Shop Around Before Choosing RRIFs

It seems like decades ago when it came time to collapse their registered retirement savings plans that most investors opted for annuities. Now, the registered retirement income funds (RRIFs) are the vehicle of choice.

The reason that RRIFs are so popular can be summarized in one simple word – flexibility. You can customize a RRIF to pretty much any of your personal income needs. You can choose the frequency of income from monthly to quarterly, to annual income. You can keep payments the same or you can choose to manually withdrawal funds at any time. You can set your income level to any amount as long as you meet the government imposed minimum income levels. There are no maximum income amounts with RRIFs. Finally, you can make changes to these options at any given time.

One of the common changes that takes place is the transferring of funds from one institution to another. If you do not like the performance or service offered by your current advisor or financial issuer, you can take the steps to move it.

Be Aware of Minimum Income Payout

If you decide that you want to move from one institution to another, you will want to find out if the minimum income has been paid out. Let’s walk through an example. Let’s assume Charlie has a $100,000 RRIF at XYZ Financial Company and he is just not happy. Let’s assume he is 67 years old and XYZ Financial Company must pay out a minimum income of $4347.82. It does not matter how or when, but it must get paid out to Charlie before December 31 of this year. Let’s further assume Charlie has decided to take monthly income, which means that he will get $362.32 per month.

Now we are in October and Charlie wants to move the money to another company. What happens in this transition? Charlie has received nine payments of $362.32 totaling $3260.88. Before the transfer is made, XYZ Financial Company must pay the remaining minimum of $1086.96 to Charlie in a lump sum.

If Charlie does not take this payout into account, he may set up income from the new RRIF and wind up with more income this year than he might want and that also means potentially paying more taxes.

Investment Flexibility

Flexibility can also be found in choosing the vehicles to invest in. There are four main types of RRIFs:

  1. GIC RRIFs. If you are looking for a safe, conservative investment, you will want to consider a GIC RRIF. You can get this at any financial institution be it a bank, trust company or life insurance company. The biggest decision when it comes to a GIC RRIF is to determine how long of a term to choose – one, two, three, four or five year? The most important thing when investing in a GIC RRIF is to shop for the best rates together with flexibility.
  2. Mutual Fund RRIFs. These RRIFs are very popular today because of the low interest rates on GIC RRIFs. Mutual fund RRIFs provide a lot of investment choices and flexibility. You can invest in conservative funds like money market funds all the way up to aggressive funds like equity funds. Generally speaking you should err on the side of being conservative in a mutual fund RRIF. Ensure that you are properly diversified and not subject to extreme ups and downs in the market place.
  3. Segregated Fund RRIFs. Similar to mutual fund RRIFs, segregated funds provide lots of flexibility and investment choice. The advantage to segregated funds is that they provide some death and maturity guarantees for some added peace of mind. These guarantees do not come cheap so make sure you understand the costs associated with segregated funds before you leap in.
  4. Self-Directed RRIF. Self-directed RRIFs are the pinnacle of investing because you have the most investment flexibility. You can buy GICs, stocks, bonds, mutual funds and any combination you can think of. The more flexibility you have, the more complicated your decisions might be, so be sure to use the help of a qualified professional.

The Moral of the Story

Regardless of which type of RRIF you want the best advice I can give is to shop around. With so much choice and flexibility, decisions can become very confusing. Either shop around on your own or go out and find a financial advisor to help you make these important income decisions.

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 JimYih.com and Clearpoint Benefit Solutions.

4 Responses to Shop Around Before Choosing RRIFs

  1. Jim, Why is there a minimum payout? Withdrawals from a RRIF do not have to start until you are 72.
    Paul

    Be Aware of Minimum Income Payout

    If you decide that you want to move from one institution to another, you will want to find out if the minimum income has been paid out. Let’s walk through an example. Let’s assume Charlie has a $100,000 RRIF at XYZ Financial Company and he is just not happy. Let’s assume he is 67 years old and XYZ Financial Company must pay out a minimum income of $4347.82.

    • Thanks Paul.
      The only answer I can give you is “It’s the rules” I don’t make them. I just write about them.
      Many people think the minimum rules should be changed. I think too many people defer income for too long and should take money out earlier. Unfortunately, I see too many people dying with too much RRSPs which is another big problem

  2. Hello Jim, Can you tell me anything about the cost of maintaining a RIF? Does the cost change from one institution to another? Can I direct the money into different accts. from time to time? Is there a transaction fee or deregulation fee within a RIF agreement? Regards, Jim

  3. When AND how is my Bank to notify me when my total RIff is to be turned into cash and thus affect my income tax return?

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