Many of our clients have Registered Retirement Savings Plans that they have grown as part of their retirement planning strategy. One of the most frequent questions we hear related to these portfolios is when, and how, they should be drawn upon. While RRSP savings can be accessed at any time according to an individual's cash flow needs, there comes a point where the option to withdraw funds from your RRSP is replaced with a requirement to do so. It is at this time that a RRSP becomes a RRIF.

 

RRIF stands for Registered Retirement income Fund. As the name suggests, the primary focus of this type of account is to provide an income stream through your retirement years. The main difference between RRSPs and RRIFs is that once your funds have been transferred into a RRIF you are required by law to withdraw a certain percentage of the account each year. This percentage starts small, at around 5.4%, and grows over time. Apart from this fundamental difference, RRSP and RRIF accounts are very similar. Both vehicles allow for continued tax-sheltered growth, both can be managed according to an individual's preferred investment strategy and both can hold a wide variety of investments.

 

The conversion from an RRSP to a RRIF must happen before the end of the year in which a person turns 71. From an administrative perspective, this is a fairly simple process which involves the creation of a new RRIF account and the transfer of the holdings in the old RRSP over to the new RRIF. This is typically a good time to review your account objectives and confirm that the investment strategy being employed continues to make sense for you.

 

The opening of your RRIF also marks a good time to review your income needs. When the RRIF is created you will be asked to decide when and how you would like to take your annual payment. While it is called an annual payment, in reality that payment can be taken on whatever schedule you prefer. Clients who will be using the income from their RRIF to supplement their ongoing cash flow will typically choose to receive payments monthly or quarterly. Clients for whom the RRIF payment does not represent an important part of their cash flow plan will sometimes choose to take the payment in one lump sum towards the end of the year. This allows them to keep their investments growing in a tax-sheltered environment for as long as possible. 

 

Regardless of which payment schedule you choose, the opening of your RRIF represents an opportunity to discuss running some income projections. We can help you take stock of your overall cash flow situation and show you how your investment holdings and income sources may change in the coming years. If you would like more information on converting your RRSP to a RRIF, or have questions about your portfolios in general, please do not hesitate to reach out so we can start your review today.