10.3.6 Unsheltered savings plans

From: Financial Consumer Agency of Canada

Most financial experts recommend putting as much savings as you can into tax-sheltered investments. Once you have reached your contribution limits on sheltered plans, you can still invest for your future with unsheltered savings and investments.

An unsheltered investment is a regular investment or account that does not shelter your money from tax. In other words, you have to pay tax on your savings and the money you make investing them.

You can choose from a wide range of investments and savings vehicles. Some, like government savings bonds and guaranteed investment certificates (GICs), are fixed-income investments with a set interest rate. Others, like stocks, pay income in the form of dividends and capital gains, and do not have a guaranteed rate of return.

Tips for investing for retirement

  • Know the level of risk of the investments you are considering, and your own comfort level with the risk that you could lose the value of the investment. Most people choose lower-risk investments as they get closer to retirement age.
  • Diversify your investment portfolio by choosing a mix of products so you don’t "put all your eggs in one basket." You can diversify your retirement portfolio by:
    • choosing different types of investment (e.g., stocks, bonds and GICs)
    • choosing different companies or industries
    • choosing different geographical areas (e.g., Canada, U.S., international).
  • Be aware of the costs associated with the investments you are considering. Many types of investment have fees in the form of commissions or fees for setting up and managing accounts. Fees can take a big bite out of your profits, so minimize them as much as possible.
  • Consider getting professional advice to help you plan your retirement savings. A financial planner or registered financial advisor can help you choose the mix of investments that is best for you. (See the section on Professional advice.)

Refer to the Investing module for more information about investing your money.


An annuity is an investment that pays you a set monthly income for a set period of time. It works like life insurance in reverse. With life insurance, you pay a certain amount each month over many years so your loved ones will get a lump sum when you die. With an annuity, you pay a lump sum up front, and get income back each month over many years. The size of your monthly payment will be higher if you buy the annuity when interest rates are high.

There are two main types of annuities:

  • A term-certain annuity guarantees you a set monthly income for as many years as you want, up to age 90. If you die before you receive all your payments, they continue to go to your estate.
  • A life annuity gives you a set monthly income for life (with or without a guaranteed period). Normally, payments stop when you die and no money will go to your estate or designated beneficiary. However, you can get a "joint and last survivor annuity," in which your spouse will receive a reduced pension income for the rest of his or her life. You can also get a life annuity that increases your income to keep up with inflation. But with each extra option you choose, you get a lower monthly payment.

To find out more about annuities, check out the information from the Ontario Securities Commission GetSmarterAboutMoney.ca website or the L'Autorité des marchés financiers website.

Income from pensions

You must start receiving income from your pension plans by the end of the year you turn 71. This rule applies to all of your pensions, if you have more than one. Don’t forget about any pension you may have from a job you left years before.

Most people start using their pension as soon as they retire. How they create income depends on the type of pension plan and the plan rules.

  • Defined benefit plans provide set, regular payments for life.
  • Defined contribution plans and group Registered Retirement Savings Plans (RRSPs) require that you collapse the plan by the end of the year you turn 71. At that point, you can transfer the assets to a Registered Retirement Income Fund (RRIF), purchase an annuity or withdraw the funds and pay the tax.

Locked-in retirement account

If, before retirement, you leave a company with a pension plan and can take your pension savings with you, you will set up a locked-in retirement account (LIRA). This is an account that holds money moved out of a pension plan. It works like an RRSP, but you cannot withdraw the funds until you retire.

By age 71, you must close a Locked-in Retirement Account (LIRA). Then you can:

  • buy a life annuity
  • invest in an RRIF
  • transfer the assets to a life income fund (LIF) or a life retirement income fund (LRIF), both of which will provide you with a regular flow of income and are subject to annual minimum and maximum withdrawal rules
  • make other investments.

Make sure you understand your options and how they will affect the money you get. You may want to talk to a financial professional to help you sort out the best choices. (See the section titled Professional advice for retirement planning.)

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