Registered Retirement Income Fund (RRIF)

Canadians with Registered Retirement Saving Plans (RRSP) can maintain a steady flow of income from their investments and savings when they stop working by converting their RRSP accounts into Registered Retirement Income Funds (RRIF). Besides the tax-sheltered growth of your investments and savings, RRIFs offer:

Investment options: Within a RRIF you have the flexibility to transfer your RRSP investments in-kind and generally hold the same types of investments as you would in an RRSP, including mutual funds, stocks, bonds, and GICs.

Variety of withdrawal options: When using a RRIF you can decide how much money you would like to withdraw as long as it meets the minimum withdrawal requirement. Besides this mandatory withdrawal each year, you can also:

• Withdraw a lump-sum amount
• Change the amount of your withdrawals as your needs change
• Change the frequency of your withdrawals to either monthly, quarterly, semi-annually or annually

Tax-free inheritance by spouses: For those married, you can assign your spouse as a “successor annuitant”, in which they can take over your RRIF tax-free and automatically start receiving payments from it after your death. Your RRIF will not be included in your final income tax return and the value of your RRIF will also not be included in your estate for calculating probate fees. Probate fees are the costs associated with court certification of your estate’s authorized executor.

Minimum withdrawal amount based on your spouse’s age: If your spouse is younger than you, you can use their age to calculate the minimum amount you have to take out of your RIFF every year. This is a preferred strategy for someone who may have other retirement income sources and would like to leave their money growing tax-free as long as possible in the RIFF.

You can set up a RRIF account through most financial institutions including banks, credit unions, trusts or insurance companies as early as age 55. A financial adviser can assist you with setting up your RRIF account but it is worthwhile to ask about the types of charges and fees related to the investments in your account and to compare these at other financial institutions or firms.

To open the account you will need to provide accurate information about your financial circumstances to the financial institution or firm you are working with. The Opening an Investment Account Guide from the Investment Industry Regulatory Organization of Canada (IIROC) provides additional detail on this step.

Registered Retirement Income Funds are designed to supply you with a steady stream of income in your retirement. While you are able to choose the investments within the account, you are not able to add additional money once your RRSP has been converted into a RRIF. It is also worth noting that once an RRSP has been converted to a RRIF it cannot be reversed. If you are still in the wealth accumulation phase of your investment journey it is not advised to convert your RRSP into a RRIF.

The financial institution that administers your RRIF will calculate and inform you of the minimum amount you will need to withdraw in the following year of opening your account. The minimum amount to be withdrawn annually is determined by your age and the dollar value of your RRIF on December 31 of the previous year. When withdrawing funds from your RRIF, you can choose to receive payments monthly, quarterly, semi-annually or annually.

RRIFs offer tax sheltered growth of your investments as long as they stay in the plan, including any money you make from investing. You will incur taxation in two ways from your Registered Retirement Income Fund:

1. On the minimum amount of money you are required to withdraw from your RRIF annually
2. On additional money withdrawn from the RRIF in the form of withholding tax. Withholding taxes differ depending on the province or territory you live in. Contact the CRA or speak to a tax specialist regarding your taxation in retirement

The type of RRIF account depends on the types of investments you plan to hold and the level of comfort you have in managing your investments. The five types of RRIFs include:

1. Guaranteed interest RRIF: Focuses on investing in GICs and Canada Savings Bonds which pay fixed rates of interest over the term that you choose. These types of RRIFs can be opened at most financial institutions and are ideal for those who are risk averse and are willing to accept lower returns.
2. Mutual fund RRIF: Focuses on investing in a variety of mutual funds based on your preference and risk tolerance. This could include conservative money market funds to riskier and more aggressive funds that invest in equities. This approach has the potential to generate greater returns if you are willing to accept more risk.
3. Segregated fund RRIF: Focus on providing you a guarantee between 75% and 100% of your original investment if you hold it a certain amount of time –usually ten years. Segregated funds provide you more return than GICs but fees are generally higher. You can open a segregated fund RRIF at an insurance company.
4. Self-directed RRIF: If you prefer to manage the investments within your RRIF, the self-directed route may be for you. You can open this type of RRIF at most financial institutions and investment firms. Self-directed RRIFs allow you to access a wider range of investments and change your portfolio as you see fit. This type of RRIF can potentially have lower costs and provides greater returns based on your investment knowledge and decisions.
5. Fully managed RRIF: If you prefer to have your RRIF managed by a professional, a fully-managed RRIF may be for you. With this type of RRIF a professional money manager will create, manage and maintain a custom portfolio to fit your financial goals and unique situation. This process is also known as discretionary investment management. You will have access to a similar range of investment options as self-directed but may incur greater fees for the services of the wealth manager. Most financial institutions offer this type of RRIF but usually require a minimum amount to qualify.

If you have additional questions, the CRA website is a great place to start. If you have more personal questions regarding using Registered Retirement Income Funds in retirement you may want to talk to a certified financial planner or a registered financial adviser.