RRIF vs Annuity: Which Is Better for Canadian Retirement Income?

When you retire and it's time to convert your RRSP into income, you face a fundamental choice: RRIF (Registered Retirement Income Fund) or annuity — or some combination of both. This decision will determine how much income you receive, how much tax you pay, and whether your money outlasts you or you outlast your money.

There's no universally "right" answer. The best choice depends on your health, other income sources, risk tolerance, and whether leaving an inheritance matters to you. Let's break it all down.

RRIF Basics: Flexibility With Responsibility

A RRIF is essentially an RRSP in reverse. Instead of contributing, you're withdrawing. Your investments stay in a tax-sheltered account and continue to grow, but you're required to take out a minimum amount each year.

Key RRIF Rules

• You must convert your RRSP to a RRIF (or annuity) by December 31 of the year you turn 71
• Minimum withdrawals begin the year after conversion
• There is no maximum withdrawal — you can take out as much as you want (but it's all taxable)
• You can base minimums on your younger spouse's age to reduce forced withdrawals
• Withdrawals are taxed as regular income (not capital gains)
• Amounts above the minimum are subject to withholding tax (10–30% depending on the amount)

RRIF Minimum Withdrawal Percentages by Age

Age	Minimum %	Age	Minimum %
65	4.00%	80	6.82%
66	4.17%	81	7.08%
67	4.35%	82	7.38%
68	4.55%	83	7.71%
69	4.76%	84	8.08%
70	5.00%	85	8.51%
71	5.28%	86	8.99%
72	5.40%	87	9.55%
73	5.53%	88	10.21%
74	5.67%	89	10.99%
75	5.82%	90	11.92%
76	5.98%	91	13.06%
77	6.17%	92	14.49%
78	6.36%	93	16.34%
79	6.58%	94	18.79%
		95+	20.00%

How Annuities Work in Canada

A life annuity is a contract with an insurance company: you give them a lump sum, and they pay you a guaranteed monthly income for life. When you die, payments stop (unless you've chosen a guarantee period or joint option).

Types of Annuities

• Single life annuity: Pays until you die. Highest monthly payment. Nothing left for beneficiaries.
• Joint life annuity: Pays until both you and your spouse die. Lower payments but protects the surviving spouse.
• Life with guarantee period: Pays for life, but if you die within the guarantee period (e.g., 10 or 15 years), remaining payments go to your beneficiary.
• Term-certain annuity: Pays for a fixed period (e.g., to age 90), not necessarily for life.
• Indexed annuity: Payments increase with inflation — costs more upfront but protects purchasing power.

2026 Annuity Rate Snapshot

Annuity rates have improved significantly since 2022 due to higher interest rates. As of early 2026, approximate rates for a $500,000 purchase:

• Age 65, single life: ~$2,850–$3,100/month ($34,200–$37,200/year)
• Age 65, joint life (100% survivor): ~$2,400–$2,650/month
• Age 71, single life: ~$3,200–$3,500/month
• Age 71, joint life (100% survivor): ~$2,750–$3,000/month

RRIF: Pros and Cons

Pros

• Flexibility: Withdraw more in years you need it, less when you don't
• Investment growth: Your portfolio can continue growing tax-sheltered
• Estate value: Remaining balance passes to beneficiaries (taxed as income in the deceased's final return, or rolls to a spouse tax-free)
• Control: You choose the investments and can change strategies
• Inflation hedge: If invested in equities, your portfolio can keep pace with inflation

Cons

• Market risk: A severe downturn early in retirement (sequence-of-returns risk) can permanently damage your income
• Longevity risk: You might outlive your money if you withdraw too aggressively or markets underperform
• Forced minimums: You must withdraw increasing percentages, which may push you into higher tax brackets
• Decision fatigue: You're responsible for investment decisions into your 80s and 90s
• OAS clawback risk: Large RRIF withdrawals can trigger OAS recovery tax (above $90,997 in 2026)

Annuity: Pros and Cons

Pros

• Guaranteed income for life: You literally cannot outlive the payments
• Simplicity: No investment decisions, no rebalancing, no market watching
• Predictable budgeting: Fixed monthly amount makes planning easy
• Creditor protection: Annuity income is generally protected from creditors if a family member is named beneficiary
• Pension-like income: Functions like a defined benefit pension

Cons

• No flexibility: Once purchased, you can't change the terms or access the capital
• Inflation erosion: Fixed payments buy less every year (unless indexed, which costs more)
• No estate value: When you die, the insurance company keeps the remainder (unless guarantee period applies)
• Interest rate risk: If you buy when rates are low, you're locked in forever
• Opportunity cost: Capital locked in an annuity can't benefit from market growth

The Hybrid Strategy: Best of Both Worlds

Most retirement income experts recommend a hybrid approach — annuitizing a portion of your savings and keeping the rest in a RRIF. Here's the framework:

Step 1: Calculate Your Essential Expenses

Housing, food, utilities, insurance, healthcare — the non-negotiable costs. Let's say $3,500/month ($42,000/year).

Step 2: Add Up Guaranteed Income

CPP + OAS + any workplace pension. Example: CPP $1,200 + OAS $727 = $1,927/month. Use our CPP/OAS Calculator for your exact amounts.

Step 3: Fill the Gap With an Annuity

Essential expenses ($3,500) minus guaranteed income ($1,927) = $1,573/month gap. Purchase enough annuity to fill this gap. At age 65, roughly $275,000 would generate ~$1,573/month.

Step 4: Keep the Rest in a RRIF

Any remaining RRSP funds go to a RRIF for discretionary spending, travel, gifts, and emergencies. You maintain flexibility and growth potential for the "fun money" while your essential expenses are bulletproofed.

Tax Implications

Both RRIF withdrawals and annuity payments are taxed as regular income. There are no special tax advantages to either — but the timing and amount of income has significant tax consequences.

OAS Clawback

In 2026, if your net income exceeds approximately $90,997, you'll start repaying OAS at a rate of 15 cents per dollar. Large RRIF withdrawals can easily push you over this threshold. An annuity provides steadier, more predictable income that's easier to plan around.

Pension Income Tax Credit

Both RRIF income (if you're 65+) and annuity payments from an RRSP qualify for the $2,000 federal pension income tax credit, worth about $300 in tax savings. This also enables pension income splitting with your spouse — potentially a huge tax advantage.

Withholding Tax

RRIF withdrawals above the annual minimum are subject to withholding tax: 10% on amounts up to $5,000, 20% on $5,001–$15,000, and 30% above $15,000 (outside Quebec). Annuity payments have tax withheld based on a TD1 form you file with the insurer.

The Bottom Line

The RRIF-vs-annuity decision isn't binary — for most Canadians, the optimal answer is both.

• Use an annuity to guarantee income that covers your essential expenses — your "sleep well at night" money
• Use a RRIF for flexibility, growth potential, and discretionary spending
• Consider buying annuities in stages (e.g., some at 65, more at 75) to diversify interest rate risk
• Factor in CPP and OAS first — they're already annuity-like income. You may need less additional annuity than you think
• Use your younger spouse's age for RRIF minimums to reduce forced withdrawals and tax
• Get professional advice. The combination of tax planning, investment management, and insurance products makes this one area where a fee-only financial planner earns their fee

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Planning your retirement income? Start with FiggyBank's CPP/OAS Calculator to see your guaranteed government pension — then decide how to fill the gap.