Converting your RRSP at retirement.

Your options.

You have three maturity options for your RRSP to consider. You don't have to choose just one of these options - you can combine two or more of them.

• Convert into a Registered Retirement Income Fund (RRIF)
• Purchase an annuity
• Withdraw as cash

Which option is right for you?

Most people convert their RRSPs to RRIFs. But it should not be an automatic choice. Your best retirement income options can depend on many factors, like your:

• Health
• Other retirement income sources
• Projected income tax bracket
• Need for ready cash for lump-sum or emergency expenses
• Need for inflation protection
• Estate planning goals
• Desire to control how your funds are invested
• Need for predictable income

When should you decide?

You should pick one or more options if:

• You turned age 71 this year
• You need regular income and want to use your RRSP
• You are at least age 65 and don't already have income that qualifies for the Pension Income Credit
• You are at least age 65 and want to create income you can share with your spouse, using Pension Income Splitting rules
• Withdrawing now means paying less tax, and/or keeping more government benefits (such as Old Age Security or Guaranteed Income Supplement), than delaying withdrawals until later

Don't leave your decision to the last minute. Give yourself time to weigh your options. One of our investment professionals would be pleased to help you decide when and how to convert your RRSP to a form of retirement income. A little expert advice and planning will give you peace of mind to enjoy your retirement.

Registered Retirement Income Fund (RRIF).

While you can withdraw all or part of your RRSP, it’s not the best option for most people. The full amount of the withdrawal is subject to witholding tax, and must be reported as taxable income when you file your tax return.

A common option is to convert your RRSP to an RRIF where your investments can continue to grow was they did and are earnings are taxable upon withdrawal. Certain rules apply around a minimum that you must withdraw but it is often still preferred to withdrawing your RRSP in whole as cash.

Learn more about RRIFs

Annuities.

An annuity is where you exchange a lump-sum for the promise of a regular series of future payments, generally from a life insurance company.

They can be bought with registered funds (RRSPs or RRIFs), a Tax Free Savings Account, or non-registered funds. Annuities bought with non-registered funds are partially taxable but you can level the yearly amount of your taxable income for your entire lifetime by buying a “prescribed annuity” instead.

You can exchange RRSP or RRIF funds for a registered annuity without any immediate income tax. You are, however, taxed on payments as you receive them from a registered annuity.

Like with RRIF payments, payments from registered annuities qualify for the Pension Income Credit and Pension Income Splitting once you reach age 65, to help you save income tax in retirement. As well, after age 65 you can use Pension Income Splitting rules to share registered annuity income with your spouse (including your common-law or same-sex partner), or your taxable amount from a non-registered annuity.

You should consider an annuity if you:

• have smaller retirement savings that must last your lifetime
• want peace of mind by having regular income (for example, for core expenses once retired)
• prefer not to make ongoing investment decisions

When considering annuities, remember:

• Annuity payments may be guaranteed for a minimum number of years, or for your entire lifetime, or even for the lifetime of you and another person - like your spouse.
• An annuity is non-redeemable, and non-reversible after you sign the annuity contract, so be sure to keep an appropriate amount of funds outside to cover lump-sum expenses and unforeseen items.
• When you buy an annuity you are essentially betting that you will collect enough in the future from it to justify the initial cost. The longer you live, the more your annuity will pay.
• Annuity payments are typically calculated using long-term interest rate assumptions, and may offer the best value when such rates are high.
• Variable annuities offer payments that depend on investment returns. Some may offer guaranteed minimum payments too, for a cost.

There are three main annuity types:

• Single-life annuity
  A single-life annuity provides regular payments during your lifetime. You can select a guarantee period so that is you die within that initial period, your selected beneficiary or your estate can get receive the remaining value of the payments left in your guarantee period. But if you die after your guarantee period (if any) ends, your beneficiaries or estate receive nothing.
• Joint and last survivor life annuity
  Joint annuities make regular payments during your lifetime, and automatically continue to your spouse or common-law partner after you die. You can choose whether 100% of your original payments continue after your death, or a lesser percentage. Choosing less boosts your initial income. Similar to single life annuities, JL&LS annuities let you select a guarantee period so your estate or beneficiary can receive some value if both you and the joint person die within that initial period. Since the insurer may have to pay for a longer time period than just your lifetime, joint annuities usually pay less initially than single-life annuities.
• Term certain annuity
  A term certain annuity makes regular payments until you turn a certain age. If you pass away before the specified age, an equivalent to the remaining annuity payments is paid as a lump sum to your estate or beneficiary. Usually, payments are slightly lower than a life annuity, due to this guarantee.

Withdrawing cash.

If you are at least age 65, consider converting your RRSP to a RRIF before withdrawing from it as cash. That way, your withdrawal is at least eligible for the Pension Income Credit and Pension Income Splitting, to potentially save you income tax.