Wednesday, October 14, 2015

RRIF'ing

Canadians must convert all their RRSP's (deferred tax savings) into a Registered Retirement Income Fund (RRIF) on or before the year in which they turn 71. For me that is 2016!

This will mean turning my "Rainy Day Fund" into an income fund (different than a locked in annuity) that I have some control over. There is a minimum amount that I must take out every year but I can request more if I want it. All money that comes out is taxable income in that year but is considered pension income and is eligible for Pension Income Splitting with your spouse. The amounts increase annually for a number of years and then start to decrease until it is used up by the time they expect me to die at age 99. This is all dependent on what the fund earns going forward so the figures are just a guess and will be readjusted at every payout.

This payment can be taken as a lump sum once a year or can be divided into 12 equal payments throughout the year. Either way, in the end this will increase my annual income by more than I need. But then, it can be used to pay for stuff I was dipping into the fund for anyway so it will not make any huge differences in our lifestyle. I will take it as a lump sum every April starting in 2016. Just another meeting I have to go to before we leave!

12 comments:

  1. Have you explored the tax burden difference of 12 payments versus 1 lump sum payment? If not, you could be surprised at the difference.

    ReplyDelete
  2. No, but I will add it to my list of questions for Cecil.

    ReplyDelete
    Replies
    1. Your tax bill will be calculated on your entire year's income. Taking 12000 once a year or 1000 a month will still leave you with the same taxbill at the end of the year, won't it? And as far as Income splitting goes, Trudeau Junior wants to take that away doesn't he?
      Sylvia and I both turn 60 next year, our next issue is when to take our CPP, and the various calculations for that are mind-numbing.

      Delete
    2. It may affect the value of the fund Rod. Instead of taking the full amount out early in the year you leave most to part of it in for a few more months. I think this is what Rae is getting at. Yes, Trudeau... Hopefully no politician will have the guts to screw seniors out of one of the only deductions we get.

      Delete
    3. But if you have it all in your hands in one lump sum, you can do something with it, whether it be a cruise, or another investment like a TFSA. The Fiberals have said a lot of things before being elected, and then reneged on their promises. This time won't be any different.

      Delete
    4. We commonly used one of our RRSP's as an emergency (or unexpected expense) fund and have been dipping into it over the years. Now it will just go into a savings account until we need it or decide to take a vacation. :)

      Delete
    5. And about the Fiberals, I trust a Conservative more than I trust a Liberal. A Conservative will tell you he is going to screw you and he does just that, screws you. A Liberal will tell you he is your friend and after you elect him, he screws you. Google Cretien and wage controls to see a Liberal in action

      Delete
    6. I remember it well. I'm not that young 😉 Then there's the 'I'll repeal the Gst talk.

      Delete
  3. Sounds like a Caribbean cruise is in the future.

    ReplyDelete
    Replies
    1. Not a cruise Bill, I will never do that again but a visit to somewhere nice....? Maybe!

      Delete
    2. A friend of ours (Les) is on a 34 day cruise right now. They asked him if he would like a tour of the engine room. It was going to be a $150 extra charge.

      Delete
  4. We are not quite there yet but using our RRSPs up so there will me minimal by the time I reach 71. Don't want to pay anymore taxes than necessary.
    We meeting with our guy tonight.

    ReplyDelete