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When Is the Best Time to Start RRIF Withdrawals?

Mar 4, 2022 | Finances, Retirement

When Is the Best Time to Start RRIF Withdrawals?

There is plenty to think about when planning your strategy for income during your retirement years. There are government benefits and credits to account for, as well as your own personal savings and investments. Between all of these potential income streams, it can be difficult to know how to balance them and which ones are right for you.

Many people seek the recommendations of a financial advisor to determine where to put their money, but it’s equally important for a financial advisor to provide you with a strategy for withdrawing from those sources. Your withdrawals can impact your tax bracket, taxes at death, and other essential components of your financial plan.

Let’s take a closer look at some of your potential retirement funds. Then, we’ll turn to one account in particular, the RRIF (Registered Retirement Income Fund), to learn how to maximize your withdrawals, minimize your tax payments, and ensure your wealth is maximized.

Retirement Income in Canada

We’ve outlined the different retirement accounts before in our blog posts, but here is a summary of the main ones and what each of them does:

Old Age Security (OAS) is a government income-tested pension benefit that gives Canadians a certain amount of income each month. The basic eligibility requirements are:

  • be 65 or older
  • be a Canadian citizen or resident of Canada
  • have lived in Canada for at least ten years since the age of 18

Guaranteed Income Supplement (GIS) is a non-taxable government income-tested benefit that gives Canadians who are receiving OAS but are considered low-income an extra boost of money each month.

Registered Retirement Savings Plan (RRSP) is tax-deferred retirement account that you can contribute limited amounts of money to each year until the year in which an individual turns age 71, after which it’s generally converted to a RRIF.

Registered Retirement Income Fund (RRIF) is a tax-deferred retirement account that holds funds that can continue to be invested but must meet a minimum annual withdrawal amount.

The Tax-Free Savings Account (TFSA) allows you to save money completely tax-free. Each year the Canadian government sets limits to how much you can contribute.

Canadian employees and employers fund the Canada Pension Plan (CPP). If you’ve worked in Canada, you’ve contributed to the CPP and will be eligible to receive CPP retirement pension payments based on your years of work and contribution amounts. CPP payments are taxable but are not automatically deducted.

Balancing Your Retirement Income

With all these streams of potential retirement income, it’s no wonder many Canadians are uncertain about how to balance their payments and accounts. The best way to find a strategy that works for your particular scenario is to sit down with an experienced financial advisor or wealth management specialist. They’ll have the tools and expertise to model different strategies to find the best option for you.

One way to view the situation is to think about being tax-efficient and keeping the greatest amount of money for you and your family after you’re gone. An essential strategy to achieve this involves coordinating your RRSP and RRIF withdrawals intentionally.

How a RRIF Works

The RRIF was designed to encourage Canadians to save more money for their retirement years (rather than relying solely on OAS, GIS, and CPP) by providing a place to invest registered funds that are intended to provide a retirement income. Canadians can only contribute to their RRSP until the end of the year in which they reach the age of 71, after which their RRSP is generally converted to a RRIF for when they must begin making withdrawals. Rather than pay hefty taxes on monthly withdrawals or taxes and bank fees on large sum withdrawals, the RRIF account is a place to put RRSP money where it can continue to grow, tax-deferred. From there, annual withdrawals can be made. The main item to note with a RRIF account is that minimum annual withdrawals are required, and they are taxable.

RRIF Strategies to Save You Money

Since withdrawals made from a RRIF are taxable, here are a few strategies you could use to help minimize the tax you pay and help your money make a longer-lasting impact.

Share With Your Spouse

If you are over the age of 65, you might want to pension income split your income from the RRIF as long as it does not place either of you into a higher tax bracket. Even if your RRIF still has money in it after death, the amount can be transferred to your spouse without penalties (but not to your children).

Make Consistent Withdrawals

Another strategy that can help you avoid paying extra taxes on your RRIF income is to make consistent monthly withdrawals calculated to deplete your funds between the ages of 85 and 90. This will decrease the odds of you leaving large amounts of taxable money to your family and prevent putting your spouse into a higher tax bracket, risking their OAS payments being clawed back. Your financial advisor can help you determine the optimal withdrawal rate to make this plan work.

Use a TFSA

If you have a TFSA with room in it, you can use it to hold some of your RRIF money. Although you are required to pay taxes when you withdraw from the RRIF, your TFSA could potentially accrue enough interest on the after-tax amount to make up for some of it. And since TFSA withdrawals are non-taxable, the best-case scenario is that you’ll have a bit more money at the end than otherwise. If your TFSA is already at the limit, you could consider gifting funds to your spouse or adult children so they can contribute to their own TFSAs.

Give a Living Legacy

In the event that you have more income that you need for your retirement and are hoping to leave your family, friends, or even charity with inheritance or legacy money after your passing, you might want to consider a living legacy. A living legacy is when you donate or gift money while you’re still alive to enjoy your generosity. You could help your kids buy a house or pay for your grandchildren’s education. You could even give a sum of money to your favourite charity or non-profit.


Wealth Management Advice in Edmonton

At Regan Schiller & Associates, we help clients create strategies and plans that suit their lifestyles and goals. When you need advice on how to manage withdrawals from your accounts, we’re here to help create a plan tailored just for your needs. Let’s talk through what your goals are in retirement. Contact us to set up an appointment today!

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Regan Schiller is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant.

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