Using RRIFs and annuities in retirement

Depending on your income needs and saving priorities in retirement, using both RRIFs and annuities may work for you.

One way to balance growth and safety is to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition your retirement savings in both a registered retirement income fund (RRIF) and one or more annuities how and if you divide your money depends on many factors. For example:

  • Retirement income priorities – Your decision depends on how you prioritize security, income, growth or building an estate.
  • Interest rates – If interest rates are low, you may put less in an annuityAnnuity A contract usually sold by life insurance companies that guarantees an income to you or your beneficiary at some time in the future. An annuity is a contract with a life insurance company. When you buy an annuity, you deposit a lump sum of money, and the insurance company agrees to pay you a guaranteed…+ read full definition. Or, you might want to stagger annuity purchases over a few years.
  • Guaranteed retirement income – If you have other guaranteed sources of income, like defined benefit pension plan you may not need as much income from an annuity.

Reasons you may want to use both

  • Annuities give you some guaranteed income for life regardless of market performance.
  • You can keep a portion of your savings invested within your RRIFRRIF See Registered Retirement Income Fund.+ read full definition with the potential for growth.
  • By not putting all of your savings in an annuity, you may preserve some capital for your estateEstate The total sum of money and property you leave behind when you die.+ read full definition.
  • If interest rates rise, you can use funds kept in your RRIF to purchase an additional annuity.

6 questions to ask

Before you decide, consider your total financial picture, your goals, and your need for safety. Here are some questions to ask:

  1. How much income will you get from government and workplace pensions? This will tell you how much additional income (if any) you may need from an annuity.
  2. Are you worried about your investments losing money? If you are concerned about your investments losing money and not providing enough income in retirement, an annuity may eliminate some of this risk.
  3. Are you concerned about inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition? Annuities provide a set payment for life, but are generally not protected against inflation. However you have the option adding inflation protection.
  4. How much taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition will you pay? Annuity payments, RRIF withdrawals and other retirement income (for example, workplace pensions) are taxed as income. But your savings will continue to grow tax-deferred in a RRIF. If your total income including annuity payments and the minimum RRIF withdrawal is more than you need, you may save on tax by keeping most of your savings in your RRIF.
  5. Are you concerned about outliving your savings? If you’re worried about longevity risk, an annuity will provide some income for life – but payments usually end when you die, so you may pay more into the annuity than you get out.
  6. Do you want to leave some capital for your estate? With annuities this option costs more, or you may have to accept a lower monthly payment. RRIF savings go to your designated beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition or are added to your estate.
How much income will you have in retirement?

Figure out how much money you will need to cover your expenses in retirement using this Retirement budget worksheet.

Key point

How and whether you divide your savings depends on:

  1. Your retirement income priorities
  2. Interest rates
  3. Guaranteed retirement income (such as workplace or government pensions)
Last updated