The 10 strategies below, available to most Canadians, can help individuals meet their income needs in retirement, while minimizing taxes and simplifying their finances.
Before setting up a RRIF
1. Create or update your retirement plan. The plan estimates how much you will require and how much current investments will provide, and identifies strategies for closing any gap.
2. Consolidate RRSPs. Simplify management of your retirement assets by moving your registered assets into a single plan - ideally well before converting to a RRIF, when annual withdrawals must be calculated and tracked for each RRIF account.
3. Top up RRSPs. If you have earned income, you can contribute to an RRSP until the end of the year you turn 71, or a spousal RRSP (for a spouse 71 or younger). For extra deferral, you may want to take advantage of the $2,000 over-contribution allowance and deduct it in a future year when new contribution room is available.
4. Ensure your portfolio is balanced. Be sure to balance the need for current income with the need to protect and grow capital for future requirements (when health costs may be higher). Most retirement portfolios should have a growth component to preserve purchasing power.
Preparing to convert to a RRIF
5. Convert to a RRIF and choose the best income option. When converting RRSPs to a RRIF, couples are advised to base minimum withdrawals on the age of the younger spouse to maximize tax deferral and flexibility. Consider new investment strategies to meet your income needs (e.g., laddered GICs or strip bonds, or a systematic withdrawal plan from a balanced fund or managed portfolio).
6. Incorporate government pensions. For optimal tax results, coordinate all income sources including Old Age Security, which starts at age 65 and begins to be clawed back once income exceeds about $67,668 (in 2011), and CPP pension payments, which can start as early as age 60 (if criteria are met) or as late as age 70.
7. Delay first payment. No minimum withdrawal is required until the end of the calendar year following the year you establish a RRIF. By postponing the first payment, you may be able to boost the value of your plan before drawing from it.
Getting the most from a RRIF
8. Minimize and delay annual payment. Where possible, draw from other income sources, such as a tax-free savings account, which do not impact federal income-tested benefits, such as OAS. Consider making RRIF withdrawals towards the end of each calendar year to maximize tax deferred growth within the plan.
9. Adjust portfolio throughout retirement. At least once a year, review your financial situation against your plan to see if adjustments are needed.
10. Designate plan beneficiaries. . By naming a spouse or partner directly in the plan document (or in your Will if certain wording is used), RRSP or RRIF assets can roll over to a spouse upon death with no immediate tax implications. Taxes can also be deferred or reduced by naming a financially dependent child or grandchild. Please keep in mind that non-Will beneficiary designations are invalid for RRSP and RRIF planholders who reside in Quebec, and in the Yukon.
How CIBC can help
A CIBC advisor can work with you before and after you retire to identify and evaluate potential strategies to meet your income needs and simplify management of your investments.