Tag Archives: RRIF withdrawals

Retired Money: Should seniors take the 25% RRIF reduction option in 2020?

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My latest MoneySense Retired Money column looks at a specific Covid-19 measure the federal Government provided to seniors with RRIFs: the option to take 25% less than usually required in 2020. you can get full details by clicking on the highlighted text: Should retirees reduce RRIF payments during COVID-19?

Normally, seniors must convert their RRSPs to a RRIF or a registered annuity before the end of the calendar year they turn 71. Then they must start withdrawing a certain mandated annual percentage of the value of the RRIF each year, starting the year after it was set up. In recent years, it has started at a 5.28% rate at age 71, rising steadily until it hits 20% at age 95.

These withdrawals are fully taxable, and there have been concerns that this may deplete capital faster than can be replenished by the miniscule returns on fixed income.

On March 25, 2020, soon after the Coronavirus panic became apparent, the federal government’s COVID-19 Economic Response Plan gave RRIF owners the option of taking 25% less than the mandated annual minimums in 2020. (This also applies to Life Income Funds and locked-in RRIFs.)

Matthew Ardrey, vice president and wealth advisor with Toronto-based Tridelta Financial, cites the hypothetical example of Dave, who has $100,000 in his RRIF on Jan 1. 2020 and turns 72 later in 2020. Normally his 5.4% minimum withdrawal would be $5,400 but with the change in legislation he can choose to take out just 4.05%, or $4,050. He can also choose to take more than the minimum if he wants.

Various reasons to take out less than required

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Why go this route? The main reason is to reduce taxes payable for the year, keeping in mind RRIF payments are fully taxable income. RRIF income may impact OAS benefit repayments: a client near the OAS threshold for repayment may end up under that threshold it if the election is chosen.

Apart from tax and OAS considerations, there may be valid investment reasons. If the RRIF holder is heavy in equities and underwater after market declines, Ardrey says the reduced minimums may give the portfolio a chance to recover, and on a tax-deferred basis. Continue Reading…

Budget’s lower RRIF withdrawal rates didn’t go far enough

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By Tim Paziuk

Special to the Financial Independence Hub 

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Tim Paziuk

In the recent Federal Budget, the government listened to seniors and advisors and reduced the minimum withdrawal amounts for RRIFs (Registered Retirement Income Funds). But did they go far enough?

If you’re not familiar with minimum withdrawal amounts, here’s a quick overview:

Up until the time you’re age 71 (or if your spouse is younger, their age 71) and you’re earning an income, you can contribute money on a tax deductible basis to a personal or spousal RRSP (Registered Retirement Savings Plan).

When you reach age 71 you have a decision to make. The decision is, do you convert your RRSP to a RRIF, an annuity, or do you cash it out (or a combination of the three). If you choose to convert it to a RRIF, the income payments cannot be deferred any longer than the following year (age 72). Continue Reading…