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RRSP to RRIF conversion “can be traumatic” for some; annuities help

A recent Canadian Press story by Dan Healing notes that for those of us who have carefully saved money in an RRSP for retirement, “converting it to a RRIF (registered retirement income fund) can seem a terrifying milestone.”

“Overnight, your nest egg that has steadily grown for decades becomes a declining asset, with a government-mandated, taxable annual minimum withdrawal to ensure its gradual depletion,” Healing writes.

But the RRIF conversion of an RRSP “is a small portion of the overall planning for retirement,” states David Popowich in the article. Popowich is a Calgary-based financial adviser, the article notes.

The RRIF, the article points out, is really just a different type of RRSP – one that you can’t add money to, and that is used for slowly drawing down your savings as retirement income. You can convert an RRSP to a RRIF at any time, but must convert your RRSP to a RRIF, an annuity, or a lump sum payout by the end of the calendar year in which you turn age 71, the article notes.

A simple way to deal with the issue of the age 71 limit for RRSPs is “to cash some or all of the investments and buy an annuity, usually from an insurance company,” the article suggests. “The annuity is then held inside the RRIF account and pays a guaranteed income for life or another set period of time to the investor, who pays taxes on the amounts received.”

It’s a big decision, and it depends on how your personal comfort level. Are you comfortable continuing to invest your money, getting (potentially) a variable level of retirement income based on market ups and downs, and hoping there’s some at the end for your heirs – and that you don’t run out of money while alive?

Or does the idea of a steady, lifetime income appeal to you more? You’ll get the exact same amount each month for the rest of your life, which makes it easier to plan, and you won’t have to spend your mornings worriedly watching the markets. Annuities come in many varieties and some include lifetime pensions for your surviving spouse.

Members of the Saskatchewan Pension Plan are lucky in that they have a variety of annuity options to choose from when they convert their savings into retirement income through the plan. Check the retirement guide for full details.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Shelties, Duncan, Phoebe and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22