Annuities in Canada: When Buying Guaranteed Income Makes Sense
Guaranteed income sits beside CPP and OAS in how much you need to retire. The decision belongs in the seven-step plan after you know the spending floor you cannot invest your way out of. The retirement calculator does not price an annuity. If you buy one, lower the spending the accounts must cover by the after-tax annuity you will actually receive, and remove the premium from the RRSP balance you type.
- Withdraw, transfer to a RRIF, or buy an annuity. Those are the three doors in the year you turn 71. A direct annuity purchase is not withheld. Payments are income when received.
- An ALDA is a life annuity from a licensed provider. Payments must start by the end of the year you turn 85. It can be on your life or, for a joint-lives contract, on your life and your spouse’s or common-law partner’s.
- The 2026 ALDA dollar limit is $180,000. CRA’s ALDA page also describes a 25% limit on the registered plan funding the purchase. Excess left in the contract at month-end is taxed at 1% a month, on Form T1-OVP-ALDA.
- Annuity and RRIF payments can be eligible pension income at 65, or if received because a spouse died, and then up to 50% can be split on Form T1032. Under 65 they generally are not.
- There is no Canada.ca payout table to copy. Price, guarantee period, indexing, and the insurer’s credit are on the quote. If the quote is silent, the feature is not included.
What are you buying?
A life annuity is a contract to pay you for as long as you live. CRA’s ALDA page uses that definition and adds the joint-lives version: payments continue as long as you or your spouse or common-law partner is alive. A guarantee period, a cash refund, or inflation protection is a feature of a particular contract. It was not a required term on the pages reviewed October 3, 2026, so this article does not describe those features as standard and does not price them. If you want one, it has to be on the illustration the insurer signs.
Buying the annuity with RRSP or RRIF money is a transfer, not a withdrawal, when it is done as a direct purchase. CRA says the RRSP issuer will not withhold on an annuity purchase, and that you may have to pay tax when payments start. Using non-registered cash is a different tax life. The carrier reports the taxable portion. This page did not load the prescribed-annuity regulation, so it will not state what fraction of each payment is interest. Read the slip. Do not apply a percentage you remember from a textbook.
What is an ALDA, in the numbers CRA actually publishes?
Since January 1, 2020, an ALDA can be bought from certain registered plans. It is still a life annuity. The difference is the start date: payments have to begin before the end of the year you turn 85, which is later than the year you turn 71, when an ordinary RRSP must be converted or withdrawn. You do not park the entire RRSP until 85. You transfer an amount that survives two limits, and the rest of the RRSP still faces the age-71 choice. That choice is RRSP to RRIF conversion.
| Rule | Figure | What it is not |
|---|---|---|
| Lifetime dollar limit, 2026 | $180,000 | Not a limit per plan. CRA’s examples treat it as all ALDA purchases together. The 2025 limit on the same table is also $180,000. |
| Plan limit | 25% of the plan | Not 25% of your net worth. CRA’s 2025 example: an RRSP worth $200,000 at the prior year-end can transfer $50,000 without an excess ALDA transfer. $50,000 is 25% of $200,000. That example is labeled 2025 on the page. |
| Start date | Before the end of the year you turn 85 | Not a right to start at 85 if you already had to deal with the rest of the RRSP at 71. |
| Tax on a cumulative excess | 1% per month the excess stays in the ALDA | Not income tax on the annuity payment. File Form T1-OVP-ALDA if you have a cumulative excess at a month-end. A refund of the excess before month-end can avoid the filing, on the terms the page describes. |
Table as of October 2026. CRA’s worked examples on the ALDA page use 2024 and 2025 purchases and a 2025 dollar limit of $180,000. They are examples of the penalty arithmetic, not a quote of what an insurer will pay you at 85. One example transfers $50,000 from a $200,000 RRSP, which is the 25% line, and then shows a further transfer blocked by the lifetime dollar limit. Read Chart A and Chart B on that page before you move a second account. The form that instructs the transfer is T2157.
CRA’s first example ends 2024 with a $200,000 RRSP and a $600,000 RRIF. In 2025 the person transfers $50,000 from the RRSP, which the page calls the maximum from that RRSP without an excess transfer, and then cannot move a full $150,000 from the RRIF because the lifetime limit in the example is $180,000. $50,000 plus $130,000 is $180,000. The extra $20,000 the person hoped to move is the excess the page is teaching. The same arithmetic in 2026 still faces a $180,000 lifetime limit on the limits table. It does not face a new, higher cap this page can cite. Your fair market value at the prior year-end is the input. A market rally after that date does not, by itself, raise the 25% room the chart already computed.
When does guaranteed income earn its place?
