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Retirement Planning

Get the Most from Your Retirement Savings

Did you know that if you are turning 71 before the end of this year, you need to choose a maturity option for your Registered Retirement Savings Plan (RRSP)? If you don't, Canada Revenue Agency (CRA) requires your RRSP to be deregistered, with the entire amount becoming fully taxable. This additional income could push you into a higher tax bracket and also cause you to lose some income-related tax credits.

There are a number of ways to put your RRSP money to work during retirement, but they all boil down to a simple concept. The money you accumulated during your years of saving and investing is converted to a vehicle that provides you with income. Instead of making contributions, you will rely on withdrawals from your nest egg to subsidize your retirement expenses.

The options you can choose from to effectively fund your retirement through your own RRSP savings include: establishing and drawing from one or more Registered Retirement Income Funds (RRIFs), purchasing an income stream provided through one or more annuities, or relying on a combination of these two options. Before deciding, it's important to examine the relative merits and limitations of each of these options.

Many investors choose a RRIF as their principal retirement income option. RRIFs share many of the same features as RRSPs, but are designed to work in reverse - you take taxable income withdrawals from them. They offer flexibility and control for investment, tax, estate and income planning purposes. RRIF income can be custom tailored to meet your specific needs and there is no limit on the amount you can withdraw, so long as it's at least the minimum stipulated by CRA.

RRIFs also offer flexibility when it comes to your investment choices. These include qualifying equities, mutual funds and fixed income securities. When selecting securities for your RRIF, it's important to choose them in order to provide both for returns that are sufficient to live on and to assure that your capital won't be depleted before its time. It's also important to choose investments that reflect your risk tolerance and investment objectives.

Another maturity option open to you is a registered annuity. Annuities are purchased through a front-end payment to provide a guaranteed income stream for life, or for a fixed term. This income is determined by your life expectancy, age, gender, health, amount invested and interest rates at the time you purchase your annuity. The most important advantage of annuities is that they provide a guaranteed income for the period you elect.

Age, life expectancy, income needs, registered and non-registered financial resources and total wealth picture. There's a lot to think about when considering and selecting RRSP maturity options.

The information contained herein is considered accurate at the time of posting. CIBC and CIBC World Markets Inc. reserve the right to change any of it without prior notice. It is for general information purposes only.

Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.

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