Retiring with RRIFs

It won’t be long before you have to convert your RRSP into a registered retirement income fund.


If you are required to withdraw more money from your RRIF than you need, then take advantage of your tax-free savings account (TFSA).

Everyone should be familiar with the Registered Retirement Savings Plan, but as you get closer to your post-working life, there’s another registered account you need to get to know: the registered retirement income fund. At 72, you’re no longer allowed to invest in an RRSP. In fact, you must – by government regulation – withdraw money from it. Essentially, an RRSP converts into a RRIF, which then becomes the account you remove your money from.

For many retirees, the switch to a RRIF can be confusing. We turned to David Ablett, Director of Tax and Estate Planning at Investors Group, for his take on the benefits of a RRIF and what you need to know to make it work best for you.

David Ablett
B.Comm (Hons), is Director of Tax and Estate Planning with Investors Group

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    65 is the magical age

    While you have to convert your RRSP into a RRIF before January 1 of the year you turn 72, you can make that transition as early as 55. However, many people wait until they are 65 to convert an RRSP to a RRIF, says Ablett. At that point, you can take advantage of the pension income tax credit and pension income splitting. That means that if you are required to take out, say, $10,000 from your RRIF in a given year, you could, if it were tax-advantageous, transfer half of it to your spouse’s income.

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    Know the “ins” and “outs”

    As with a RRSP, the money in your RRIF still grows tax-free, but you are no longer allowed to put new money in. You now have to make regular withdrawals at an increasing rate. There is a minimum amount you have to remove – see the chart below – but there is no maximum. However, you will have to pay tax, based on your marginal tax rate, on whatever you take out. Something else to consider: “If you take a lot out of your RRIF, you could now be exposing yourself to a clawback of your Old Age Security payments,” says Ablett.

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    Consider risk

    The great thing about a RRIF is that the money remaining in the account can still grow tax-free. However, just because you’re no longer putting money in the account doesn’t mean you’re not investing anymore. As you get older, your risk profile could change. Generally, by the time you hit retirement you want to limit your investment risk, and that includes what’s still in your RRIF. However, if you convert at 55, you may not need to reduce that risk as much as someone who opens an account at 72. It can be complicated, so talk to an advisor about your risk profile, says Ablett.

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    Use your TFSA for extra cash

    If you are required to withdraw more money from your RRIF than you need, then take advantage of your tax-free savings account (TFSA). You’ll have to pay taxes on the amount that is withdrawn from your RRIF, but then the money can continue to grow tax-free in the TFSA.

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