Deciding how you will turn your RRSP savings into retirement income is an important decision. In the year you turn 69, you must close your RRSP and make one of a few choices. You can take all of your savings in cash, leaving yourself with a huge tax bill. You can purchase a life annuity or fixed-term annuity, which guarantees a set monthly income but gives you no control over your investments. Or finally, you can roll your RRSP over into a Registered Retirement Income Fund (RRIF).
The benefits of a RRIF include the following:
- investments compound tax-free as long as they remain in the plan;
- you choose your holdings from a wide range of options;
- you decide how much to withdraw yearly (above a set minimum once you turn 69);
- you can leave the remaining RRIF assets to your heirs.
Top Five Registered Retirement Income Fund Tips
- Rebalance your portfolio when you retire so that you can draw on income from your savings rather than receiving a paycheque. Make sure a portion of your portfolio is earning enough short-term income to meet your needs.
- Avoid taking a short-term view. Your retirement could last a lot longer than you think. The investments in your RRIF must generate sufficient growth to provide an income for as long as you need it.
- Is your spouse younger than you are? Consider tying your RRIF withdrawal schedule to your spouse's age instead of your own. This can work in your favour if you would prefer to lower the annual amount you are required to withdraw from your RRIF.
- If you have a locked-in RRSP - called a Locked-In Retirement Account (LIRA) in some provinces - or pension plan savings, you cannot purchase a RRIF. Instead, you can buy a Life Income Fund (LIF) or Locked-In Retirement Income Fund (LRIF). These offer the same investment flexibility as RRIFs, but have additional restrictions.
- Set up a systematic withdrawal plan (SWP) for your non-registered investments. A SWP can help supplement your RRIF income, diversify your investments and provide tax benefits.
- 30% of investments in a RRIF can be foreign content.
- You must withdraw a minimum amount from your RRIF each year based on your age or the age of your spouse.
- you decide how much to withdraw yearly (above a set minimum once you turn 69);
- There is no maximum withdrawal amount.
