, if the annuitant dies No Beneficiaries? before term ends Payment Amounts Fixed Fixed Fluctuates Growth Potential None None Yes, based on investments Income Stability Very Very stable Can fluctuate stable Access to Remaining None Beneficiaries if the annuitant None Value dies pre-term What Are the Benefits of Annuities? Annuities can play an important role in a retirement plan by offering valuable benefits, including: Guaranteed Income For Life Annuities provide lifelong income you cannot outlive. This protects against the serious risk of depleting your savings while still alive – annuities ensure you have income no matter how long you live. Immunity from Market Volatility Fixed annuity payments are preset and guaranteed. This provides retirement income stability since payments will not fluctuate due to economic downturns or markets dropping. Tax-Deferred Growth

5. Earnings on deferred annuities grow tax-deferred until payments start. This allows faster accumulation compared to taxable accounts. Mimics a Pension For retirees without an employer pension, buying an annuity allows them to create their own personalized pension-like income stream. Death Benefit Options While many annuities end payments upon death, certain types allow you to guarantee income for surviving spouses or beneficiaries for a term. Peace of Mind The guarantee of predictable lifetime income can provide comfort, financial security, and peace of mind for risk-averse retirees. What Are the Drawbacks of Annuities? Despite their benefits, annuities also come with some important limitations to consider: Illiquidity Funds used to purchase annuities are locked in and typically cannot be accessed for emergencies or large upcoming expenses. Accessing funds usually involves steep penalties. No Inheritance Many annuities cease payments upon the annuitant’s death. Unless specific options are selected, an annuity does not leave beneficiaries any inheritance. Lower Returns The guaranteed income provided by annuities generally comes at the cost of lower returns than directly investing in securities. Upside potential is limited. High Fees Annuities can come with high management fees, commissions, and early withdrawal penalties. These embedded costs lower net returns. Limited Flexibility Once purchased, annuity contracts offer little ability to change terms, adjust payment amounts, or transfer between products. Annuity terms are fixed. Not Ideal for Early Retirees Those retiring early may desire more liquidity and growth potential. Annuities lock in income levels decades before actual needs or life expectancy are known. Who Should Consider Annuities? Annuities are best suited to certain individuals based on their financial priorities, time horizon, risk tolerance, and overall retirement goals:

6. Retirees Seeking Income Security For retirees focused on ensuring lifetime income to cover fixed expenses, annuities provide peace of mind, knowing payments cannot run out while they are alive. Low-Risk Tolerance Investors Older individuals who prefer low-risk, guaranteed returns over growth may benefit from annuities versus volatility-prone market investments. Nearing Retirement Those within 5-10 years of retirement have a clearer picture of income needs and life expectancy in Canada. Locking into an annuity may be appropriate closer to this stage. Concerned About Outliving Savings Retirees worried about depleting assets can use annuities to guarantee a base income level regardless of how long they live. With Insufficient Retirement Savings For individuals without adequate retirement savings, annuities can provide lifetime income that may not be supportable from savings alone. Without Employer Pensions Self-employed and small business owners can use annuities to create reliable retirement income to replace what pensions provide to employees. Who Should Avoid Annuities? On the other hand, annuities may not be the best option for certain retirees based on their needs and priorities: Those Needing Liquidity Retirees requiring full access to savings for emergencies, medical costs, or big upcoming purchases are likely better off avoiding illiquid annuity contracts. Focused on Maximizing Returns Investors seeking to maximize portfolio growth during retirement should look to stocks, ETFs, and other securities offering higher upside potential than annuities. Comfortable Managing Investments DIY investors who prefer selecting and managing their own portfolio throughout retirement will gain little benefit from annuities. Wanting to Leave an Inheritance Individuals who prioritize estate planning and leaving an inheritance for beneficiaries should look for options that do not cease payments upon death. Concerned About Fees Those seeking to minimize costs and retain more of their investment returns may be better

