From RRSP to RRIF – Managing your retirement investments

When the time comes, your RRSP will convert to a RRIF, a change that needs to be made before the end of the year you turn 71.

Adjusting your portfolio for RRIF withdrawals

You can hold the same investments in a RRIF that you held in an RRSP, but you won’t be able to continue making new contributions as you did before the conversion. On the contrary, the opposite is true. The amount you need to withdraw each year is based on your age, and the percentage goes up as you get older. “It’s designed to use it up over your lifetime. So I find that’s a challenge for a lot of people,” Andrade said.

Part of the transition to retirement may be a change in portfolio composition. Andrade said she typically takes a “bucketing” approach for clients when building RRIF portfolios, with a portion set aside for withdrawals that has little or no risk. This way, if the overall market downturns, clients are not forced to sell investments at a loss because they need cash.

Plan withdrawals to protect retirement income

Andrade says it’s important to have cash available when you’re relying on investments to fund retirement. “I want to make sure I have money when I need it, and if the market doesn’t do well or there’s a downturn, you still have time to recover,” she said.

Withdrawals from a RRIF are considered taxable income. So even though the money may have come from capital gains or dividend income within the RRIF, it will be taxed as income when you withdraw it, so withdrawal planning is important.

There’s no cap on your RRIF withdrawals in any given year, but you could take a significant tax hit if the amount is larger and puts you into a higher tax bracket. You may also face a rebate from the OAS if large withdrawals raise your income high enough.

Tailor your retirement plan to your needs

Just because you withdraw money from your RRIF account doesn’t mean you have to spend it. If you don’t need the money and have contribution room, you can put the money in a TFSA, where it will grow and avoid taxes.

Sandra Abdool, a regional financial planning advisor at RBC, says saving money outside of a RRIF can help you avoid a large withdrawal and a big tax hit if you suddenly find yourself in need of expensive home repairs or a big-ticket purchase like a new car.

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“Exactly how that is structured is very specific to each client. It really depends on what your sources are, how much income you need, what your current tax bracket is, and what your projected tax bracket is when you turn 71,” she said.

Abdul says you should have conversations with your financial advisor well in advance of retirement to make sure you’re prepared when you retire. “By having a plan, you’ll be prepared to know that the income you’re looking for will be there, and you’ll have peace of mind knowing how things will play out in the future,” she says.

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