Rights & Money

RRIF or Annuity?

By Olev Edur


I’ll be turning 71 in December, and I understand that I must do something with my RRSP before the end of the year or the whole plan will be added to my annual income and taxed accordingly. All my RRSP money is invested in mutual funds and GICsdo I have to sell them all before moving the money into a replacement plan? What are my options? 

You can move your RRSP holdings into an annuity, a Registered Retirement Income Fund (RRIF), or some combination of the two; each type of plan has its own advantages and disadvantages, including costs. 

RRIFs are much like RRSPs, except that you can’t make contributions and must withdraw at least a minimum amount each year. You can, however, withdraw as much as you want from a RRIF above that minimum, and you can choose and manage the investments just as you would those in an RRSP. The process for an RRSP-to-RRIF rollover is very straightforward, and you needn’t sell any investments beforehand—they can all be moved into the RRIF at no cost. 

Annuities are contracts available from life insurance companies: in return for putting up your money, you receive fixed, guaranteed payments for as long as you live (or, in some provinces/territories, until age 90, if you prefer). You’d have to sell your investments beforehand and pay the required trading fees, and there may also be penalties if your GICs aren’t redeemable, but you’d get that lifetime guarantee and would no longer need to bother about managing your investments. 

Because annuities are based on prevailing interest rates, and interest rates have risen dramatically over the past year or so, you can get significantly more annuity income per dollar now than you might have gotten a year ago. If this option interests you, speak with an insurance broker, who can provide more detail and help you shop for the best rates. 

Some retirees buy both—annuities for some guaranteed income and RRIFs for the prospect of greater investment growth and withdrawal flexibility. Others opt for RRIFs at first to earn a potentially higher income and then put all their RRIF money into a life annuity later—perhaps when they’re 75 or 80—to make sure that their income won’t be depleted if they live longer than expected.