Using Your RRIF in Retirement
Retirement can provide a great opportunity to travel, spend more time with family and focus on things you’ve always dreamed of doing.
To help fund your retirement years, you may have contributed to a Registered Retirement Savings Plan (RRSP) during your working years.
If you have an RRSP, you need to convert it to a retirement income option when it’s time to fund your retirement. Theoretically, you could collapse your RRSP and take the cash in a lump sum but this creates an immediate tax liability on the full value of the RRSP. Therefore, a RRIF – or an annuity, or a combination of both – is popular for its tax advantages. Let’s focus on RRIFs.
While RRSPs help you gather assets for retirement, RRIFs are designed to provide you with a stable stream of income when you are in, or near, retirement. RRIFs offer several benefits:
- Tax-deferred growth. Although your RRIF withdrawals are taxable, the investments inside your RRIF continue to grow tax-deferred.
- Variety of investment options. Any investments in your RRSP can also be held in your RRIF. These include mutual funds, stocks, bonds, guaranteed investment certificates (GICs) and cash.
- Flexible withdrawals. Although there is a minimum RRIF withdrawal that you must make every year, there is no maximum limit.
- RRIFs are transferrable to a spouse/common-law partner. In the event of your death, your RRIF can be transferred tax-free directly to your spouse or common- law partner.
RRIF Fundamentals
It’s important to keep current on the rules governing RRIFs, as they are subject to change with every federal budget. The following fundamentals were updated as of 2015.
You must convert your RRSP into a RRIF by the end of the year in which you turn 71. However, you can transfer your RRSP assets into a RRIF at any time before that if you wish. Since RRIFs are designed to generate an income, you must begin taking an annual minimum withdrawal in the calendar year after you set up your RRIF.
Annual Withdrawal Minimums
Your annual minimum withdrawals are calculated using your (or your spouse’s) age. Investors often use their spouse’s age to calculate their RRIF payments if their spouse is younger. By using a younger age, you can reduce your minimum withdrawal, assuming you can manage financially with smaller withdrawals. It also allows you to reduce the tax costs and extend the life of your RRIF.
Additional Information
| Your Age (at Beginning of Calendar Year) | Withdrawal Amount (% of RRIF Market Value) |
|---|---|
| Younger than 71 | Formula is 1 / (90 - your age) |
| 71 | 5.28% |
| 72 | 5.40% |
| 73 | 5.53% |
| 74 | 5.67% |
| 75 | 5.82% |
| 76 | 5.98% |
| 77 | 6.17% |
| 78 | 6.36% |
| 79 | 6.58% |
| 80 | 6.82% |
| 81 | 7.08% |
| 82 | 7.38% |
| 83 | 7.71% |
| 84 | 8.08% |
| 85 | 8.51% |
| 86 | 8.99% |
| 87 | 9.55% |
| 88 | 10.21% |
| 89 | 10.99% |
| 90 | 11.92% |
| 91 | 13.06% |
| 92 | 14.49% |
| 93 | 16.34% |
| 94 | 18.79% |
| 95 or older | 20.00% |
Deciding whether to take more than your annual minimum withdrawal will likely depend on if you have other sources of income (e.g., pension, non-registered investments or part-time job) and your cash flow needs at the time. RRIFs have flexible payouts, so you can change your withdrawals to match your needs without penalty.
RRIFs will likely play a key role in your retirement, so it’s important to work with your financial advisor to plan when to transfer assets from an RRSP, how much income you require in retirement and what investments you should use to achieve your retirement goals.
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