Insights & EventsWhat is a Retirement Income Fund (RIF)?February 04, 2023 • 3 MIN READ
Why choose a Retirement Income Plan?
You’ve worked hard to reach this stage of your life, and now it’s time to enjoy yourself – traveling, spending time with grandkids, or maybe getting involved in your community. Planning your retirement income is one of the keys to living the life you want in retirement. Whether your retirement is close at hand, or still several years away, the time to start planning is now. Combining your retirement savings with other sources of income that you may have can result in a predictable, tax-efficient income stream, allowing you to enjoy a comfortable retirement.
Retirement Income Options (RIOs) can provide you with a retirement income stream using the money you saved during your working years. Many of these retirement income options offer tax-deferred growth, similar to your Retirement Savings Plan (RSP).
The most common type of RIO is a Retirement Income Fund (RIF). A RIF offers you the flexibility to determine the amount of income you withdraw each year from your retirement savings. The only requirement is that you receive a minimum annual amount, according to a predetermined schedule set by the federal government. You can increase, decrease or change your income stream any time you choose. You only pay tax on the money you withdraw from your plan each year.
A RIO is also available for your Locked-in RSP (LRSP), Locked-in Retirement Account (LIRA) or Restricted Locked-in Savings Plan (RLSP) in the form of a Life Income Fund (LIF), Locked-in Retirement Income Fund (LRIF), Restricted Life Income Fund (RLIF) or Prescribed Retirement Income Fund (PRIF), depending on the governing legislation of the original pension plan.
When and how to convert your savings into retirement income
Your Retirement Savings Plan (RSP) can be converted to a form of retirement income at any time, but no later than the end of the calendar year in which you turn 71. At that time, you’ll have three choices:
- Convert your RSP to a Retirement Income Fund (RIF)
- Convert your RSP to an annuity
- Withdraw the entire amount of your RSP in one lump sum
Benefits of a RIF?
- Convenience: You decide how much income you require (subject to an annual minimum amount).
- Confidence: We’ll help you calculate the total retirement income you can expect to receive and consolidate your retirement savings from all sources into one comprehensive RIF plan.
- Access to advice: We’re here to answer your questions and help you make any adjustments to your plan.
Important Information & FAQ
There is no minimum age for closing an RRSP and transferring the money to a RRIF.
Are there reasons to convert an RRSP to a RRIF before age 71?
That depends on your situation. For example, if you decide to take early retirement, you may want to withdraw part of your savings to maintain your lifestyle. Using your RRIF could be an option.
Some people prefer to wait before tapping into other types of retirement income such as Old Age Security, because the payments increase if you delay your application. In the meantime, you can use the savings in your RRSP to fill the gap, but you have to transfer them to a RRIF first.
Tip: You don’t have to transfer the money in your RRSP to a RRIF before withdrawing it. You can withdraw all the money in your RRSP at once and pay the corresponding taxes if you wish. RRIFs are part of a gradual, long-term withdrawal strategy. There are other ways to pay less tax at retirement.
It all depends on your needs. The rules governing RRIFs establish a minimum amount that you have to withdraw, but there’s no maximum.
As you get older, the percentage of your savings that you’re required to withdraw goes up. To see the rate that applies to your situation, check the table on the Canada Revenue Agency website.
If your heath and life expectancy are good, you may not have enough money saved in your RRIF. It may be prudent to keep saving after retirement by depositing part of the income in a TFSA, for example.
The table below shows the RRIF minimum payout percentages for different ages. As you can see, the annual percentage payouts gradually increase to age 95.
|Age At Start Of Year||RRIF Minimum Payout Percentage|
|95 and older||20.00%|
*Keep in mind that different rules apply for RRIFs that were set up before the end of 1992.
If your spouse is eligible and younger than you, you can give their age when you open the RRIF, instead of your own age. This is an irrevocable decision, even in the event of death or divorce.
Holders of RIFs must withdraw a minimum annual amount of retirement income from their RIFs. This amount is based on your age or your spouse’s or common-law partner’s age (as of January 1 of the current calendar year) and the value of the RIF at the previous year’s end. If your spouse or common-law partner is younger, using their age will result in a lower minimum withdrawal, allowing more of your plan property to grow in a tax-deferred environment.
Any RIF income you receive will be taxed in the year that you receive it. In the year you open your plan, the minimum required withdrawal amount does not apply and all monies withdrawn will be subject to withholding tax. Every year after that, only the amount that exceeds your required minimum amount will be subject to withholding tax.
National Bank will send you a tax slip reflecting all RIF income from the previous year, which should be included as taxable income with your tax return.
- Take advantage of the federal age tax credit. If you’re 65+, you may qualify for an additional age deduction, depending on your income.
- The first $2,000 of eligible pension income qualifies for a 15% federal pension income tax credit and a provincial tax credit that varies from province to province (some exceptions may apply).
- Split CPP benefit payments with a lower-income spouse in order to tax the income at a lower rate. This may help you reduce or avoid the impact of the Old Age Security (OAS) clawback.
- Maximize spousal RSP contributions for the spouse with the lower taxable income at retirement. This will permit more retirement income to be taxed at the lower rates.
- Apply for the GST credit every year. You may qualify after you retire, even if you didn’t before.
- Transfer unused age, pension, disability, tuition and education tax credits to the higher-income spouse, and combine spousal charitable donations on a single tax return to maximize the tax credit.