RRSPs and Other Assets

RRSPs

You may make withdrawals at any time from an RRSP. Withdrawals are added to your income and taxed at your marginal tax rate. However, no later than the end of the year you turn 71, you must convert all remaining RRSP funds.

Your choices are to:

  • Deregister it, withdraw the funds in a lump sum amount and pay the tax on the full amount.
  • Transfer the accumulated RRSP funds into a registered retirement income fund (RRIF).
  • Receive a guaranteed monthly income by purchasing an annuity (term certain or life).

You can combine any of the above maturity options as desired. Keep in mind that annual payments or withdrawals will be fully taxed as income in your name.

When people think of retirement income, they usually think of RRSPs and pensions. However, there are other sources of income beyond those traditional sources. The sections below will discuss a few of them.

Tax-Free Savings Accounts

Tax-Free Savings Accounts (TFSAs) can be used to enhance retirement savings. Canadians aged 18 and over can contribute up to $6,000 every year into a TFSA. Contributions will not be deductible for income tax purposes; however, investment income and capital gains earned in a TFSA will not be taxed, even when withdrawn. Contribution room can be carried forward to future years. You can withdraw funds from the TFSA at any time for any purpose.

Non-Registered Investments

Because of the limitations that Canada Revenue Agency has placed on how much you can save in RRSPs and TFSAs, many people build additional long-term assets through non-tax-sheltered savings and investments.

House

Some retirees move to smaller homes, freeing up home equity to provide for additional retirement income. (Be conservative with this assumption. Most retirees don’t “downsize” upon retirement. Those who do, typically find that they are not able to secure suitable accommodation to fit their lifestyle and free up significant capital at the same time.)

Consider a home as your final “emergency fund”. If all other assets are spent, you can always sell it to provide for long-term care costs or borrow against the built-up equity. Alternatively, its value becomes an inheritance for family members upon your death.

Other Assets

Other examples of retirement assets other than RRSPs and pensions can include:

  • Investment or recreational properties
  • Projected inheritances
  • Business holdings that could provide additional income in retirement