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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

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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
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