Retirement Planning: Understanding your Choices

You have three main choices for converting your Registered Retirement Savings Plan (RRSP) into retirement income by the end of the year in which you turn age 71:

1. Cash in your RRSPs, and face a potentially hefty tax bill.
2. Convert your RRSP into a Registered Retirement Income Fund (RRIF).
3. Buy an annuity.

If you have a locked-in RRSP and are a member or used to be a member of a company pension plan and want more control over your pension investments, consider a Life Income Fund (LIF) or a locked-in Retirement Income Fund (LRIF)

Registered Retirement Income Funds (RRIFs)

Think of a RRIF as an extension of your RRSP. Your plan remains intact, and your investments continue to grow tax-free. The only difference is you must withdraw a certain amount of income from it each year. The value of your RRIF and how long your income will last will depend on what kind of investments you choose, how those investments perform, as well as how much income you plan to withdraw each year*.

For instance, you may want to invest some of your money in more conservative investments, such as Guaranteed Interest Options to protect your capital and guarantee a regular income, and the rest in growth-oriented investments so your nest egg continues to grow tax-free. This flexibility has made RRIFs one of the most popular retirement income choices.

If you want guaranteed income, an annuity may be for you. Payments from annuities are fixed: you do not have the flexibility to increase payments or withdraw larger amounts. Annuities are ideal if you want to cover fixed costs or are concerned about outliving your income. There are different types of annuities:

• Guaranteed Life annuities pay you a guaranteed income for as long as you live
• Fixed Term annuities pay you a set income for a guaranteed period of time only, usually up to age 90
• Joint-Life-and-Last Survivor annuities pay a guaranteed income while you and your spouse are alive, and continue paying that income to the surviving spouse if one of you die

If you are interested in annuities, be aware. While many financial institutions say they sell annuities, most banks only sell fixed term annuities. Only life insurance companies can sell Guaranteed Life Annuities and Joint Annuities. Empire Life offers competitive annuity rates.

It used to be that money in your pension plan was controlled by your plan administrator until you retired or left and bought a life annuity. Now, you can have more control over your pension investments with a LIF. A LIF is like a RRIF, in that you decide what you want to invest in, and how much you want to withdraw each year*. Like a RRIF, your investments will continue to grow tax-free. Some provinces require you to convert your LIF into an annuity at age 80.

You can purchase a LIF if your funds were in a Registered Pension Plan (RPP), Locked-In RRSP, Locked-In Retirement Account (LIRA) or in another LIF.

Locked-in Retirement Income Funds (LRIFs)

You may also wish to consider an LRIF (Locked-in Retirement Income Fund). An LRIF and a LIF are similar however; an LRIF permits lifetime control over investment decisions and does not require the mandatory purchase of a Life Annuity by age 80.

An LRIF as well as a LIF have both annual minimum and maximum withdrawal limits but they’re calculated slightly differently. Minimum limits are identical between RRIFs, prescribed RRIFs, LIFs and LRIFs however the maximum withdrawal limit for an LRIF is a function of age, previous year-end balance and performance history. Theoretically, each LRIF could have a different maximum withdrawal limit because of it. It’s important to get professional advice before making a final decision.

Talk to an independent advisor about your retirement options.

* There are government limits as to how little and how much you can withdraw from your RRIF or LIF each year. Some products not available in all provinces.

Registered Retirement Savings Plans
RIF
GIO Rates
Elite Family of Funds
Why Use an Independent Advisor?