7. off with low-fee ETFs or robo-advisors over fee-heavy annuity products. Early Retirees Needing Flexibility People retiring decades before the average retirement age require maximum flexibility in their plans, which annuities do not provide. How Much Income Do Annuities Provide? The amount of retirement income an annuity generates depends on seven factors: Age at time of purchase: The older you are when you buy an annuity, the higher the payments. This is because the insurer expects to make payments longer for younger purchasers. Gender: Women often receive higher payments than men of the same age because of longer life expectancy. Overall health status: Insurers will increase payments if you have certain health conditions that are expected to reduce your lifespan. Size of annuity purchase: Obviously, the more money you put into an annuity, the greater the income payments will be. Type of annuity product selected: Payments can vary widely depending on if you choose a simple, lifetime annuity or one with inflation protection, death benefits, or other features. Length of payout term: You’ll get higher income for shorter payment terms, like 10 years versus lifetime payouts. Current interest rates: When rates are higher, insurers can fund larger annuity payments for the same premium amount. To illustrate, here is an example of potential monthly Canadian annuity payouts: Monthly Income for a $100,000 Annuity Purchase Age at Purchase Monthly Income 60 $600 65 $660 70 $713 This example demonstrates that older retirees will receive higher payment amounts on the same annuity purchase amount compared to younger retirees. Actual quotes will depend on personal factors, product type, and market conditions when purchased. How Are Annuities Taxed in Canada? The taxation of annuity income depends primarily on whether the annuity is held within a registered account like an RRSP/RRIF or purchased using non-registered personal funds: Registered Annuity (RRSP/RRIF) All income payments are fully taxable as regular income at your marginal tax rate. There is

8. no special tax treatment for registered annuities. For example, a $60,000 per year annuity payment from a registered RRSP annuity would be fully taxed as $60,000 income. Non-Registered Annuity Only the interest/income portion of payments is taxable. The return of your original capital is received tax-free. For instance, if your $500 monthly payment from a non-registered annuity comprises $200 income and $300 return of capital, only the $200 would be subject to tax. Two additional taxation factors for non-registered annuities: You can elect to receive income as prescribed or non-prescribed annuity payments, which impacts how the taxable amount is calculated annually. Annuity earnings grow tax-deferred until payments commence. Once income starts, the taxable portion becomes fully subject to income tax based on your bracket. How Do You Buy Annuities in Canada? If an annuity aligns with your retirement goals and income needs, here are seven tips you should consider for purchasing an annuity in Canada: Understand Your Needs First Assess your overall retirement budget and determine whether guaranteed annuity income would benefit your plan or if you require liquidity. Then, determine what portion of your assets to annuitize. Research Providers Stick to large, established Canadian insurance companies with strong financial ratings when considering annuity providers. Verify they are members of Assuris, which protects annuity holders up to prescribed limits if an insurer fails. Compare Quotes Before purchasing, get annuity quotes from at least 3-4 top-rated insurers. Fees and payment amounts can vary significantly between providers for similar products. Seek Unbiased Advice Speaking with a fee-only certified financial planner can provide unbiased guidance about appropriate annuity products for your situation. Understand the Terms Carefully review the annuity contract terms before committing, including income payment details, fees, withdrawal rules, death benefit or guarantee options, and other restrictions. Check Tax Implications Understand how the annuity will be taxed based on whether you use registered or non- registered savings and account for this in your retirement cash flow projections.

9. Allow Time Before Committing Avoid rushing into an annuity purchase right before retirement. Give yourself at least a few years to consider all aspects and ensure they align with your overall financial plan. Key Considerations Before Buying an Annuity Here are seven additional factors to consider when determining if purchasing an annuity is right for your situation: Your Time Horizon If you are retiring at 55, you likely have different income needs and priorities than if you were retiring at 65. Evaluate whether committing to an annuity suits your time horizon. Deferred annuities can allow greater flexibility for younger retirees. Other Retirement Income Sources Consider any pensions, CPP/OAS payments, rental income, etc, you may be receiving in retirement alongside annuity income. Assess your total guaranteed and variable income sources. Liquidity Needs Unless you have ample savings elsewhere, annuities provide little liquidity. Think about any big upcoming expenses, emergencies, or health costs to understand your liquidity requirements. Life Expectancy and Health Your health, genetics, and lifestyle can inform your life expectancy to help optimize when to start annuity payments to maximize the total income received. Spousal Income Needs Joint-life annuities can provide income for a surviving spouse after your death. Factor this into the decision based on your spouse’s income needs. Interest Rates Higher interest rates at the time of purchase can lead to higher annuity payment amounts. Monitor interest rate trends when considering timing. Inflation Protection Many annuities provide fixed payments, so evaluate whether to add inflation or indexed- linked income options to maintain purchasing power over decades. The bottom line The road to a rewarding retirement journey involves navigating complex financial decisions. While annuities offer clear benefits, weigh the tradeoffs smartly based on your unique situation. Approach retirement with eyes wide open, fully prepared. Your golden years

