Sources of Income in Retirement

Registered Assets

Like many Canadians, you probably have investments within an RRSP or RRSPs that you have built up over the years and now as retirement approaches, you may want to start spending that money. You may access your RRSP savings at any time but under current tax law, you may keep the RRSP money tax sheltered until the end of the year that you turn 71. Once you withdraw any funds from the plan they will be fully taxed.

Accessing Registered Funds

With personal RRSPs you have three choices:

  1. Withdraw the funds

    When you made your RRSP contributions you received a tax deduction and any income earned in the RRSP was tax sheltered. Therefore the monies in the RRSP have never been taxed which means that any withdrawals are fully taxed as income in the year they are received. Given this fact, it is usually not recommended to start receiving the funds until you need them.

  2. Purchase a Registered Annuity

    By purchasing an annuity with your registered funds you will receive a steady stream of payments over time on which you will have to pay tax. The amount you receive from your annuity is based on interest rates which may be low at your time of purchase.

  3. Transfer the funds into a Registered Retirement Income Fund (RRIF)

    RRSPs are designed to build up funds while RRIFs are designed to pay funds out. RRIFs look just like RRSPs from an investment perspective with the same flexibility of investment choices. When you establish a RRIF you will be required under tax law to withdraw a minimum amount each year. This amount will be included in your income for tax purposes. There are no maximum withdrawal limitations on a RRIF so you can take out as much as you need provided you are prepared to pay the resulting tax. The younger you are when you establish the RRIF, the lower the minimum withdrawals will be. For more details about RRIF minimums and other features you should speak to your advisor.