Annuity Pensions Explained

What Is an Annuity Pension?

An annuity pension is a financial product that turns a lump sum of money into a guaranteed stream of income for a set period — often for life. It’s commonly used as a way to convert retirement savings into predictable income, helping ensure financial stability in later years.

You purchase an annuity from an insurance company, and in return, they provide regular payments.

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How Annuity Pensions Work

• You pay a one-time lump sum (e.g., from RRSP savings or a pension payout)
  
  
• The insurer calculates your monthly income based on your age, gender, interest rates, and chosen annuity type
  
  
• Payments begin immediately or at a future date and continue for a set period or for life

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Types of Annuity Pensions

1. Life Annuity

Pays income for the rest of your life, no matter how long you live.

• Single Life Annuity – For one person only
  
  
• Joint Life Annuity – Continues payments to a spouse after death
  
  

2. Term Certain Annuity

Provides payments for a specific period (e.g., 10 or 20 years). Payments stop after the term ends.

3. Guaranteed Annuity

Combines a life annuity with a minimum guaranteed payout period (e.g., 10 years), so beneficiaries still receive payments if you die early.

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Advantages of Annuity Pensions

• Predictable income for budgeting
  
  
• No investment risk — returns are guaranteed
  
  
• Helps prevent outliving your savings
  
  
• Can be tailored for spouse or estate needs

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Considerations Before Buying

• Payments are fixed — no inflation protection unless added
  
  
• Once purchased, annuities are not reversible
  
  
• May not be ideal if you need flexible access to your money
  
  
• Interest rates at the time of purchase affect your payout amount

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Annuities and RRSPs/RRIFs

• You can use RRSP funds to buy an annuity when you retire
  
  
• This converts tax-deferred savings into taxable retirement income
  
  
• An annuity is one alternative to converting your RRSP into a Registered Retirement Income Fund (RRIF)

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Key Takeaways

• Annuity pensions offer guaranteed retirement income, usually for life
  
  
• They’re ideal for retirees who value stability over flexibility
  
  
• Understanding the type and terms of your annuity is essential before making a decision

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Common Questions

Q: When should I buy an annuity?
A: Many people buy annuities around retirement age (60–70), but timing depends on your health, income needs, and interest rates.

Q: Are annuity payments taxable?
A: Yes, payments from registered funds (like RRSPs) are taxed as income. Payments from non-registered funds may be partially tax-sheltered.

Q: Can I lose money with an annuity?
A: Not typically — but you may receive less total payout if you die early and didn’t choose a guarantee period or joint annuity.

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