There are three options of converting retirement savings into income. The first option of converting retirement savings into an income is getting annuity insurance. It is an agreement between an insurance company or an authorized issuer and the retiree that entitles him/her regular payments after he/she reinvests the retirement savings. The retiree decides the type of annuity, which he/she cannot change for the rest of the term. The insurance company decides the amount payable to the retiree based on the value of the annuity purchased, current age, and health status.
The second option is reinvesting the retirement fund into a registered retirement income fund (RRIF). This option allows retirees to access their retirement savings as a regular payment from the reinvested lump sum. The retiree determines how frequently and the extent of withdrawals within set a set limit based on their needs. Once the retiree withdraws from the account, the remaining sum continues to earn interest. Once the contract term ends, the retiree may enter into a new agreement with the RRIF or withdraw the remaining amount as a lump sum.
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The last option is cashing out the retirement savings. Cashing out is the easiest option, which entails transferring all the retirement savings to retirees' personal accounts. This option also enables the retiree to leave the savings in the retirement savings account to be transferred when the need arises. The amount transferred is incremented in the retiree's income, and therefore it is taxed accordingly. The retiree has full control over the frequency and amount he/she wishes to withdraw.
Though it would be misleading to conclude that one option is better than the other, I would recommend the annuity retirement income conversion option. Unlike the two other options, life annuities provide a basis for regular income for the term. The amount is not susceptible to inflation and other market variations and therefore acts as protection against longevity risk. The retiree's income is, therefore, sustained and secured for the contract term. Also, annuity insurance provides a steady and anticipated payment flow, which enables the retiree to have financial plans and budgets in place instead of the other options where they may run out of money.
