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Registered Retirement Income Fund (RRIF)

A registered retirement income fund (RRIF) is a plan designed to provide Canadians with a constant income flow through retirement. It is the reverse of an RRSP. In an RRSP, you are limited to the amount of money you can deposit in one year, whereas in a RRIF, you must withdraw a certain minimum amount each year. There is no maximum limit to the amount you can withdraw in any one year.

You must withdraw the minimum but you may withdraw any amount above the minimum, up to the remaining balance. Any amount you withdraw is taxed in the year that you withdraw it.

In the early years, the minimum withdrawal rates are low. For example, at age 60 it is 3.33% of the account balance at the beginning of the year. With investment growth of 5%, the RRIF would continue to grow in value even with annual withdrawals, therefore providing ongoing income for future years. Withdrawing more than the annual rate of return would deplete the account at a faster rate. At the beginning of the year, the payout factor is always multiplied by the account balance to calculate the minimum withdrawal amount.

Points to Remember

• An RRIF is an account in your name.
• You choose and manage the investments in it.
• Payments from an RRIF may be extended over the lifetime of the RRIF-holder (and spouse/partner, if applicable).
• You may withdraw any amount, providing you withdraw the minimum.
• You may have more than one RRIF.
• Upon your death, an RRIF may be transferred (tax-sheltered) to your spouse/partner or to a named beneficiary (your estate then pays the tax).
• An RRIF allows for an income stream.
• An RRIF cannot be purchased from an LRRSP or LIRA (see LIF).
• You may purchase an annuity with some or all of your remaining balance at any time.

Consider

• The RRIF option also includes the most risk and uncertainty to you.
• Withdrawals are calculated as a percentage of the RRIF (if the value of your underlying investments decreases, your income may have to decrease as well).
• If significant lump sums are regularly withdrawn, there is a very real risk of rapidly diminishing your RRIF income or even emptying the account.

Payouts from RRIFs

No later than the end of the year in which an RRSP-holder reaches age 71, the RRSP must be cashed or used to purchase an annuity or a RRIF. An RRSP-holder may retain the RRSP until age 71, removing lump sum amounts as necessary. If the RRSP-holder wishes to receive a regular income from the account, then they should transfer their money to a RRIF prior to age 71. (See Income Splitting in Retirement for further details.)

Up to age 70, the required minimum withdrawal is based on the formula:

Amount of the RRIF (at the beginning of the year)     _X                      1               

                                                                                                90 less your age

Once age 71 is reached, a graduated percentage allows for minimum withdrawals per year on a more level basis, which permits the account to generate income for life, if the RRIF-holder so chooses.

If you were to convert an RRSP to an RRIF at age 60, the table below shows the minimum payout factors (withdrawals). Remember, your RRIF investments will generate investment income (interest, dividends and/or capital gains) or at times suffer a capital loss. Consider subtracting your annual payout factor from your annual rate of return to realize how quickly your account is depleting.

Age	Capital at Beginning of  Year	Investment Rate of Return	Amount of Investment Earnings	Payout Factor*	Minimum Withdrawal (at year end)	Account Value (at year end)
70	$50,000	5.0%	$2,500	5.00%	$2,500	$50,000
71	$50,000	5.0%	$2,500	5.28%	$2,640	$49,860

*Payout factor x capital at beginning of year = minimum withdrawal amount (e.g., 5.28% x $50,000 = $2,640)

Let’s review an example based on the figures given in the table above. At age 70, your payout factor at 5% (representing $2,500 that must be withdrawn by year end) is the same as your rate of return. Effectively, you made 5% then withdrew 5%. Therefore, the year-end account remains the same as the initial capital. However, at age 71, your payout factor is higher at 5.28% but your account only made a 5% ($2,500) rate of return. After making your annual withdrawal ($2,640) the result is that the account is reduced to a year-end balance of $49,860.

Minimum Payout Factors for RRIFs

Age	Minimum Amount To Be Withdrawn (%)
60	3.33
61	3.45
62	3.57
63	3.70
64	3.85
65	4.00
66	4.17
67	4.35
68	4.55
69	4.76
70	5.00
95	20.00
96	20.00
97	20.00
98	20.00
99	20.00
100	20.00
> 100	20.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RRIF Payouts

Remember, a RRIF is a plan designed to provide Canadians with a constant income flow through retirement. Use the RRIF payment calculator below to project various payment scenarios and to see the resulting impact on the balance of a RRIF account throughout your retirement years.