RRIF & Other Asset Conversion Strategies                                       

By the end of the year you turn 71, you must convert all of your your registered program(s) assets into one of the following retirement income vehicles. Here's information to help you make a decision:    

Registered Retirement Income Funds (RRIF’s)

This is essentially a reverse RRSP…instead of putting money in during the year, you withdraw it as an income source monthly, quarterly or yearly. RRIF income should last for you or your spouse’s expected lifetime. A minimum percentage of the capital must be withdrawn each year. This amount depends upon your age and total asset value at the start of each year. The annual minimum withdrawal is 4% at age 65, increasing gradually to 20% by age 94.  All RRIF income is taxable, although typically at a lower tax rate than at pre- retirement.

RRIF’s are the most popular retirement income vehicles. This reflects their flexibility versus  more restrictive conversion options such as annuities.  Here’s why: 

•  You control the investments (e.g. equities, GIC’s, etc.) which continue growing tax free until withdrawal; 
• You may take out a greater ‘special needs’ withdrawal or change your income payment amount at any time (unlike annuity payouts which are generally fixed);  
• On death, RRIF payments can be transferred to your spouse. Or, the asset balance may be transferred to your spouse’s RRIF/RRSP or to financially dependent children or grandchildren. 

Annuities

This is an insurance contract that pays you a taxable guaranteed income for life or a specified period. Annuities are primarily beneficial for individuals who have no other income, want a guaranteed, regular payment and have no desire to leave an estate (since all the assets are used up or surrendered at death). You can purchase an annuity prior to retirement and/or convert your RRSP/RPP assets at retirement. Payments to you are based on age, retirement capital and  most importantly, interest rates. Because you’re locked in for the term of the contract, annuities are more attractive when interest rates are high. You may specify:

• how you want to make your payments (i.e. single premium or installments); 
• when the Insurance company will begin paying you back (i.e. an immediate annuity starts payments immediately, while a deferred annuity commences at some future date);
• how you are paid back (monthly, quarterly, etc.);
• how your money is invested.

Life Income Fund (LIF) & Locked-in Retirement Income Fund (LRIF)

Some provinces have approved Life Income Funds (LIF's) and/or Locked-in Retirement Income Funds (LRIF's) programs as more flexible alternatives to life annuities. These programs accommodate members of pension plans wanting more control over their investments and income flow at retirement.