XEQT vs Annuities in Canada: Guaranteed Income vs Market Growth

My dad’s financial advisor pitched him an annuity last year. He was 67, recently retired, sitting on about $480,000 in his RRSP, and — like a lot of new retirees — a little nervous about the idea of drawing down his savings for the next 25-plus years. The pitch was compelling: “Lock in a guaranteed income for life. Never worry about the market again. Sleep easy.”

It sounds perfect, right? A paycheque that never stops, no matter what the stock market does. No decisions to make, no spreadsheets to update, no anxious mornings checking your portfolio after a bad news cycle.

But here’s the thing — my dad would have been handing over nearly half a million dollars in exchange for a monthly payment he could never increase, never adjust, and never get back. If he died five years later, that money was gone. If inflation ran hot for a decade, his purchasing power would quietly erode. And his kids would inherit exactly nothing from that portion of his estate.

We ran the numbers together. He kept the money in a diversified portfolio and set up a systematic withdrawal plan instead. Two years in, he’s doing great. But I understand why the annuity was tempting, and I think a lot of Canadians approaching retirement face this exact crossroads.

So let’s break it all down. When do annuities make sense, when are they a trap, and how does XEQT compare as a retirement income tool?

1. What Are Annuities?

An annuity is a contract between you and an insurance company. You hand over a lump sum of money, and in return, the insurance company promises to pay you a regular income — either for a set period or for the rest of your life.

That’s it at its core. You’re essentially buying a pension from an insurance company.

But there are several flavours of annuities in Canada, and they work quite differently:

Life Annuity (the most common) You give the insurance company your money, and they pay you a fixed monthly amount until you die. If you live to 105, you keep collecting. If you die at 68, the insurance company keeps the rest. This is the classic “guaranteed income for life” product.

Most life annuities offer a guarantee period (typically 5-15 years) — if you die within that window, payments continue to your beneficiary for the remainder of the guarantee period. After that? The payments stop and the capital is gone.

Joint Life Annuity Same idea, but payments continue until the second spouse dies. The monthly payment is lower because the insurance company is covering two lifetimes.

Term-Certain Annuity Pays you for a fixed period — say 10, 15, or 20 years — regardless of whether you’re alive or not. If you die early, payments go to your beneficiary for the remaining term. Less risky than a life annuity, but also less of a longevity hedge.

Prescribed Annuity (non-registered) A life annuity purchased with non-registered money where the taxable portion of each payment is spread evenly over your expected lifetime. This creates a tax advantage in the early years compared to interest income. Only available outside registered accounts.

Variable Annuity (Segregated Funds) Insurance products that invest in underlying funds and offer some form of guarantee (usually 75-100% of your principal after 10 years, or a death benefit). They come with significantly higher fees — often 2-3% MER — and the guarantees aren’t as valuable as they sound. I’d avoid these entirely.

For the rest of this article, when I say “annuity,” I’m mostly talking about a life annuity — the product most commonly pitched to Canadian retirees.

2. Current Annuity Rates in Canada (2026 Context)

Annuity rates are driven by interest rates and bond yields. When the Bank of Canada was hiking rates in 2022-2023, annuity payouts improved significantly — a 65-year-old male could get roughly 6.5-7.0% payout rates at the peak.

But rates have come back down. The Bank of Canada has been cutting since mid-2024, and bond yields have followed. As of early 2026, typical payout rates look something like this:

Approximate monthly payout per $100,000 invested (single life, 10-year guarantee):

These are rough ranges — actual quotes vary by insurer, guarantee period, and market conditions. Women receive lower payments because of longer life expectancies.

What does this look like in practice?

If my dad had used his $480,000 RRSP to buy a life annuity at age 67 in 2024, he might have locked in roughly $2,700-$2,900 per month before tax. That’s about $33,000-$35,000 per year.

Not bad. But that number never goes up. In 20 years, that same $2,800/month will buy a lot less groceries. We’ll dig into the inflation problem in section 5.

