Definition of an Annuitant

The annuitant is the primary beneficiary of the annuity and receives payments based on factors such as age, investment amount, and annuity type.

In Canada, annuitants commonly hold Registered Retirement Income Funds (RRIFs), Registered Retirement Savings Plan (RRSP) annuities, and life annuities to ensure stable post-retirement income.

For example, a retired teacher who purchased a life annuity at age 65 becomes the annuitant and receives monthly payments for life.

Purpose of an Annuitant in Financial Planning

Annuitants benefit from guaranteed income streams, making them essential for:

1. Retirement Income Security – Ensuring a steady income after employment ends.
2. Tax-Deferred Growth – RRSP annuities allow tax-sheltered investment growth until withdrawal.
3. Estate and Wealth Planning – Some annuities provide death benefits for beneficiaries.
4. Protection Against Market Volatility – Fixed annuities offer predictable payments.
5. Long-Term Financial Stability – Helps retirees avoid outliving their savings.

How Annuitants Receive Payments

1. Life Annuity Payments

The annuitant receives regular income payments for life based on initial investment and life expectancy.

Example: A $200,000 annuity purchased at age 60 may provide $1,200 per month for life.

2. Term Certain Annuity Payments

Annuity payments are guaranteed for a fixed number of years, regardless of whether the annuitant is alive.

Example: A 15-year annuity pays the annuitant for 15 years; if they pass away early, payments continue to their beneficiary.

3. RRIF Withdrawals as an Annuitant

Upon converting an RRSP into an RRIF, the annuitant must withdraw a minimum amount each year.

Example: Based on CRA rules, a 75-year-old annuitant with a $500,000 RRIF must withdraw at least 5.82% annually.

4. Variable Annuity Payments

Payments fluctuate based on investment performance, benefiting annuitants who want market-linked growth.

Example: A market-based annuity tied to the S&P/TSX Composite Index may increase in value if the index rises.

Annuitant vs. Beneficiary

Category	Annuitant	Beneficiary
Definition	The person receiving annuity payments	The individual who inherits the annuity benefits upon the annuitant’s death
Payment Type	Periodic lifetime or fixed-term payments	Lump sum or continued payments (if applicable)
Example	A retiree receiving monthly annuity income	Their spouse inherits the remaining payments

For example, a retired annuitant receiving lifetime income may designate their spouse as a beneficiary to continue payments upon their passing.

Tax Implications for Annuitants in Canada

1. Taxable Annuity Income

• RRSP and RRIF withdrawals are fully taxable as income.
• Non-registered annuities are partially taxable, with a portion considered a return of capital.

Example: A $2,000 monthly RRIF withdrawal is fully taxed, while a $2,000 non-registered annuity payment may be partially tax-exempt.

2. Pension Income Tax Credit

Annuitants aged 65 and older can claim up to $2,000 in tax credits on eligible annuity income.

3. Withholding Tax on RRSP Annuities

Lump-sum RRSP annuity withdrawals trigger withholding tax, which varies from 10% to 30%, depending on the amount withdrawn.

Example: A $25,000 RRSP annuity withdrawal is subject to a 30% withholding tax.

Advantages and Disadvantages of Being an Annuitant

Advantages

• Guaranteed Income – Reduces financial uncertainty in retirement.
• Protection Against Longevity Risk – Life annuities ensure income for life.
• Tax Deferral Benefits – RRSP annuitants enjoy tax-sheltered growth until withdrawals.

Disadvantages

• Locked-In Funds – Annuitants cannot access a lump sum once annuitized.
• Inflation Risk – Fixed annuities may lose purchasing power over time.
• Limited Growth Potential – Fixed annuities lack market-based investment returns.

Related Terms

• Annuity vs. Pension: An annuity is purchased by an individual, while a pension is employer-sponsored.
• Guaranteed Income Supplement (GIS): A Canadian government benefit that provides low-income retirees with additional income.
• Longevity Risk: The financial risk of outliving retirement savings, which annuities help mitigate.

Interesting Fact

Did you know that Canadian life annuities often provide higher monthly payments for women than men because women typically have longer life expectancies?

Statistic

According to Statistics Canada, over 50% of Canadian retirees rely on annuities and RRIF withdrawals as their primary source of retirement income.

Frequently Asked Questions (FAQ)

1. Can an annuitant change their annuity terms?

No, once an annuity is purchased, terms are fixed, and payments cannot be altered.

2. Is annuity income guaranteed for life?

Life annuities provide lifetime income, while term annuities pay for a set number of years.

3. Can an annuitant have multiple annuities?

Yes, annuitants can own multiple annuities to diversify income sources.

4. What happens if an annuitant dies early?

For term annuities, payments may continue to a beneficiary. Life annuities with no guarantees stop upon death.

5. Are annuities a good investment for retirement?

They provide secure lifetime income, but some retirees prefer investments with higher return potential.