Annuity or RRIF - what is my best option?

Given the challenging economic climate, many clients need to make a decision on what to do with their Registered Retirement Savings Plans (RRSPs). Several options are available, but choosing the right one takes careful thought and analysis. The current down market is causing many people in this position to seek guarantees for income in the form of annuities while others see it as a down market and are taking more of a risk by simply converting to a Registered Retirement Income Fund (RRIF).

We always recommend that you consider all your options before making a decision on any investment product.

The two most common options chosen by investors who are converting their RRSPs to income are RRIFs and life annuities.

What is a RRIF?

A Registered Retirement Income Fund is one of the maturity choices for an RRSP. An RRIF can hold the same investments as an RRSP, but is subject to a minimum yearly withdrawal (included in taxable income) commencing in the year you turn 72.

What is an Annuity?

Annuities are products issued by a life insurance company that provide a guaranteed monthly income for a fixed term or until death. Two main categories are registered annuities (purchased with money from any registered plan, such as an RRSP, or pension funds) and prescribed annuities (purchased with non-registered funds).

Which is better?

The following chart compares a life annuity and an RRIF:

Life Annuity	RRIF
Guaranteed lifetime income dependent on rates	Lifetime income of returns and withdrawals (could fluctuate)
Defined income plan	Flexible income plan
Guaranteed periods	Guarantees may exist but they vary by investment choice
No access to the investment (no liquidity other than income)	Access to investment at any time (if you need extra money) however, fees may be applicable
No Investment options	Many investment options
No ongoing investment decisions	Ongoing investment planning
Conservative	Based on risk tolerance and investments you choose for your RRIF
Limited potential to leave funds to heirs - based on structure of the guarantee period	Potential to leave funds to heirs

To RRIF or not to RRIF?

Both types of investments have benefits, and one may be more suited to you than the other. You have to ask yourself what is more important to you - guaranteed income or flexibility.

If you need to start withdrawing from your RRSP, please contact our office for a consultation on the merits of retirement income solutions and we can help determine which one is right for you.