3. XEQT: A Quick Refresher

If you’ve spent any time on this site, you know the deal. But here’s the quick version for anyone landing on this page first.

XEQT (iShares Core Equity ETF Portfolio) is a single all-in-one ETF that holds over 9,000 stocks across 40+ countries. You buy one ticker and get instant diversification across the entire global economy — Canada, the U.S., Europe, Asia, and emerging markets.

• MER: 0.20% per year (among the lowest in Canada)
• Allocation: 100% equities, globally diversified
• Long-term expected return: 8-10% annually (based on historical global equity returns)
• Minimum investment: Whatever a single share costs (around $25-$30), or buy fractional shares on Wealthsimple
• Effort: Buy it, automate contributions, live your life

XEQT doesn’t guarantee anything. You could lose 30% in a bad year. But over 10, 20, 30-year periods, global equities have been one of the best wealth-building tools in history. The key question for retirees is whether XEQT’s growth potential — combined with a smart withdrawal strategy — beats the certainty of an annuity’s guaranteed cheque.

4. Head-to-Head Comparison: XEQT vs Annuity

Here’s how they stack up across the factors that matter most to Canadian retirees:

A couple of things jump out from this table. The annuity gives you a higher initial income — that’s the trade-off for giving up all flexibility, growth, and estate value. XEQT gives you lower initial income but far more upside, flexibility, and control.

Which matters more depends on your situation. Let’s dig deeper.

5. The Inflation Problem With Annuities

This is the big one. Inflation is the silent killer of annuity income, and it’s the risk that most annuity salespeople gloss over completely.

Let’s use a concrete example. Say you’re 65 and you buy a life annuity that pays you $3,000 per month. Feels pretty good today — that’s $36,000 per year on top of CPP and OAS.

But what does $3,000/month actually buy you in the future?

Assuming a modest 2.5% average inflation rate (which is actually below what we’ve experienced recently):

By age 85, your $3,000/month has the purchasing power of about $1,818 in today’s dollars. That’s a 39% pay cut — and you didn’t do anything wrong. You just lived a normal retirement.

At age 90, you’ve effectively taken a 47% pay cut. Your grocery bill, property taxes, and heating costs didn’t go down. But your annuity cheque stayed exactly the same.

Now, you can buy indexed annuities that increase payments with inflation. But the trade-off is brutal — an indexed annuity typically starts at 25-35% less than a non-indexed one. So instead of $3,000/month, you’d start at maybe $2,000-$2,200/month and gradually increase. Most people look at that lower starting number and pick the higher flat payment. It’s a psychological trap.

How does XEQT handle inflation?

Equities are one of the best long-term inflation hedges available. The companies inside XEQT raise their prices when costs go up. Over long periods, stock market returns have consistently beaten inflation by a wide margin. A retiree drawing 4% from a diversified equity portfolio has historically seen their withdrawals grow in real terms over time.

It’s not guaranteed, and there will be bad years. But the structural inflation protection built into equities simply doesn’t exist with a fixed annuity.

6. Flexibility and Liquidity: The Freedom Factor

Here’s something that doesn’t show up in any rate comparison: life doesn’t follow a spreadsheet.

When you buy a life annuity, your money is gone. Irrevocably. You cannot:

• Take out a lump sum for an emergency
• Withdraw extra for a major purchase (new roof, car, helping a kid with a down payment)
• Adjust your income down in a year when you have other income sources
• Change your mind if your health situation changes
• Access your capital if you need long-term care

That last one is particularly important. Long-term care in Canada can cost $3,000-$8,000+ per month for a private facility. If your capital is locked inside an annuity paying you $3,000/month, you may not have enough to cover care costs. If your capital is in an XEQT portfolio, you can draw down more aggressively to cover those expenses.

With XEQT, you have complete control:

• Need $15,000 for a home repair? Sell some shares.
• Want to gift $10,000 to each grandchild? No problem.
• Having a great year with other income and don’t need as much? Withdraw less and let the portfolio grow.
• Markets are down 25% and you want to reduce selling? Lean on your CPP, OAS, and cash buffer for a few months.

