Listen to this Podcast
What happens to your RRSP when you retire?
Many Canadians spend so many years saving into their RRSPs, they forget to plan for how they will withdraw the money. At the end of the year in which you turn 71 your RRSP matures, and you must move from the accumulation phase to the payout phase if you haven’t already.
How do you do this?
If you were to simply take the money out of your RRSP, you would have to pay tax at your marginal (highest) tax rate on the full amount. Instead, most people transfer the assets into a Registered Retirement Income Fund (RRIF) or purchase an annuity, which are more tax-efficient strategies.
Converting to an RRIF
Think of an RRIF as an RRSP in reverse. Instead of contributing to the fund, you withdraw from it, but your money remains tax-sheltered while it’s inside the RRIF. You can hold all the same investments as you did in your RRSP, or change the asset mix to match your post-retirement needs.
Just as RRSPs have rules about how much you can contribute, RRIFs have rules about how much you must take out. After the year the RRIF is established, a schedule of minimum mandatory withdrawals begins. Minimum withdrawals start out small and increase as you get older.
Although withdrawals are considered taxable income, there is no withholding tax deducted at source from these minimum withdrawals. You may take out more money from the RRIF at any point; however, withholding tax is paid at source on these amounts.
Purchasing a registered annuity
This is a product you purchase to provide a guaranteed income stream. Funds are managed by the company where you hold the annuity, and you receive a reliable monthly income, either for a fixed period of time or for your lifetime.
There are many different types of annuities, so it’s important to choose one with features that meet your goals. For example, a couple might choose a joint and last survivor annuity that would provide an income for both spouses for their lifetimes. A person with children might choose an option where a payment is made to their estate.
An annuity is a “set it and forget it” product, which many people enjoy. The only decision involved is the initial purchase and then the annuity is locked in.
Structuring a payment portfolio
Planning RRSP withdrawals isn’t an all or nothing situation. For example, you could withdraw $10,000 in cash to take that dream trip when you retire. The rest you could divide between an RRIF to provide long-term growth and leave assets in your estate, and a life annuity for predictable, guaranteed monthly income for your remaining years.
Plan ahead
Deciding how you will use your RRSPs is as important as figuring out how to invest them during your working years. Your financial advisor can guide you on the right structure to meet your income and legacy goals in a tax-efficient manner.
We hope you enjoyed reading our blog post. If you want to keep up with the latest financial news and retirement tips, subscribe to our newsletter, follow us on our Instagram, Twitter, Linkedin and Facebook accounts (@jackieportercfp) and keep up with our News Blog.
More Financial News & Events
Unique financial challenges female lawyers face
Mar
Taking Action: A Woman’s Perspective on Deciding To Tackle Her Finances
Mar
Is there a gap in your income protection?
Mar
Knowing the difference between Tax Filer and Tax Advisor
Mar
Conquering Women’s Fears Around Finances
Mar
Trends in Family Law
Feb
PART 2: Financial Conversations Couples Need To Have at Different Life Stages
Feb
Financial Conversations Couples Need To Have at Different Life Stages
Feb
Disruption and Reinvention: Starting a Second Career in your Forties
Jan
How to create a strong financial fortress during market downturns
Jan
Creating a Financial Vision Board for 2023
Jan
5 Tips to set yourself up For Financial Success in 2023
Jan
Year-end Donation strategies
Dec
Year-end tax planning
Dec
Getting clients organized for 2023
Combating Quiet Spending
Nov
Our Client’s Journey to Building Financial Confidence
Nov
How Working with an Advisor can Improve your Confidence
Nov
A letter from the CEO’s desk
Nov
Getting Psychologically Ready for Retirement
Oct
Retirement Planning for Business Owners
Oct
Top Issues Clients Face with Retirement
Oct
What Risk Means for your Investment Portfolio
Oct
Finding Investment Opportunities in the Market
Sep
Behind The Scenes On Helping Our Clients Choose Investments
Sep
How to Deal with Debts Amidst Rising Costs
Sep
Buying and Selling Homes as Prices Fall
Aug
Parenting and Back to School
Aug
Dealing with the high cost of living
Aug
Ask Team Jackie Porter Series – Financial Planning with Jin Lee
Aug
Budgeting for Home Renovations
Jul
Mental Health and Finances
Jul
Planning a Vacation Post Covid
Jul
Dealing with spending pressures
Jun
Behind the Scenes – Working with Lawyers on a Financial Plan
Jun
Positive Experience with Financial Planning – A conversation with Erin Leslie
May
What Are the Process of Putting Together a Financial Plan? – A conversation between Jackie and Jin
May
Creating Financial Transformations
May
Building A Brand Effectively in Second Quarter – A Conversation with Cassie Drake
May
How to boost your business mojo – A conversation with Valeri Hall Little
Apr
How to make a financial fresh start second quarter? 5 principles from Jackie Porter
Apr
The #1 Challenge that Leaders Face, from the Founder of Green Apple Consulting – Lisa Mitchell
Apr
What is entrepreneur resilience? A conversation with Karen Dean
Mar
Barriers that Women Face to Access Healthcare – A conversation with Sara Byrnell
Mar
Six Action Steps You Can Take To Build Your Financial Confidence
Mar
How do we build lasting relationships and what leads to the honeymoon being over? A conversation with Gary Direnfeld
Mar
Re-visiting the Wedding Ritual in 2022
Feb
What Does a Private Investigator Know About Love, Money & Relationships
Feb
Myth-Busters: Everything Small Businesses Should Know About Funding
Jan
Slay Your Impostor Syndome
Jan