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RRIFs vs Annuities?

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Selecting between a RRIF or an annuity could be your most important retirement decision.

RRIFs are now favoured over annuities by most retirees contemplating their RRSP maturity options. In making the decision between a RRIF and an annuity, the following factors should be considered:

Guaranteed Payments

This is perhaps the biggest advantage of an annuity. With an annuity product the holder is guaranteed a regular, fixed payment for life. For those with limited funds the guarantee feature of annuities can be very important.

Future Inflation

Considering the affects of future inflation, the guarantee advantage of annuities becomes somewhat diminished. The increase in the costs of living could erode the worth of the annuity payments. RRIFs may provide better protection due to their function as an investment vehicle, in which the holdings may continue to grow through the return of income, interest and capital gains. Thus the holder of an annuity pays for the guarantee feature by having to accept a lower return than they might have with a different investment.


RRIFs offer flexibility through a range of investment options. The holder of a RRIF retains control over his investments and may select among shares listed on Canadian exchanges, bonds and mutual funds, Canadian mortgages, Treasury bills, CSBs, and so on. This is particularly attractive to those retirees who want to remain active in the investment decisions of their estate assets.


RRIFs offer withdrawal flexibility. There is a set minimum amount that must be withdrawn from a RRIF every month; otherwise any amount may be withdrawn, affording the individual flexibility in meeting unexpected demands on finances or other emergencies. While some annuities may be collapsible, there may be economic penalties built into annuities with this option.

Tax Considerations

Interest, income and capital gains accumulate in a RRIF investment on a tax-deferred basis, similar to the investments in an RRSP. Assets in RRIF will continue to grow as long as the individual wishes, allowing an individual to maximize the value of the fund by postponing withdrawals to a future time.


There are pros and cons to both RRIFs and annuities and the choice between the two must be made based on an individual’s personal situation. The following are some general guidelines on which maturity option may be best:

  • If an individual has considerable financial resources available and does not need the protection feature of a life annuity, he or she should seriously consider a RRIF.
  • If an individual foresees the need for emergency funds during retirement, he or she probably should choose a RRIF that allows for flexible withdrawals. A compromise might be to purchase both types of plans. Whatever may be required for emergency purposes could be placed in a RRIF and the remainder invested in an annuity.
  • For those who wish to retain control of their investments, the RRIF is the answer. Consider that whereas sound management will increase the size of the retirement benefit, a downturn in the economy or an unwise investment decision will have the opposite effect.

On the other hand, an individual may welcome the freedom from the worries of managing their own investments, in which case the guarantees of an annuity will seem more attractive.

Nora Cole

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