Could we see a change in RRIF withdrawal rules?

An interesting idea that’s apparently being discussed in political circles is one of high interest to retirees – it’s the thought of doing away with minimum withdrawal rules from Registered Retirement Income Funds (RRIFs).

According to an article on the Sudbury.com site, this idea seems to be focusing on the fact that retirees may not want to withdraw funds – or at least, less funds than the usual minimum – from their RRIFs during a time when the markets have been volatile due to the worldwide pandemic.

“Each year, seniors with registered retirement income funds have to withdraw a minimum amount from their savings, which is considered taxable income,” the article explains.

“The Liberals shifted the marker this year, dropping the minimum for each senior by 25 per cent to ease concerns raised by the effect of the COVID-19 pandemic. That let those who could afford it leave more money in their tax-sheltered investments, hoping to recoup losses from the pounding the pandemic delivered to the markets,” the article continues.

The article notes that 2.1 million Canadians had RRIFs in 2018, with an average balance of $114,019. That average withdrawal, again according to the article, was $10,645 in 2018, with 41 per cent of RRIF owners withdrawing more than that.

When you’re too old to put money into a Registered Retirement Savings Plan (RRSP), one of your options is to transfer the funds into a RRIF. There, your funds continue to grow tax-free, but you are taxed on a minimum amount you have to take out each year – at least under the present rules.

Your other options for the RRSP, when it ends, are to buy a life annuity (more on that later) or to withdraw it all in cash and pay taxes on the entire amount.

So what’s the deal with this new RRIF idea?

It could be a good option for those of us with RRIF savings who don’t want to “sell low,” and take money out when markets aren’t strong. But, as the Sudbury.com article tells us, if this option ever comes to pass, it carries a price tag – for Ottawa.

The Parliamentary Budget Office, the article notes, says “cutting the minimum withdrawal all the way to zero would end up costing the federal treasury $940 million next year, rising each year until hitting just over $1 billion in 2025.”  That said, presumably – even if there is no minimum withdrawal amount – some seniors will still need to withdraw money from their RRIFs and would pay some of those “waived” taxes.

RRIFs aren’t perfect. As mentioned, you (currently) have to take money out even if markets tank, a set amount each year. As well, your income from a RRIF tends to fluctuate; you generally don’t get the same amount each year because you are withdrawing funds from a declining account balance. And, you could run out of RRIF money before you run out of life.

If you’re a Saskatchewan Pension Plan member, you have an additional option when you retire. You can convert your SPP savings to a life annuity. You’ll get the same income every month – for life – regardless of whether the markets go up or down, and the longer you live the more payments you get. SPP also has options for your spouse and beneficiary to receive income upon your death. Check this important SPP benefit out today!

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