Ages and What to Remember: When do I have to RRIF my RRSP?

14 September, 2015

Ages and What to Remember: When do I have to RRIF my RRSP?

When I look back over my almost 60 years of life, I sometimes think about how significant events correspond to certain ages.

For example, I couldn’t wait to turn 21 so I could drink alcohol (legally). As it turned out the government of Ontario couldn’t wait either and in 1971 changed the drinking age to 18! I was pleased.

I wasn’t pleased, however, when I turned 25—I was frustrated and disappointed. I had yet to start my career and was still waitressing at Aunt Lucy’s restaurant in Kingston where I’d worked while attending Queens University. I also felt like I “should” be married and started thinking about having a family. A quarter century seemed like a lot back then and it was hard to see the future.

But the future came anyway and, before I knew it, I was nearing the 50 year mark. Curious to know what that milestone would feel like, I asked some people who were already there. Many spoke about fifty as a turning point, a bit like a caterpillar transforming into the butterfly after spending so long in the cocoon. It seemed to be a time for reflecting and blossoming.

“Okay,” you say reflecting and blossoming, “just where is this heading?”

Well, lately I’ve been hearing a lot about another milestone. The usual question goes something like this: “At what age do we have to take an income from our RRSPs?”

Now this might not rank up there with the profundity of turning 25 or 50 (or with the freedom of becoming of legal drinking age) but at 71 you have to do something with your RRSP’s – either convert them to a Registered Retirement Income Fund (RRIF) or purchase an annuity. (There are a few other options that you can discuss with your Financial Planner and are beyond the scope and purpose of this blog). If you choose to convert them to a RRIF (I’ll talk about annuities another time) then by the end of the following year—the year you turn 72—you must take an income of at least 5.28% of your capital. (These minimums were lowered this year and formerly started at 7.38%)

For example, and for those of you who like numbers, if you have $100 000 inside your RRIF at the beginning of the year you turn 72, then you would be required to take an income of $5,280 by the end of that year from your RRIF. The percentages increase each year. By the time you are 80 you must take out 6.82%, and at 90 it’s 11.92%.

Over time your capital will start to dwindle as it becomes almost impossible for the returns on your investments to keep pace with the withdrawals. This is why it’s a good idea to discuss your income needs and what impact the RRIF rules will have on your own personal goals and dreams with a Certified Financial Planner (CFP).

Here are some additional factors to consider:

  • Will this money be needed—from an estate planning point of view—for the surviving spouse or partner should you die prematurely?
  • Is your Old Age Security (OAS) at risk of being clawed back if you wait until you are 72 to start the RRIF income?
  • Are there other tax considerations that need to be addressed when making this decision?

Once everything has been addressed you can come up with a plan for your hard-earned and nicely-saved RRSP investments to enjoy the results of all those decades of saving for your retirement while thoroughly enjoying your retirement.

Written By: Betty-Anne Howard with Trevor Strong