How do you convert your RRSP into an annuity?

Generally, an annuity transfers your RRSP investments into the management of the annuity issuer. The issuer, usually a life insurance company, will guarantee to pay you (or possibly your spouse in the event of your death) a fixed amount every year. The annuity can be set to end at your death, at the death of your spouse, or it may match the terms of an RRIF requiring payment of all balances by a particular age for you or your spouse with a guaranteed payment in the event of premature death. Finally, you can have more than one type of annuity or you could convert a portion of your RRSP savings into an annuity and a portion into an RRIF.

Annuities offer many features that can be customized to your particular priorities and desired results.

One of the advantages of an annuity is that you are assured an income will continue to be paid even if you live well past the age at which you might expect a RRIF might run out. In addition, unlike a RRIF, an annuity is simple and eliminates the need for investment management and the uncertainties that are inherent the investment world.

Annuity payments received are reported in Box 16 on a T4RSP income tax information slip issued by the annuity’s administrator. Income tax deducted by the annuity administrator is reported in Box 30 on the same T4RSP slip.

For some individuals, converting their RRSP into an annuity is not an option because they would lose control of their savings and the investments selected. For these individuals, they desire greater control of their savings and they like the flexibility of an RRIF account. For example, if at some point they wish to withdraw a lump sum from their savings, this is possible with an RRIF, although some annuities may offer some flexibility in this regard.

If the management of your assets is of no interest to you, or is not important and safety and security of your retirement income is, you might want to explore the annuity options available.

Related Questions