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Advanced life deferred annuity

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Retirement planning (Decumulation)
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Withdrawal methods

An advanced life deferred annuity (ALDA) is a special type of fixed, single premium, deferred life annuity that can be used as longevity insurance, to cover the risk of running out of money due to a long life. With an ALDA, you pay a lump sum using money from a registered account, and get a stream of regular monthly payments in the future, starting at up to age 85 if desired.[1] The payments continue until your death or, for a joint ALDA, for as long as you or your spouse or common-law partner lives.[1] Because of the waiting period, the same monthly payment can be purchased for a much lower premium with an ALDA compared with an immediate annuity.

This article first explains the ALDA rules set out by the federal government. It then describes the typical use of ALDAs as longevity insurance. Other potential benefits, mentioned next, are the tax advantages and protection in case of cognitive decline. The article ends with a mention of who offers the product.

How they work

ALDAs were previously problematic in Canada because of the tax treatment.[2] However, the 2019 federal budget amended the tax rules to allow them starting January 2020.[3][4][5] The new rules include a new maximum age at which an annuitant can defer payments and a new amount limit.[6][7]

More specifically, ALDAs are single premium deep-deferred fixed life annuities purchased using plans such as RRSPs and RRIFs, with a limit of 25% of the plan value or a dollar limit; payments have to start no later than the end of the year when the annuitant attains an age of 85.[3] The initial (lifetime) dollar limit was $150k and it has progressively increased to $180k in 2025.[8]

The specific account types from which a direct transfer can be made to an ALDA are:[1]

Longevity insurance

What is longevity risk?

Longevity risk is the risk running out of money due to a long life. You don’t know how long you will live and while it is great to live longer, it is also costly. Self-insuring for longevity risk by assuming death at a very old age in a financial plan is expensive. The alternative is longevity risk pooling: "as in the case of fire insurance, those who do not experience the event (extreme longevity) ... subsidize those who do".[9]

ALDAs are sometimes called "longevity annuities".[10] Immediate annuities such as SPIAs could be used for this goal but they are not popular, one reason being the loss of liquidity. ALDAs are much cheaper because of the long deferral and maintain liquidity longer[10], which helps "overcoming a potentially important psychological barrier to annuitization".[11]

While it may intuitively seem unlikely that an ALDA buyer will still be around at age 80 or 85 to actually start seeing the stream of payments, life expectancies are increasing. Projection assumptions guidelines from the Institute of Financial Planning and the FP Canada Standards Council[12] show that today's 65 year old male has a 25% probability of surviving to age 94, and to age 96 for a female. There is even a 10% probability that the 65 year old female survives to age 100 (or age 98 for the male).

Bond ladder plus ALDA

In a safety-first retirement planning or "income protection" framework, the idea is to guarantee that minimum income needs will be met during retirement: essential spending should be covered by guaranteed sources of income (liability matching). For example, for the portion of essential spending not already covered by CPP/QPP and OAS (and other pensions), you could set up a ladder of bonds (nominal or real return bonds) to cover retirement income needs for the first 20-25 years of retirement, and use an ALDA to provide income afterwards.[13][14] This strategy avoids the loss of liquidity associated with immediate annuities, yet covers the longevity risk.

In U.S. examples provided in the linked journal articles, the proportion of capital used to buy the deferred life annuity is about 10%, and the rest goes into the bond ladder. Instead of having to plan for wealth decumulation over an uncertain lifespan (in a self-managed drawdown scenario), the retiree has "the much simpler task of decumulating over a fixed period ending on the date that the (deferred life annuity) payments commence".[15]

How much ALDA?

US studies help to understand the general usefulness of longevity annuities, but Canada's retirement income system and tax rules are different. A Canada-specific lifecycle modeling exercise funded by the Canadian Institute of Actuaries[10] shows that greater lifetime consumption is possible for some individuals when ALDAs exist. The study assumes retirement at age 65 and assumes a percentage of RRSP (and DC pension plans, if applicable) assets is then converted to an ALDA with payments starting at age 85. It finds optimal conversion rates of 19.4%, 11.4% and 10.7% for individuals in different income bands (25th, median, and 75th income percentiles, respectively). The "utility gains" are statistically significant for the middle- and high-income individual, but not for the low-income individual. In terms of the best age to start ALDA payments, the study suggests age 81 (not the maximum age of 85) for the middle income individual, although this will increase the premium amount of the ALDA to be purchased.

In an earlier version of the paper,[16] Zhou et al. had found that the optimal scenario for the low-income individual was no ALDA at all, because RRSPs/RRIFs and ALDAs generate income that interacts with the Guaranteed Income Supplement, unlike investing in a Tax-Free Savings Account (TFSA).

In summary, existing academic studies suggest that the optimal proportion of a RRSP or RRIF to convert to an ALDA is typically less than the allowed maximum of 25%.

Return-of-premium

A pure longevity insurance product would only "pay off" in case of a long life. But most annuity buyers want the assurance that they won't lose the premium: "focus groups suggest that most Canadians won’t buy longevity insurance unless it has that return-of-premium feature", for psychological reasons.[9] Adding that option to an ALDA purchased at 65 and starting at age 85 is somewhat like adding a 20 year term life insurance policy on top of the longevity insurance.[9] That will reduce how much of the total premium can go towards longevity insurance.

