Ask MoneySense
My wife and I each receive roughly $2,500 a month in pension income. We also each hold about $75,000 in our TFSAs and around $180,000 in our RRIFs. I’ve generally avoided bonds and for several years have favoured higher-yield stocks and ETFs. That strategy has worked well, supplementing our pensions and enabling us to travel four or more times a year.
Now I’m 80 and my wife is 74. I’m concerned interest rates may rise and that could reduce equity values. I’m uncertain what adjustments to make going forward. We have no children, our home is paid off, and our living costs are modest. Converting assets to joint or last-survivor annuities is one straightforward option, but I wonder if there’s a better approach. For context, I already hold a $100,000 single-life annuity that yields nearly 10%.
—Terry C.
Are there better alternatives to annuities for Canadian investors?
Terry, your question is common among retirees weighing security against flexibility. An annuity paying nearly 10% is a strong source of guaranteed income, so don’t dismiss annuities outright. The decision depends on how much guaranteed income you and your wife need versus how much flexibility you want to preserve.
First, confirm how much survivor income your existing pension sources will provide. If the surviving spouse’s income is adequate, you may not need additional annuity guarantees. If survivor income would leave a shortfall, a joint or last-survivor annuity can be an effective way to lock in lifelong payments.
Ask MoneySense
Have a personal finance question? Submit it here.
Next, consider your home equity. If you would consider selling or downsizing in future, the proceeds could be a source of additional retirement funds and change how aggressively you need to convert investments into guaranteed income.
Think about whether you view your home as part of your stable-assets allocation. If so, you may feel comfortable keeping part of your portfolio invested in equities for growth. If not, shifting toward safer holdings could be prudent.
Also review how much you withdraw annually from your TFSA and RRIF. In many cases it’s sensible to preserve RRIF assets and only take required minimums, especially in years when you don’t need extra cash. That keeps taxable RRIF withdrawals lower and maintains flexibility.
Types of annuities in Canada and their monthly payouts
If you choose to secure travel and lifestyle spending with an annuity, here are sample monthly payouts based on a $180,000 RRIF converted to annuity income. These figures assume the annuity is based on your wife’s life if she holds the RRIF.
| Type of annuity | Monthly payment |
| Joint annuity | $1,122 |
| Life annuity, no guarantee | $1,240 |
| Life annuity, 10-year guarantee | $1,153 |
| Term certain to age 90 | $1,138 |
Flexibility for older Canadian investors
An important limitation of converting a RRIF to an annuity is that every payment is taxable income. That can be inefficient in years when you don’t need the cash. For many retirees, keeping some funds in the RRIF and taking only required minimum withdrawals gives more tax flexibility than forcing all assets into an annuity.
You mentioned you don’t like bonds. Another conservative option to consider is guaranteed investment certificates (GICs). GICs provide a known rate of return and principal protection, and can be structured to match predictable cash needs.
If you converted enough assets to GICs to cover all planned travel and discretionary spending, you would avoid market risk for those expenses. The trade-off is reduced liquidity compared with holding equities, and limited upside if markets rally.
A practical compromise is a GIC ladder. For example, if your annual travel budget is $10,000, buy five GICs of $10,000 each with staggered maturities of one through five years. Each year one GIC matures and supplies that year’s travel cash. Meanwhile, keep the rest of your savings invested in dividend-paying stocks or ETFs for growth. When a GIC matures, you can either use it for spending, reinvest it into a five-year GIC, or deploy it into the market if you choose to buy during a downturn.
The advantage of GICs is certainty: you know the rate and when the money will be available. The disadvantage is limited access before maturity, unlike bonds you can trade. If you wouldn’t use a market dip to buy more stocks, the predictability of a GIC ladder can be attractive.
Newsletter
Get MoneySense financial tips, news and advice in your inbox.
Further reading on investing
- How GIC interest rates work
- Is now the time for retirees to sell stocks and buy GICs?
- How to invest to generate $35,000 annually in income
- Should retirees put all savings in a low-fee balanced fund?
This article is presented by an advertising partner.
This content is editorial and produced independently, with financial support from an advertiser. The advertiser did not influence the writing or conclusions.