Converting RRSPs to RRIFs

By December 31 of the year you turn 71, you must convert your registered retirement savings plan (RRSP) into a registered retirement income fund (RRIF) or annuity.

You may convert your RRSP to a RRIF or annuity earlier than age 71, but changes to withdrawal rates contained in the 2015 Federal Budget create some incentives to wait. The lower mandatory rates will help retirees stretch funds if they live a long time. But, no matter what, federal income tax rules stipulate people must convert or collapse RRSPs at age 71.

RRIF rules

There are several types of RRIFs. You can open one that invests solely in GICs, mutual funds or segregated funds, or you can open one that invests in a combination of those products.

If you’d also like to invest in ETFs, stocks and bonds, you can choose a self-directed RRIF. These require you and your advisor to regularly monitor and rebalance your account, so they’re best for more knowledgeable investors. Wealthy retirees, meanwhile, often choose fully managed RRIFs which the OSC’s Investor Education Fund calls suitable for those with “a lot of retirement savings or…complex financial situation[s].”

For any of these RRIFs, the minimum withdrawal rate depends on your age. It increases steadily from 5.28% at age 71 to a maximum of 20% by age 95 (see chart 1 for details). Withdrawn funds can be taken out as cash or transferred in-kind to TFSAs, provided you have contribution room, or to non-registered accounts.

Choosing in-kind transfers over cash withdrawals means you don’t have to sell investments. However, you’re still taxed on the withdrawals.

When creating a RRIF, you can decide to receive funds or investments monthly, quarterly, semi-annually or annually, and they’re fully taxable for the year based on your income tax rate. You have to pay withholding tax on withdrawals above your minimum threshold.

Chart 1

Age on January 1	Minimum amount	Age on January 1	Minimum amount
Under 71	​1/(90 – age of RRIF holder*)	​83	​7.71%
71	​5.28%	​84	​8.08%
72	​5.40%	​85	8.51%
73	​5.53%	​86	​8.99%
74​	5.67%	​87	​9.55%
75	​5.82%	​88	10.21%
76	​5.98%	​89	​10.99%
77​	​6.17%	​90	11.92%
78	6.36%	​91	​13.06%
79​	6.58%	​92	​14.49%
80​	​6.82%	​93	​16.34%
81	7.08%	94	​18.79%
82​	​7.38%	95 or older	​20%

*Withdrawals can also be based on the age of a RRIF holder’s younger spouse. This lowers minimum withdrawal amounts and helps sustain funds.

Source: 2015 Federal Budget documents. RRIFs from 1992 and earlier are subject to different withdrawal rules.

A look at annuities

If you’d like to buy an annuity with RRSP savings, there are several options, including term-certain and life annuities. Whichever you choose, annuities are designed to provide steady income payments to investors every month, quarter, six months or year.

Term-certain products provide payments up to age 90, with payouts based on your age; or the age of your spouse if he or she is younger. If you die before the term is over, scheduled payouts can still be made to your spouse provided he or she is the named beneficiary. Or, the full amount owed can be paid in a lump sum to a beneficiary, or to your estate.

Life annuity payouts are, as the name implies, guaranteed for life and based on factors such as interest rates, age and gender—since women generally live longer, they often get lower payouts.

Also, compared to term-certain annuities, the payouts of life annuities are generally lower. So you may need to supplement payouts using other income sources.

If you’re worried about dying before you receive all scheduled life annuity payouts, you can choose to receive guaranteed minimum annuity payments. If you die before your guaranteed period is over, your insurer can continue to pay a spouse beneficiary, or payouts will be commuted and paid in a lump sum to your beneficiary or estate.

If you live past the guaranteed period, you’ll still receive funds until you die. But purchasing the guarantee also means lower payouts.

For all types of annuities, payouts are taxed as income at the end of the year.