Do High Net Worth Canadians Purchase Annuities?

High net worth individuals in Canada may purchase annuities for a variety of reasons which include the desire for a stable and predictable income stream in retirement, tax planning considerations and protection against market volatility and longevity risk.

With the recent rapid increase in interest rates and market uncertainty, even fixed income investments (e.g. bonds) and real estate investments can produce negative returns. Depending on age and financial needs, annuities can be a great alternative for some.

Guaranteed Income

One of the main reasons that high net worth individuals choose to purchase an annuity is to replace a portion of their fixed income component of their investment portfolio. An annuity can provide a guaranteed income stream for a specified period of time or for life, in exchange for a lump sum payment to the insurance company.

This is particularly attractive for high net worth Canadians who are looking to either supplement their retirement with guaranteed income or who want to ensure that they have a reliable source of income that will not be affected by market fluctuations or downtowns. Annuities can also provide great peace of mind for providing a surviving spouse with guaranteed income for life, especially when they are not great at managing investments that are left behind after the death of a spouse.

Annuities can also be an attractive option for tax planning purposes. Depending on the type of annuity and the individual’s specific tax situation, the income generated by an annuity may be taxed at a lower rate than other types of investment income, such as capital gains or interest income. In addition, annuities can provide a level of tax deferral, allowing the individual to postpone paying taxes on the income generated by the annuity until a later date.

Market Volatility & Longevity Risk

Another reason that high net worth Canadians choose to purchase annuities is to protect against market volatility and longevity risk. Market volatility causes unpredictable increases and decreases with investment holdings. This is a major concern for individuals who are nearing or in retirement, as these fluctuations in the market can significantly impact the value of their retirement savings, especially when withdrawals are being made. An annuity provides a level of protection against this risk as the income generate by an annuity is not directly tied to the performance of the stock market after it has been purchased.

Similarly, longevity risk – the risk of outliving one’s retirement savings – can be a concern for high net worth individuals who are planning for retirement. A life annuity provides peace of mind against this risk by providing a guaranteed income stream for life, regardless of how long the individual lives. You can even add an indexing rider to annuities in Canada which would allow for the payments to increase every year at a specified percentage (e.g. 3% increase every year).

Drawbacks & Alternative Options

It’s important to note, however, that annuities may not be the best option for everyone. There are a variety of factors that all Canadians, including high net worth individuals should consider before purchasing one. One of the main drawbacks of annuities is that they can be relatively inflexible, with limited options for withdrawing funds or adjusting the terms of the contract. Once it has been purchased, your funds are transferred to the insurance company to fund the monthly payments. In addition, annuities can be complex financial products and it’s important to carefully review the terms and conditions of the contract before making a purchase.

For these reasons, it is highly recommend to consult with one of our experience insurance brokers before purchasing an annuity. We can help determine whether an annuity is the right choice for your specific needs and circumstances, and can provide guidance on the various types of annuities available, as well as the pros and cons of each.

Another option is a registered retirement income fund (RRIF), which is a tax-deferred investment account that is designed to provide a steady stream of income in retirement. Unlike an annuity, however, a RRIF allows the individual to maintain control over their investments and can provide more flexibility in terms of withdrawal options. We offer RRIFs, RRSPs, GICs, GIFs, mutual funds, segregated funds and more.


Ultimately, the decision to purchase an annuity or other retirement product will depend on a variety of factors, including the individual’s financial situation, retirement goals and personal preferences. High net worth individuals should carefully consider all of their options before making a purchase.

Please reach out to us at Life to discuss your annuity options further. We can also run customized quotes from the top life insurance companies in Canada for you at no cost.

Contact us today to learn more.