RRIF Minimum Annual Withdrawals: What it Means for Seniors
When planning your finances for life as a retiree, having a healthy amount in your Registered Retirement Savings Plan is a good place to start. However, you should be mindful that an RRSP is intended for saving, not for spending. This is where a Registered Retirement Investment Fund comes in handy, otherwise known as an RRIF, which requires that you withdraw a set minimum amount each year. Today, let’s explore what this minimum means for seniors once they retire and why you should convert your RRSP into an RRIF when you’re ready to withdraw funds.
Understanding How RRIF Works
An RRIF is similar to an RRSP in that it is a tax-sheltered savings account. It grows as you invest in it. However, when it’s time to use the hard-earned money you saved, you should convert your RRSP into an RRIF. You don’t have to worry about being taxed for the conversion, but why else is this an ideal approach?
First, you’re only taxed on what you withdraw each year. Second, it’s a lot more flexible, letting you decide how much you want to take out as well as the frequency. Third, you’re allowed to hang onto mutual funds, FIOs, ETFs, and other investments alongside an RRIF. Not only that but you’re actually required to convert your RRSP to an RRIF. This needs to be done by the end of the year in which you’ll turn 71. Until then, continue to invest your savings into an RRSP before converting the entire amount into an RRIF when that time comes.
What is the Minimum Annual Withdrawal from a RRIF?
An RRIF minimum is calculated by deducting the fair market value (FMV) of your RRIF each year. This is then multiplied to determine the minimum amount. Bear in mind that, for the first year that your RRIF is active, you don’t need to withdraw anything.
For 2020 only, the minimum annual withdrawal amount for an RRIF was reduced by 25 percent, which you can learn more about by clicking here to visit the Government of Canada’s page on the subject. The minimum percentage you need to withdraw increases each year you get older. For example, based on this CIBC minimum withdrawal chart, an RRIF that was initiated at age 65 must have approximately four percent withdrawn each year. This increases each year until, at age 95 or older, twenty percent is required. These figures apply to RRIFs that was set up in 1993 or later.
What to Do if You’re Unsure What Your Minimum is
It can be overwhelming to determine the amount you need to withdraw each year, especially if you’re not familiar with how an RRIF works. Don’t worry, however, as our team at the Seniors’ Lending Centre is happy to assist! Getting in touch with our team gives you access to dedicated investment specialists who can help you better understand your finances and make informed decisions regarding them.
All in all, an RRIF acts as a hassle-free way of obtaining a set minimum amount of funds from your retirement savings each year, whenever you’d like. Of course, you should never need to guess at the minimum amount you need to withdraw each year. For knowledgeable assistance with your retirement savings and other investments, you can count on our team here at the Seniors’ Lending Centre. If you have questions or concerns regarding your accounts and/or retirement planning, click here to contact our team. One of our friendly and experienced advisors will be happy to assist you in any way they can. We can also assist with credit lines, home equity loans, CHIP reverse mortgages, and more!