RRIF or annuity?

When the time comes for you to convert your RRSP into retirement income, which option should you choose?

Let's compare the characteristics of each one. An annuity requires no management on your part (the institution which sold it to you manages it), while a RRIF gives you total control of your capital and lets you choose your investments.

An annuity ensures a stable retirement income. You know exactly how much you will receive, which makes it easier to manage your budget. However, this stability provides little leeway if something unexpected comes up or if you want to carry out a project (for example, a vacation or a return to school).

A RRIF allows you to withdraw a different amount each time (subject to the legislated annual minimum). This gives you more freedom so you can take a cruise, help out your children financially or enjoy your favourite hobby.

Stability or flexibility?

Before you decide, you should consider the big picture:

• your investor profile
• your financial needs
• your tax burden
• your age
• your health
• how much money you wish to leave your loved ones

In some cases, it may be best to combine both retirement options; convert a portion of your RRSP into a RRIF and use the balance to purchase an annuity. Or, you can use your RRIF to purchase an annuity any time you wish; just remember that once you purchase an annuity, you cannot change your mind.