So you have been diligently saving for your long term goals, one of them being an independent retirement. Government benefits should only be a supplement to your own nest egg for your independent retirement.
Few investors give thought to what happens to their RRSP or TFSA in retirement. For most of us it is a long way off and daily demands clamor for our attention, leaving little mental energy to reflect on a future goal.
However, circumstances can change suddenly, and clients can have to take a crash course in the rules of registered plans within a compressed time frame, for instance when a client loses or changes employment, or goes through a relationship change.
An investor can contribute to his or her RRSP until age 71, or longer if the spouse is younger. At that point the RRSP must be converted to a RRIF or Registered Retirement Income Fund. A RRIF is designed to provide retirement income for life. Government rules dictate a minimum amount that must be withdrawn every year based on the accountholder’s age(or sometimes the age of the spouse). The amount withdrawn is considered taxable income. Any amount above the minimum can be withdrawn.
Many Canadians will change careers at least once in their working years. If the employer provided a group plan, there are several options available. A group RRSP can be transferred to a private RRSP. A defined contribution plan can be transferred to an RRSP or Locked in Retirement Account(LIRA). A LIRA is like an RRSP with more restrictions. For a defined benefit plan the transfer options depend on the age of the pension holder and origin of the plan. Pension plans can sometimes be transferred to the new employer’s plan if there is one and it is allowed.
A LIRA becomes a Life income Fund(LIF) upon retirement or when elected. The year after a LIF is established the accountholder must start taking income from the LIF. There is a minimum and maximum annual withdrawal amount. This amount is taxable income. If funds are still remaining in the LIF by a certain age, the LIF might have to be converted to an annuity.
Registered plan rules are complex, and can change. Depending on the registered plan the rules are administered both provincially and federally. It is recommended to seek the advice of a financial professional to consider all the options and to decide on the best course of action for your own personal situation
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