Insights & advice
Types of annuities
Aug 2021 – 15 min read
Key takeaways
An annuity can help turn your retirement savings into regular income
There are different types of annuities for different needs
Annuity payments are covered by a consumer protection agency
What’s an annuity?
An annuity is a way to help turn a portion of your savings into regular income – for a predetermined fixed period or the rest of your life.
How does an annuity work?
Work with an advisor to determine when you want to retire and how much regular income you’ll need.
Make a lump-sum payment.
Choose to receive income payments monthly, quarterly, semi-annually or annually, for life or a set period of time, for 1 person or a couple.
Start receiving a retirement paycheque.
Types of annuities
There are 3 main types of annuities. Before you buy an annuity, it’s important to understand the options, benefits and risks of each.
In addition to these 3 types of annuities, they can also be immediate (they start paying right away) or deferred (they start paying at a future date).
| Type of annuity | Benefits |
Risks | Additional options |
|---|---|---|---|
|
Life annuity | Provides guaranteed income for as long as you live No risk of outliving your money | You may die before receiving all the money you put into it Adding options may mean a lower regular payment | Joint and survivor option transfers |
|
Term-certain annuity | Provides guaranteed income for a fixed period of time Your named beneficiary or estate receives any remaining money if you die before the end of the term | You may live longer than the annuity term you chose, and income payments would stop |
Things to consider before buying an annuity
When to buy
Do you want more money early in retirement for pastimes, or guaranteed income later to pay for health care or accommodations
Other retirement income sources
Employer pension plans, Canada Pension Plan (CPP), Quebec Pension Plan (QPP), Old Age Security (OAS), or other personal investments or savings
Estate planning
If you want to leave money to a named beneficiary or your estate when you die, you’ll need to choose the appropriate annuity.
Tax planning
The amount of income tax you’ll need to pay on your annuity payments will depend on the type.
Annuity protection
AssurisOpens a new website in a new window - Opens in a new window, a consumer protection agency, protects annuity policyholders if the annuity provider goes out of business.
- 100% for monthly payments up to $2,000
- 85% for monthly payments over $2,000
Cancelling or changing your annuity
Because an annuity is a contract between you and the annuity provider, you usually can’t change the terms, switch to another type or get your money back.
Some annuity contracts may allow you to cancel for a fee within a short window of time after you begin receiving payments.
What’s next?
Now that you know more about annuities, you may want to contact your financial advisor to:
Discuss whether an annuity can help meet your retirement income needs and if so, which type
Determine which options you need
Discuss when you should start receiving payments
