There are three main alternatives in planning your retirement: a life annuity or a Registered Retirement Income Fund (RRIF) or if locked in funds (pension money) a Life Income Fund (LIF). It is not an easy decision. Each is appropriate for certain situations; sometimes, it is even necessary to combine them.
Life Annuities

A life annuity is a retirement income vehicle capable of providing a guaranteed income for as long as you and/or your spouse live. The insurer makes a series of payments to you and/ or your spouse made up of interest earned plus a return of part of the capital. The primary advantage of a life annuity is that it provides guaranteed lifetime income. You receive payments for as long as you live.

As well, it is a product that requires no ongoing management on your part – you put your money in, and a cheque arrives each month. The one drawback is that an annuity is not cashable. Once a life annuity is bought, that's it. However, while the annuity constitutes a permanent commitment between you and the insurer, the annuity income can be increased by way of a pre-set formula, such as the consumer price index, to ensure that your revenue keeps pace with inflation. An annuity contains a guaranteed period so that if you or your spouse predecease the guaranteed period, your estate will receive the remaining commuted value.

RRIFs

With a RRIF, retirement income may be received from funds accumulated in a matured Registered Retirement Savings Plan (RRSP). It's an investment from which a person receives income payments. Only the amount of your RRIF income payment is taxable in the year it is received. By law, there is a minimum income that must be paid out of the RRIF each year. There is, however, no maximum. Most RRIF's can be collapsed at any time and the funds taken into income for that year.

An advantage of a RRIF is that you can change the income payments from time to time and withdraw lump sums, if needed. This can help you respond to changes in the economic climate and meet unexpected financial needs. You retain control. One drawback of RRIF's is that since you can adjust income payments, you could spend the funds too quickly and, in contrast to the life annuity, you could outlive the RRIF.

RIFs

Life Income Funds are used for Pension income in place of an Annuity and they operate similar to a RRIF. A LIF must be commuted to an Annuity by age 80.