10. deserve financial security. With thorough planning and products like annuities, you can look to the future with confidence and optimism, embracing the excitement of your next chapter without financial fears holding you back. FAQs on annuities in Canada How do annuities work in Canada? Annuities allow you to convert a lump sum or series of payments into guaranteed lifetime or fixed-term income from an insurance company. You receive predictable payments in return for upfront premiums. Where can Canadians buy annuities? Annuities are sold by life insurance companies in Canada. You can purchase them directly or through a financial advisor. Why should Canadians consider annuities? Annuities provide guaranteed lifetime income, stability from market swings, pension-like cash flow, and potential death benefits. What are the risks of annuities in Canada? Drawbacks include illiquidity, high fees, lack of flexibility, lower returns compared to investing, and limited inheritance. Can you cash out an annuity early? Yes, but surrender fees typically apply if you cash out an annuity before the term ends. This reduces value significantly. Are annuity payments taxable income in Canada? For registered annuities, payments are fully taxable. For non-registered annuities, only interest/income portion is taxable. Article Sources 5/5 - (1 vote)

11.  Want more stuff like this? Get the best viral stories straight into your inbox! Your email address SIGN UP Don't worry, we don't spam Written by Ben Nguyen Ben Nguyen is an award-winning insurance expert and industry veteran with over 20 years of experience. He is the chairman and director of IDC Insurance Direct Canada Inc., one of Canada's leading online insurance brokerages. Ben is renowned for his extensive knowledge of life, health, disability, and travel insurance products. He is the prolific author of over 1,000 educational articles published on LifeBuzz, BestInsuranceOnline, and InsuranceDirectCanada. His articles provide Canadians with advice on making smart insurance decisions. With a Bachelor's degree in Actuarial Science and a Fellow of the Canadian Institute of Actuaries (FCIA) designation, Ben is frequently interviewed by media as an insurance industry spokesperson. He has received numerous honors including the Insurance Council of Canada’s Pivotal Leadership Award, the Canadian Insurance Hall of Fame induction, and the President’s Medal from the Canadian Institute of Actuaries. Ben continues to shape the vision and strategy of IDC Insurance Direct as chairman. He is dedicated to advancing the insurance industry through his insightful leadership.  MORE FROM: CANADA RESOURCES What Is A Void Cheque? Why It Matters in Canada? by Ben Nguyen May 22, 2025, 6:05 am How To Write A Cheque In Canada? Guide in 6 Simple Steps by Ben Nguyen May 20, 2025, 7:25 am

12. What is Retirement Age in Canada? by Ben Nguyen May 15, 2025, 7:43 am What is Adjusted Cost Base (ACB) and Why It Matters? by Ben Nguyen May 12, 2025, 12:28 am Body Mass Index (BMI) in Canada: Tips for Healthy Living by Ben Nguyen May 10, 2025, 1:43 am Defined Contribution Pension Plans (DCPP) in Canada by Ben Nguyen May 6, 2025, 3:37 am HOW TO REACH US LIFE INSURANCE LifeBuzz Content Canada C/O ORCA Financial Publishers 36 Toronto St, #850 Toronto, ON M5C 2C5 Life Insurance LifeBuzz provides news, insights, and analysis on the Canadian life insurance industry. We aim to be the top information resource to help Canadians make informed choices about life insurance. Family Life Insurance Permanent Life Insurance Term Life Insurance Universal Life Insurance Whole Life Insurance Life Insurance Companies hello@lifebuzz.ca DISCLAIMER The content on lifebuzz.ca is for informational purposes only and is not intended as financial advice. Please consult a professional financial advisor for guidance specific to your circumstances and coverage needs. LifeBuzz is an independent news site not affiliated with any life insurance companies or providers. We adhere to strict editorial standards and aim to provide objective,

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