Planners need to see ‘the bigger picture’ on RRIF withdrawals, study says

As debate over the rules governing retirement savings gains momentum, a study from the FP Canada Research Foundation is reminding financial planners that there’s no one-size-fits-all approach to creating a RRIF withdrawal strategy.

Drawing on research released in October, the foundation said some financial planners may be oversimplifying complex circumstances, leading to potential problems for clients.

“When helping retirees choose the right withdrawal strategy, financial planners must consider the full complexity of their circumstances,” the FP Canada Research Foundation said in a statement on Tuesday.

Its research paper, “Retirement Drawdown Choices,” showed that many financial planners have a bias toward encouraging clients to withdraw more funds than required from their RRIFs each year — and doing so earlier than necessary in an attempt to help them achieve financial goals.

“The truth is more complex,” the foundation said. “Notably, financial planners recently surveyed said withdrawing a higher level of RRIF assets, up to the threshold of a client’s current tax bracket, was their top option for increasing the client’s income in the most tax-efficient way.”

A simplistic approach is dangerous, it said.

“The research shows that projections based on just one potential future scenario are unreliable and misleading.”

The report’s author, actuary Doug Chandler, said financial planners need to take into account things like current and future tax rates, income-splitting opportunities, and investment risks and returns.

“This research demonstrates the importance of seeing the bigger picture,” he said.

RRIFs have become a hot topic this spring since the Department of Finance launched a review of the program’s underlying assumptions. The review was sparked by a private member’s motion in the House of Commons and has since drawn comments from a number of industry groups.

In a report published earlier this month, the C.D. Howe Institute recommended eliminating mandatory RRIF withdrawals.

Correction: An earlier version of this article attributed the research to FP Canada. The research was funded by the FP Canada Research Foundation.

Allan Janssen

Allan has been a journalist for nearly 40 years, writing for daily newspapers, consumer magazines and trade publications both in Canada and abroad. He has been with Newcom’s financial team since 2020. Email him at allan@newcom.ca.