This flexibility has real financial value. It lets you optimize your taxes year by year, respond to life’s surprises, and make strategic decisions that a fixed annuity simply can’t accommodate.

I’ve seen retirees who locked up 80% of their savings in an annuity, then desperately needed capital two years later when a spouse got sick. There’s no “undo” button.

7. Tax Treatment: Where You Hold It Matters

The tax picture for annuities vs. XEQT depends entirely on which account the money comes from. Let’s break it down.

Annuity purchased with RRSP/RRIF money: Every dollar of the annuity payment is taxed as ordinary income — just like a RRIF withdrawal. There’s no tax advantage or disadvantage compared to a RRIF here. The CRA treats it the same way.

XEQT held in a RRIF: Same deal — withdrawals are taxed as ordinary income. You have a minimum annual withdrawal starting at age 72 (or earlier if you convert), but you can always take more. The key advantage over an annuity is that you control the timing and amount of withdrawals above the minimum, which lets you manage your tax brackets.

XEQT held in a TFSA: This is where things get interesting. If you’ve been contributing to your TFSA over the years and it’s grown substantially, all withdrawals are completely tax-free. A retiree drawing $20,000/year from a TFSA full of XEQT pays zero tax on that income. It doesn’t even count as income for OAS clawback purposes.

You can’t hold an annuity in a TFSA. That tax-free advantage belongs exclusively to investment accounts.

Annuity purchased with non-registered money (prescribed annuity): A prescribed annuity has a small tax advantage — the taxable portion of each payment is levelized over your lifetime, so you pay less tax in the early years compared to interest income. This can be useful for high-income retirees who need income from non-registered accounts.

XEQT in a non-registered account: You pay tax on dividends as you receive them, and capital gains tax when you sell. The capital gains inclusion rate (50% on the first $250,000 of gains annually) is generally favourable, and you choose when to realize gains, giving you tax-planning flexibility.

The bottom line on taxes: XEQT in a TFSA is the most tax-efficient retirement income tool in Canada, period. For RRSP money, the tax treatment is roughly equivalent — but XEQT gives you more control over when and how much you withdraw.

8. The Hybrid Approach: Floor and Ceiling Strategy

Here’s where I want to be fair to annuities, because there’s a strategy that actually makes a lot of sense for some retirees.

It’s called the “floor and ceiling” approach (sometimes called “floor and upside”), and it works like this:

1. Calculate your essential monthly expenses — housing, food, utilities, insurance, basic transportation. Let’s say that’s $3,500/month for a couple.

2. Add up your guaranteed income — CPP (~$1,050/month average), OAS (~$720/month each if both 65+). That gives a couple roughly $2,490/month in guaranteed government income.

3. The gap between your essential expenses and guaranteed income is your “floor gap.” In this example, that’s about $1,010/month.

4. Use a small annuity to fill that gap. You might need $120,000-$150,000 in a life annuity to generate that extra $1,010/month. Now your essential expenses are 100% covered by guaranteed income, no matter what the market does.

5. Invest the rest in XEQT for growth, discretionary spending, travel, gifts, and legacy. This is your “ceiling” — the upside that makes retirement enjoyable.

This approach gives you the psychological security of knowing your bills are always covered, while still keeping the majority of your portfolio in a growth-oriented investment. If the market crashes 30%, you don’t skip a meal. If the market rips higher, you take that trip to Portugal.

For someone with $500,000 in total retirement savings (beyond CPP/OAS), this might look like:

• $130,000 in a life annuity = ~$700-$750/month guaranteed
• $370,000 in XEQT = growth portfolio for discretionary spending and legacy

I think this is a reasonable approach for retirees who are genuinely anxious about market volatility. It’s not what I’d do personally — I’d keep everything in XEQT with a 1-2 year cash buffer — but not everyone has the same risk tolerance.

