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
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
How to Form A High Performing Team for Your Business
Jan
2021 Holiday Shopping Trends and Tips to Help Your Wallet
Nov
How to Financially Start Your Divorce Journey
Nov
Divorce Planning in the Pandemic
Nov
How to Deal With Financial Trauma
Oct
Lessons for Small Business Owners in 2021
Oct
Small Business Resources for Start-ups
Oct
Top 6 Real Estate Trends and Strategies
Oct
The Importance of A Mid-Year Tax Check-Up With Your Accountant
Sep
Top 8 Business Finance Tips for Business Owners
Sep
Pricing Strategy: How to Charge and Manage Your Clients
Sep
Everyone should have multiple income sources
Sep
How to Manage Back to School Season in 2021
Aug
How to Start a Small Business at Home
Aug
How to Become an Empowered Leader
Aug
How to Tame Your Spending Dragon Post COVID
Aug
What does financial planning look like at different life stages?
Aug
5 Factors to Consider When Moving Out After Divorce
Jul
Service-Based Businesses Post-Lockdown
Jul
Financial Planner vs. Advisor
Jul
Estate Planning: How to be Proactive Around Your Will
Jul
Women’s Health Initiatives in Canada
Jul
How to win with higher investment risk
Jul
Celebrating Pride 2021 and Identifying the Challenges of the LGBTQIA2S+ Community
Jun
Travel Restrictions between Provinces and Countries This Summer 2021
Jun
How to Support Small Businesses during the Ontario Reopening Plan
Jun
Treat Cash Flow Like Royalty
Jun
Financial Planning for Lawyers: Working with Lawyer’s Financial
May
2021 Federal Budget Programs to Help Childcare
May
Investing Tips For Empowering Women’s Confidence
How to Find Investors for Women Owned Startups
May
Top Work Benefits for Executives