Everything You Need to Know About RRIFs

Most Canadians choose a Registered Retirement Income Fund (RRIF) as their retirement income option. A RRIF is a comfortable transition because of its similarity to an RRSP. A RRIF provides a high level of control over the investments in your retirement plan, the advantage of tax-free growth of assets within the plan, as well as maximum flexibility in establishing an income stream. RRIFs come in a number of shapes and sizes.

The first decision is income

The first thing you will need to determine is how much income you need or want. This decision will have the greatest impact on the longevity of your money. If you spend too much too fast, you will run out of money. Even if you don’t need or want the extra income, you have the minimum income rules to contend with.

You can tailor your income to your needs, subject to minimums imposed by the federal government. If you need steady monthly, quarterly, or annual income, it’s available. If you require a large lump sum for a major purchase, travel, or some other purpose, that’s available too.

RRIF withdrawal rules

This table outlines the minimum withdrawals on RRIFs established after 1992, as set by the government. Before age 71, the minimum percentage payout is worked out in the following way: 1÷(90 – your current age)

So if you’re 65, your minimum withdrawal would be 1÷(90-65)=4%. With a $100,000 RRIF, that amounts to $4,000. Once you reach age 69, the following schedule applies:

Age Minimum Age Minimum
69 4.76% 81 8.99%
70 5.00% 82 9.27%
71 7.38% 83 9.58%
72 7.48% 84 9.93%
73 7.59% 85 10.33%
74 7.71% 86 10.79%
75 7.85% 87 11.33%
76 7.99% 88 11.96%
77 8.15% 89 12.71%
78 8.33% 90 13.62%
79 8.53% 91 14.73%
80 8.75% 92 16.12%

The second decision is what to invest in

Financial institutions offer plans that can hold Guaranteed Investment Certificates (GICs), mutual funds, cash, or other financial instruments. Alternatively, you can establish a self-directed RRIF to include a combination of individual securities in your plan, such as stocks, bonds or Treasury bills (in addition to the investments mentioned above).

RRIFs offer investment flexibility. You can hold the same investments that are eligible for an RRSP. Shares of Canadian corporations, corporate and government bonds, Canada Savings Bonds, Treasury bills, mortgages, GICs, term deposits, covered call options, warrants, rights, and mutual funds that invest in eligible securities are all qualifying investments. You can also hold a limited percentage of your RRIF in foreign investments. Just like an RRSP, a RRIF lets you retain control over your investments, rather than handing over your money to a third party.

The longevity of your RRIF is simply based on how much money you make in investment return and how much you take out for income. It does not take a lot of mathematical know how to figure out that if you earn more money than you withdraw in income, the RRIF will grow.

For example, if you invest in a GIC RRIF at 6% and you take out the minimum (4.76%) at age 69, your RRIF should grow by 1.24%. At age 72 given the same investment return, the minimum is now 7.48%. This means your RRIF will deplete in value by 1.48% (7.48%-6.00%).

What will happen to your RRIF when you die?

You can leave your remaining RRIF assets to your heirs upon your death by designating the proper beneficiary. Not all other retirement income options provide for this. Naturally, your desire to provide an estate for your spouse, beneficiaries or charities may have an impact on how you set up your RRIF. While this may or may not be an issue, income and investments should remain the priorities.

RRIFs are flexible

One of the benefits of the RRIF is the flexibility you have in dictating income. These are some common types of RRIFs.

  • Minimum income RRIF – This RRIF provides the minimum level of income. Typically, people who choose the minimum income RRIF are those who do not need the money and want to defer taxable income for as long as possible. Remember, if this is the case, you can base the RRIF on the age of your younger spouse.Furthermore, remember the RRIF minimum income is based on the value of the RRIF on December 31 of the previous year. Sometimes this can make income planning difficult because you really don’t know what your income will be until the last minute.
  • Capital preservation RRIF – Preserving capital and paying out a fixed level of income are the goals of this RRIF type. In this case, you will withdraw your investment returns each year (subject to minimums). If you are using mutual funds, you might elect a reasonable target return like 8%, for example, with the hopes and intentions of earning 8% to maintain the capital.
  • Level income RRIF – If you want to provide income for a specific period of time such as to age 90, this RRIF would be the right choice. In this instance, you would determine the amount of income you could derive so that the entire asset would be depleted by the time you reach 90 years of age. You can use age or time frame.

Have as many RRIFs as you want

You can have as many RRIFs as you want. You can have one that pays a level income for the next 5 years to bridge income until government benefits. You can have another that is a capital preservation RRIF for a more stable long term level of income.

