If it’s time to start drawing on your retirement savings, you may wonder what investment strategies make sense for your Registered Retirement Income Fund. Kim Parlee speaks with Pierre Letourneau, High Net Worth Planner at TD Wealth, about what to consider when converting your retirement savings to a RRIF and some ways you can manage your overall retirement income.
- Well, if it is time for you to start enjoying some of those retirement savings, you might wonder if there's any strategies to help that RRIF last longer. Pierre LeTourneau is a High Net Worth Planner with TD Wealth. He's joining us from Mississauga for today's "Ask MoneyTalk."
Pierre, great to see you. The question is, "I'm about to turn 71 and ready to convert my RRSP into a RRIF. I'm wondering if I need to change my investment strategy to ensure my money lasts?"
- Thanks, Kim. I think in most cases, it really depends on your personal circumstances. As you know, when you convert your RSP to a RRIF, you're required to start withdrawing certain amounts on an annual basis from your RRIF account. And that withdrawal is taxable.
The withdrawal amount is based on your age. So depending on your age, there's a certain percentage of the value of the account that must be withdrawn annually. So if you are turning 72 in a given year, the withdrawal amount is 5.28% of the value of your account.
So definitely, you need to plan for that. So depending on whether you need the funds on these withdrawals, that may have an impact on your investment strategy. So for example, if you need the funds for your living expenses, then it may be best to make sure those funds are invested in a secure investment and not exposed to market fluctuations. Now, if you don't need those funds and are planning on reinvesting those funds in a non-registered account or a tax-free savings account, then you may not be concerned about fluctuations in the market.
- So I know some people have talked about an annuity as a possibility as well. So maybe just tell us, remind us again, what it is and whether it might make sense.
- Right. And it can make sense for a lot of RRIFs owners, especially conservative investors. So in an annuity, a person purchasing an annuity would transfer funds to an insurance company that would agree to pay a certain amount on the monthly basis to the individual for the rest of their lives.
So it ensures that the annuitant receives cash flow for the rest of their lives. And so for a lot of Canadians, that is very attractive, especially since, as a population, we're living longer. So the risk of outliving your money-- so longevity risk-- is a serious risk for a lot of individuals in Canada.
- So those are the pros, I would say, in terms of-- and who it makes sense for. But maybe what are some of the cons for annuities you have to be careful about?
- Right. There are cons, obviously, to any decision. So with the RRIF, when you pass away, the assets that are left within the account can be transferred to your beneficiaries. That can be your spouse.
And there are tax advantages to doing that. Those can be transferred tax-free. Or they can be transferred to another beneficiary, like your children, which would be taxable. But at least the funds that are within the account remain intact and are part of your estate.
With an annuity, once you pass away, the payments are no longer paid by the insurance company unless you purchase the feature, which is a guaranteed period feature that guarantees payment for a certain period of time, even if you pass away. Now, that feature will cost a bit more. So you'd have to transfer more funds to the insurance company to get that coverage. But that could give you some protection against potential downsides of an annuity.
- It's interesting because I think good planning, good tax planning, matters the most, of course, when you have the most.
And that's, generally, at that point in your life when you're going to be making that transition. So any other final tips for people to keep in mind?
- Well, it's probably just that, Kim. Many retirees have various pools of assets. And they need to determine what's the best way to draw on those different pools.
And consider the tax consequences in doing that, as well, too. that's very complex. It's not easy to determine. So I think it makes perfect sense to work with a financial professional to develop a plan that makes the most sense for your needs.
- Pierre, always a pleasure. Thanks so much.
- Thank you.
- That's Pierre LeTourneau from TD Wealth. And if you have any questions, you would like to ask MoneyTalk a question, you can send an email to firstname.lastname@example.org with the subject line "Ask MoneyTalk." Ask your question. We'll find someone to answer it. And you can find those questions answered on MoneyTalkGo.com.