Learn how to manage a Registered Retirement Income Fund (RRIF)
When it comes to retirement, there’s more to think about than simply collecting your pension.
Education members are no different from other types of workers; they think about taking the right steps to manage their financial situation in retirement. If you’ve been making regular contributions to a Registered Retirement Savings Plan (RRSP), congratulations—you’re on the right track to achieving the best possible financial situation when you retire!
However, don’t forget about having a plan in place for converting your RRSP.
According to Educators Certified Financial Planner professional Lisa Raponi, “Many educators retire earlier than the average Canadian, so it’s especially important for them to allow sufficient time for developing the right RRSP conversion strategy.”
When it comes to converting your own RRSP, here’s what you need to consider:
1. Timing is everything (especially for education members).
You must collapse your RRSP by December 31st of the year you turn 71. You may want to set yourself a reminder because if you miss the deadline, there are costly consequences (i.e. the entire value of the RRSP becomes taxable income!). As for which vehicle to collapse your RRSP into, many Canadians choose to convert their RRSP to a Registered Retirement Income Fund (RRIF).
You should know, however, that it’s not necessary to wait until you’re 71. In fact, you may not want to. Your timing for RRSP conversion should reflect the sources of your retirement income and how they impact your taxes (see more on this below in #5).
2. What types of investments can be held in a RRIF.
There are numerous investment options that can be used within a RRIF, similar to your RRSP. They include mutual funds, GICs, and high interest savings accounts. What you choose will depend on how much flexibility you are looking for. To ensure you select the best RRIF option(s) for you, it’s always best to consult with a financial advisor.
3. Can you contribute to a RRIF?
No, you cannot contribute to a RRIF. You can only make withdrawals from a RRIF.
4. There is a minimum withdrawal required from your RRIF each year.
The government uses a formula (based on your age and the value of your RRIF at December 31 of the previous year) to determine your minimum annual RRIF withdrawal. While minimum withdrawal amounts increase with age, there is no maximum limit on the amount that can be withdrawn.
Here are some examples of minimum withdrawals on a RRIF with a value of $100,000 on December 31st:
| Age | Minimum withdrawal % | Minimum withdrawal $ |
| 71 | 5.28% | $5,280 |
| 83 | 7.71% | $7,710 |
5. Work with a financial expert who knows about education members’ income (they’ll know how to minimize your taxes).
All withdrawals from a RRIF are treated as taxable income. No taxes are withheld on your minimum amount, however, withdrawals made in excess of the minimum would have withholding taxes applied.
For example, you most likely know that the Old Age Security (OAS) benefit will increase your taxable income. However, did you know that part of your OAS is clawed back if your income exceeds a certain threshold. This changes annually, but is currently $90,997 for 2024. Therefore, if you’re going to be in a lower tax bracket before age 65, it may make sense to withdraw more from your RRSP.
Tip: As a member of the education community, you need to think twice about the pension-income tax credit.
6. Elect to have the minimum payment based on your spouse’s age.
You may elect to base your minimum payment on your spouse’s age. Consider this option if you have a younger spouse. The minimum withdrawals will be smaller, leaving a larger amount in your RRIF to take advantage of tax-deferred growth. You must make this election at the time you apply for your RRIF.
7. Think ‘down the road’ by naming a beneficiary.
Naming a beneficiary ensures that the RRIF is excluded from the calculation of probate fees on your estate. If the beneficiary is a financially dependent child or grandchild under 18, they can use the RRIF funds to purchase a term annuity or transfer it to their RRSP. You also have the option of naming your spouse as “successor annuitant” rather than beneficiary, in which case they’ll continue to receive your RRIF payments by taking ownership of the account.
8. Consider converting your assets into a single RRIF for convenience.
Consolidating assets from various RRSPs into a single RRIF will help you better control cash, income flow, and easier for an estate to handle.
9. Adjust your portfolio throughout your retirement.
As mentioned earlier, education members typically retire sooner than most Canadians. There’s a lot that can happen during that long retirement, so it’s a good habit to review your financial situation (and other sources of income) at least once a year, so you can make any adjustments as needed.
If you’re still unsure about the whole RRSP-to-RRIF conversion process, Educators Financial Group is here to help.
As an organization that is very familiar with all of the nuances of an education member’s financial situation, we can provide the right kind of advice for your specific goals and time of life.