Generally, many people consider consolidating into one RRIF. With a single RRIF, you can easily manage your investments and you’ll only have to worry about one minimum withdrawal. Several RRIFs require more time and energy, and you’ll have to arrange to withdraw at least the minimum from each one.

Withholding tax details

RRIF income is subject to government withholding tax rates. Just like your employer withholds taxes and remits them directly to the government, your RRIF administrator is required to do the same. Minimum income RRIFs are not subject to withholding tax, but you can request any level of withholding tax desired. In all other circumstances, there is a 10% withholding rate on withdrawals less than $5000, 20% on withdrawals between $5000 and $15,000 and 30% tax on withdrawals over $15,000.

As you can see, there are a lot of issues to deal with when it comes to planning your RRIF income. Take the time to plan wisely.

A NEW SPECIAL REPORT ON GETTING MONEY OUT OF RRSPs IS NOW AVAILABLE on Jim Yih’s Special Reports Page

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

18 Responses to Everything You Need to Know About RRIFs

  1. A English says:

    If I have a personal RRSP and a spousal RRSP, can I collapse them into the same RIF or do I need two separate RIFs?

    • Jim Yih says:

      Thanks for the comment.
      You can combine the two but if you do, all the money is considered spousal money. As a result there can be a risk that the income is attributed back to your spouse who made the contribution.

      More often than not, I suggest keeping the pots separate.
      I hope that helps!
      Jim

  2. sadiq says:

    this iink was supposed to be an article on Canada Pension- How much you can get from It

  3. Bob Johnson says:

    When receiving funds from a R.I.F. by inheritance What if any taxes are there, and who has to deal with them, or do they have to be in the estate.The RIF was not in the will, and was paid out from the bank before any probate etc.

  4. Michaelw says:

    Hi Jim

    I must convert my RSPs to a Riff by December 31st of this year. How much lead time do I need – in other words how long does the Riff take to set up? I also plan to use about one third of my RSP to fund a non arms length mortgage rather than buying my retirement home on Vancouver Island with a conventional mortgage. What are the pros and what are the cons to taking out a non arms length mortgage? The con I think is if the housing bubble deflates and Real Estate prices “correct” – but the advantage is that I will be able to save a lot of the the interest and pay myself back rather than handing over the profits to another lender.

  5. FlorenceS says:

    Thank you for your articles on Retiring. They are so helpful.
    Just recently I have heard on a TV program about another option for transferring RRSP money out–instead of moving to RRIF, one can move it to “ACP”. This type of “account(?)” will decrease the tax amount to be paid. Can you tell me what ACP is? How it works? Is it only for province of British Columbia? Nobody seems to know what it is. I only caught the tail end of the program.
    Please can you help?

  6. Jerry Boyarchuk says:

    Hello
    Can proceeds from a RRIF be split with your spouse when filling your income Tax?
    Thanks
    Jerry

  7. Jerry Pauze says:

    What amount is guaranteed by the government of funds in a RRIF ??
    If I invest $500,000.00 with one investment company, is it guaranteed should the investment company become insolvent??

    • Jim Yih says:

      Hey Jerry, it depends on what you invest in and which financial institution:

      Mutual Funds are not insured at all because you own the underlying assets in the fund.

      Generally, only deposit products like GICs are insured. (CDIC and Assuris)

      Some Life Insurance Seg products are insured through Assuris.

  8. LTC Plans says:

    Thanks for the info. Just a question about Canada Retirement Savings Plan and Canada Retirement Income Fund. What are the differences between the two? Any idea? I only know they’re related to the Canada saving bond and that they receive compound interest.

  9. Michaelw says:

    Jim Could you please res[pnd to my question on this notice board.

  10. Larry says:

    I have questions about investing a RRIF in a GIC. Does a 5-year term GIC allow me to withdraw money on a monthly basis? Does the accrued interest shrink as the principal drops?

  11. June says:

    I have my RIFF’s invested with Woodgundy. The funds that are invested have done very poorly. My advisor keeps saying to leave them where they are, but I have NOT had any gains whatsover, (slight losses) in over 5 yrs. Any suggestions?

  12. A English says:

    In a self directed RRIF that contains non liquid assets such as stocks, I assume I would need to ensure there is enough cash in the account to cover my designated withdrawal amount? What happens if there isn’t? Would the financial institution notify me to liquidate some more assets?

  13. brian makara says:

    i’m 55 and i have a riff which came from my lif can i withdraw a monthly sum next month

  14. gloria says:

    Is there a regulation that indicates the time frame when a bank should be able to transfer RRIF to another bank if requested by the RRIF holder? I have been trying to transfer mine since October 2013 but up to now the bank has not done so. They keep on giving me a lot of excuses for not doing so, and I am at a point when I am thinking of further action against them. Your opinion will be much appreciated.

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