Other potential benefits

Tax advantages

A secondary benefit of ALDAs is that they lower the minimum payments from RRIFs, so reduce taxable income early in retirement.[17]

Cognitive decline

During later years of retirement, the retiree's interest in making investment decisions and their cognitive abilities to do so may become limited.[18] Life annuities in general can provide management-free retirement income: once the annuity is purchased, there are no more decisions to make. But ALDAs in particular start paying around the age when autonomy tends to decline more visibly. If a Power of attorney is activated, an ALDA could decrease the financial management burden for the POA and the potential for mistakes.[19]

Who offers them?

As of late 2025, only one insurance company has started to offer them.[20][18] The minimum age of purchase is 55 and the maximum age is 80; income must start during the year in which the annuitant turns 85, at the latest.[21]

Recent ALDA illustrations are available from an annuity broker.[22] The particular product illustrated offers an optional cash refund guarantee: "If the annuitant were to pass away before receiving the full value of the their initial investment, any remaining funds would be refunded to their beneficiaries in a lump sum". While this sounds good, remember that getting only the principal back after up to 30 years is a zero percent return before inflation, i.e. a negative real return. But at least the beneficiaries are getting something back if the annuitant dies sooner than expected.

Given that there is only one provider so far, unless they are in a hurry, retirees may wish to wait until the market becomes more competitive before buying an ALDA.

References

  1. ^ a b c Canada Revenue Agency, How to purchase an advanced life deferred annuity (ALDA), viewed November 22, 2025.
  2. ^ Macdonald B-J (2018) Headed for the Poorhouse: How to Ensure Seniors Don’t Run Out of Cash before they Run Out of Time. C.D. Howe Commentary No. 500, 15 p. (written before ALDAs were introduced in Canada)
  3. ^ a b Government of Canada, 2019 Federal budget, Advanced Life Deferred Annuities , viewed June 28, 2020.
  4. ^ Jonathan Chevreau A new kind of annuity designed to help Canadian retirees live well, for longer, MoneySense, May 21, 2019, viewed June 28, 2020.
  5. ^ Jim Otar, ALDAs: to buy or not to buy, Advisor's Edge, February 7, 2020, viewed June 28, 2020.
  6. ^ "Annuities - Canada.ca". Government of Canada. Financial Consumer Agency of Canada. 2020-01-01. Retrieved February 23, 2021.
  7. ^ "Budget 2019: Tax Measures: Supplementary Information". Government of Canada. 2019-03-19. Retrieved February 23, 2021.
  8. ^ Canada Revue Agency, MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE, viewed November 11, 2025.
  9. ^ a b c Ezra DD (2018) Making the Money Last: The Case for Offering Pure Longevity Insurance to Retiring Canadians, CD Howe Institute, Commentary 521, 11 p. (written before ALDAs were introduced in Canada)
  10. ^ a b c Zhou R, Li JSH, Zhou KQ (2025) The Impact of Longevity Annuity Provision on Retirement Income Planning for Canadians — A Modified General Endogenous Grid Method, North American Actuarial Journal 29(3):607-644, DOI: 10.1080/10920277.2024.2417722, viewed November 22, 2025.
  11. ^ Gong G, Webb A (2010) Evaluating the Advanced Life Deferred Annuity — An annuity people might actually buy. Insurance: Mathematics and Economics 46:210-221, viewed November 23, 2025 (draft version available from SSRN).
  12. ^ Institute of Financial Planning and FP Canada Standards Council, Projection assumption guidelines, April 2025, viewed July 26, 2025; see Projection Assumption Guidelines for future years and data sources.
  13. ^ Shankar, S Gowri (2009) A New Strategy to Guarantee Retirement Income Using TIPS and Longevity Insurance. Financial Services Review 18(1):53–68.
  14. ^ Sexauer SC, Peskin WM, Cassidy D (2015) Making Retirement Income Last a Lifetime. Financial Analysts Journal 68(1):74–84.
  15. ^ Blanchett D (2014) Determining the Optimal Fixed Annuity for Retirees: Immediate versus Deferred, Journal of Financial Planning, August 2014 issue.
  16. ^ Zhou R, Li JSH, Zhou K (2020) The Impact of Longevity Annuity Provision on Canadian Retirement Income Planning, Canadian Institute of Actuaries, Document 220135, viewed November 29, 2025.
  17. ^ What’s going on with ALDAs and VPLAs?Investment Executive, November 21, 2022, viewed April 26, 2023.
  18. ^ a b Canadian MoneySaver, Want A Higher Income Late In Life? ALDAs May Help, October 20, 2025, viewed November 22, 2025.
  19. ^ Wealth Professional, How could retirees benefit from Canada's first ALDAs?, December 15, 2023, viewed November 23, 2025.
  20. ^ Wealth Professional, Desjardins launches Canada's first ALDA for deferred retirement withdrawals, December 7, 2023, viewed December 10, 2023.
  21. ^ Desjardins Insurance, Quick reference on annuities, July 2024, viewed November 23, 2025.
  22. ^ lifeannuities.com, Advanced Life Deferred Annuity, viewed November 23, 2025.

Further reading

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