Buy a life annuity when the household needs a floor under spending that CPP, OAS, and any defined-benefit pension do not already cover, and when you will not manage a portfolio for that slice. The floor is the quote. CPP’s age-65 maximum for a January 2026 start is $1,507.65 a month, and the average the amount page states for July 2026 is $858.34. Full OAS for October to December 2026 is up to $762.50 from 65 to 74. Those are public pensions, not annuity quotes, and most people do not get the CPP maximum. Add them up only after you have substituted your own CPP estimate. If the public pensions and a workplace pension already cover the non-negotiable bills, an annuity duplicates a promise you have and gives up flexibility you might need.
Skip it, or keep it small, when you may need the capital, when a spouse’s survivor option on a pension already does this job, or when the quote has no increase and you cannot live with a fixed payment against rising prices. Indexing, if the insurer offers it, will show up as a lower starting payment or a higher premium. The pages reviewed did not quantify that trade. Ask for two illustrations. Do not invent the gap.
Giving up a defined-benefit pension for a lump sum, then buying an annuity with what is left after tax, can cost you the plan’s terms, the survivor pension, and any retiree benefits. The commute is commuted value. Compare the plan’s monthly pension, on the statement, with an annuity quote on the same date, for the same survivor option. A quote from a different month is a different price. Locked-in money may have to stay in a LIRA or LIF under the plan’s statute until an unlocking rule applies. That rule is LIRA unlocking, and it is not an annuity.
How is the payment taxed, and can you split it?
RRIF and annuity payments go on the return for the year you receive them. If you are 65 or older at year-end, or you receive them because a spouse or common-law partner died, CRA’s receiving-income page puts RRIF amounts on line 11500, and the pension-splitting page includes annuity and RRIF payments in eligible pension income. Under 65, those payments are generally not eligible unless they are the death case. A life annuity from a registered pension plan can be eligible without waiting for 65. Up to 50% of what is eligible can move on Form T1032. The form, and the income that does not qualify, is pension income splitting.
A payment that is not eligible pension income is still taxable. It just is not splittable and does not support the pension income amount. Taking an annuity at 60 to “create pension income” does not, on CRA’s list, create pension income. Waiting until 65 to start a registered annuity can be about that list. It can also be about a higher quote at an older age. The insurer’s illustration is the second half. CRA does not publish it.
Frequently asked questions
How much monthly income does $100,000 buy?
This page does not know. No CRA, Canada.ca, or OSFI page reviewed on October 3, 2026 stated a current annuity rate. The income depends on your age, the type of contract, interest rates, and the insurer. Get two written quotes. Treat a figure in a news article as that article’s date, not as your price.
Can I ALDA my whole RRSP and skip the RRIF?
No. The lifetime cap is $180,000 for 2026, and each plan also faces the 25% limit. Anything above those limits that stays in the ALDA is a cumulative excess taxed at 1% a month. The rest of the RRSP still has to be withdrawn, transferred to a RRIF, or used to buy an ordinary annuity by the end of the year you turn 71.
Is an ALDA payment eligible to split?
An ALDA is a life annuity. CRA’s splitting page includes annuity payments when the transferor is 65 or older at year-end, or the amount is received because a spouse died. Payments that start at 80 can fall in that “65 or older” case. Payments that somehow started earlier would still need the age test or the death test. Confirm the slip before you elect. The $180,000 limit is small beside a large RRIF, so the election may not move much tax even when it is available.
What if I transfer too much?
CRA says a cumulative excess at the end of a month is taxed at 1% for that month, and you file Form T1-OVP-ALDA by the filing due date. If you catch the excess and the ALDA refunds it before the end of the month you made the transfer, the page describes a path that avoids the return. Do not discover it in April. The interactive return CRA mentions is the way to test the purchase first.
Does an annuity replace CPP and OAS?
No. Those pensions do not depend on an insurer’s quote. CPP at 65 for a January 2026 start maxes at $1,507.65 a month, the July 2026 average on that page is $858.34, and full OAS for October to December 2026 is up to $762.50 from 65 to 74. Your CPP is the Service Canada estimate. An annuity is the layer under or beside those cheques, for spending they do not cover. Deferring CPP or OAS is a separate lever, in early retirement and when to take CPP.
Will the retirement calculator show the annuity?
Not as a product. Reduce the annual spending by the after-tax income the quote promises, and reduce the RRSP by the premium. If the quote is indexed, do not also inflate that spending reduction. If the quote is flat, the real value falls, and the calculator’s real-dollar spending will not warn you unless you lower the annuity’s contribution to spending in later years yourself. A RRIF minimum on the money you did not annuitize still applies. That floor is the RRIF table.
Sources
- CRA: options for your own RRSPs at 71
- CRA: advanced life deferred annuity, page details 2026-01-22
- CRA: 2026 ALDA dollar limit of $180,000
- CRA: pension income splitting
- Canada.ca: CPP amounts and OAS payments, October to December 2026
The quote is the product. The slip is the tax.
Eligible pension income, the ALDA penalty, and the brackets on a payment are filing questions. The 2026 tax guide is that side of the contract.
Get the 2026 Tax Guide — $49 CAD
