Registered Retirement Savings Plans (RRSPs), are one of the best tax-deferred savings vehicles available to Canadians. You can withdraw your money from your RRSP at any time, but you must close it by the end of the year you turn 71. So how do you turn your hard earned savings into income? There are a few options available and you don’t need to choose just one. Here is a brief summary of your options.
An annuity is perhaps the oldest and most well-known retirement income vehicle.You can invest in an annuity at any time to provide yourself with a guaranteed, regular income for the rest of your life, two lives, or for a specific time period. The dependable, guaranteed income available through a Life Annuity can help you feel assured that you will never outlive your savings. After you pass away, your spouse can continue to receive payments or a lump sum. Beneficiaries other than a spouse may only receive a lump sum. An annuity is a great, worry-free investment and can form an important part of a balanced retirement income portfolio.
REGISTERED RETIREMENT INCOME FUND (RRIF)
RRIF’s are a popular choice because they offer control over your investments and allow your capital to continue to grow on a tax-deferred basis. RRIF’s also:
- provide regularly scheduled income payments and may allow you to withdraw extra cash if you need it
- offer flexible investment options
- provide a wide range of payment options
- offer the ability to make changes as your needs change
- allow you to convert a spousal RRSP to a spousal RRIF
You must make a minimum annual withdrawal from your RRIF and these withdrawals will be taxed in the year the income is withdrawn.
LIFE INCOME FUND (LIF), LOCKED-IN RETIREMENT INCOME FUND (LRIF)
if you have accumulated savings in a locked-in savings plan such as a Locked-In Retirement Account (LIRA), Locked-in Retirement Savings Plan (LRSP) and/or a Locked-In Registered Pension Plan (RPP), they must be transferred to a locked-in retirement income plan when you want to draw income.
There are several locked-in retirement income plans, including LIF, LRIF, or PRIF, but their availability is determined by the provincial or federal pension legislation that governs them. Like a RRIF, all these plans allow you to choose your investments and any withdrawals you make will be taxed in the year you receive them. All these income plans have a minimum annual withdrawal requirement and the LIF and LRIF also have a maximum annual withdrawal requirement.
While you may choose to take a portion or all of your RRSP savings in cash, this option is generally not recommended because you forgo the tax-deferred growth RRSPs offer. In addition, you must declare the cash as income in the year you receive it and it will be taxed at your marginal tax rate. If you need a lump sum of cash, talk to your advisor. In reviewing your entire financial portfolio, he may be able to suggest a more tax efficient method of producing the cash you need.
You’ve spent most of your lifetime investing your money to create a nest egg that supports your vision of retirement. But people are living longer, so now you need to invest some time to ensure those savings will last as long as you may need. While any advisor you have been working with has helped you in creating your savings, you may now wish to speak with a retirement income specialist to make a plan to ensure that your investments last your whole life.