9. When Annuities Actually Make Sense

I promised this wouldn’t be a pure hit piece, and I meant it. There are situations where an annuity is genuinely the right call:

You have strong longevity genes and no heirs. If your parents lived to 95, you have no children, and you don’t care about leaving an estate, a life annuity is basically a bet that you’ll live a long time — and the insurance company is on the other side of that bet. If you win (by living very long), you come out ahead.

You cannot handle market volatility, period. Some people — and I mean this without judgment — simply cannot sleep at night if their portfolio drops 20%. If you know you’d panic-sell at the worst time, an annuity removes that risk entirely. A bad decision during a downturn can cost far more than the opportunity cost of an annuity.

Your guaranteed income doesn’t cover essential expenses. If CPP and OAS leave you short on basic living costs and you don’t have a workplace pension, a small annuity to fill that gap is a legitimate use of the product (the floor and ceiling strategy above).

You’re in very poor health and can get an enhanced annuity. Some insurance companies offer impaired life annuities for people with serious health conditions. Because your life expectancy is shorter, the monthly payout is higher. In these cases, the math can actually favour the annuity significantly.

You have a very large portfolio and want to simplify. If you have $2 million+ and want to carve off $200,000 for a “set it and forget it” income stream while managing the rest, the annuity is a small percentage of your total wealth and the trade-offs matter less.

When annuities DON’T make sense:

• You’re under 65 (too much life left for a fixed payment)
• You have heirs you want to leave money to
• You want any flexibility at all with your capital
• You’re worried about inflation (you should be)
• You’re buying one because a financial advisor told you to (check their compensation)

10. The Verdict: For Most Canadians, XEQT Wins

Let me be direct: for the majority of Canadian retirees, a diversified equity portfolio like XEQT with a systematic withdrawal strategy will outperform a life annuity — in total income, in flexibility, in inflation protection, and in estate value.

Historical data going back decades shows that a 4% withdrawal rate from a globally diversified equity portfolio has survived virtually every 30-year retirement period. And unlike an annuity, the portfolio often grows over time, leaving retirees with more money at 85 than they started with at 65.

But beyond the math, it’s about control. An annuity converts your largest financial asset into a fixed income stream you can never change, never access, and never pass on. XEQT keeps your money working for you while giving you the freedom to adapt as life unfolds.

Here’s what I’d recommend for most Canadian retirees:

1. Max out your TFSA with XEQT — tax-free retirement income is the single best deal in Canadian finance
2. Convert your RRSP to a RRIF and invest in XEQT — withdraw strategically to manage your tax bracket
3. Keep 1-2 years of expenses in cash or GICs — this is your buffer so you never have to sell XEQT in a downturn
4. Delay CPP to 70 if possible — this is actually the best “annuity” available in Canada (it’s indexed to inflation!)
5. Consider a small annuity only if your guaranteed income doesn’t cover essentials and you genuinely need the floor

My dad followed a version of this plan. He’s got his CPP (he delayed to 67), OAS, a TFSA full of XEQT, a RRIF invested in XEQT, and about 18 months of expenses in a HISA. He adjusts his withdrawals each year based on what he needs and what the market has done. He sleeps fine.

The annuity salesperson promised certainty. But certainty that your income will never grow and never be available to you again isn’t the kind of certainty I want for my retirement — or for yours.

The Bottom Line

Annuities aren’t evil — they’re just expensive certainty that most Canadians don’t need. Between CPP, OAS, and a well-managed XEQT portfolio, you can build a retirement income strategy that’s more flexible, more tax-efficient, better protected against inflation, and leaves something behind for the people you love.

A $3,000/month payment that never increases is a slow pay cut that compounds every single year. After 20 years of retirement, you’ve lost nearly 40% of your purchasing power. That’s not safety — that’s a different kind of risk dressed up in a suit.

Buy XEQT. Set up a smart withdrawal plan. Keep some cash on the side for rough patches. And let the market do what it’s done for the last century — grow your wealth over time.