Feds should eliminate mandatory RRIF withdrawals: C.D. Howe report

Feds should eliminate mandatory RRIF withdrawals: C.D. Howe report

Click the link above to read the full article. The article was published on April 12, 2023 and written by one of our favourite follows Rudy Mezzetta at Investment Executive.

The sub-heading reads: 

Current RRIF minimum withdrawal rules put seniors at risk of outliving their savings

How do RRIF's work: 

The current rules that require retirees to draw down their RRIFs according to a schedule, set by age, exposes them to the risk of outliving savings, particularly when factoring in longer lifespans and the low real rates of return associated with safer investments appropriate for seniors’ portfolios.

This is something that Jerry and CJ work extensively with clients to prepare them, hopefully years in advance for the eventual drawdown of their investments.

It sounds counterintuitive and is worth discussing with us further about your particular situation, but there is a real risk that your RRSP investments can grow to a higher total, which you are then forced to drawdown based on the total market value, your age (post 71 is mandatory), and the governments percentage. Depending on your income needs in retirement, you may not require this income and thus will pay tax on income that you don't need to draw down. To be clear we ARE NOT saying you should stop contributing to an RRSP. Depending on your situation, an RRSP contribution can be very valuable for you, providing a number of benefits.

This is why planning is so crucial and the earlier the better as there are a number of factors to consider.

Another important aspect, which unfortunately some have experienced during the 2020 Pandemic Crash and 2022 market downturn,

“Mandatory drawdown amplify the consequences [of losses], since they force asset sales regardless of the state of the market.”

Canadians without an appropriate plan, may have been forced to sell investments at a loss due to the required minimums having to be moved out of their RRIFs.

It is important to remember that whether they do away with the minimums or maintain them. Generally, upon the death of a RRIF account holder, the value of their account can be transferred tax-deferred to their spouse/common-law partner. If you are single or the last remaining spouse, the value of your RRIF will be sold and added as taxable income to your final return. This can result in a massive tax bill. Appropriate planning is absolutely crucial to keep more money in your families/beneficiaries pockets.

The article was published on April 12, 2023 and written by one of our favourite follows Rudy Mezzetta at Investment Executive. Check out more from Rudy at Investment Executive here.

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