After the years of savings and wealth accumulation
it comes time to contemplate retirement and removing
the investment risks in your portfolio. In the year
you turn age 71,(or your own elected retirement
age) all registered accounts will need to be changed
to a tax efficient and maximized lifelong income
program known as “Retirement Income Accounts”
as you transition into and through retirement.
International statistics reflect the world’s
largest upcoming retirement boom in history. During
the next decade we can extrapolate a demand for
secure and sustainable solutions to meet the income
needs this population requires. Making this transition
requires amalgamating RRSP accounts, understanding
your defined benefit pension plan and group pension
options. Guaranteed Lifetime Withdrawal Benefit
programs also protect against longevity, inflation
and any loss in negative performing world markets.
Included in the programs are the CPP (Canada Pension
Plan) and current OAS (Old Age Security Bonus)
At least ten years out from retirement, the necessary
planning and account choices will provide the right
investment contract to help you reach your goal.
Your investment advisor is your hired professional.
In order to facilitate your retirement plan your
professional needs to know what your goals are.
Sometimes the reality of living on fixed income
is difficult to accept, and your advisor will need
to understand not just your immediate obligations,
but also how the balance of your retirement and
funds are to be relinquished to your estate. Therefore
it is pertinent to include in your retirement discussions
your estate transference too. We encourage joint
meetings with your accountant and or lawyer to ensure
that no details are missed.
a) When Changing from RRSP to RIF
Unlike wealth accumulation and the various RRSP
accounts you have used over the years, it is advisable
to amalgamate all your RRSP accounts into a single
income contract that can provide sustainability
and security with guarantees. These contracts should
have flexibility. The RIF (Retirement Income Funds)
is a fund you establish with a carrier and that
CRA keeps registered. You transfer property to the
carrier from an RRSP, RPP, or from another RRIF,
and the carrier makes payments to you. Establishing
a RRIF can be done at any age earlier, but must
be done no later than the year the annuitant turns
71. Once a RRIF is established, there can be no
more contributions made to the plan nor can the
plan be terminated except through death.
b) Locked-in retirement accounts (LIRAs) - also
known as locked-in RRSPs
When an employee has terminated employment and was
a member of a registered pension plan, any funds
due to the employee under that plan may be transferred
to a LIRA. A LIRA is the same as an RRSP, except
that the funds are locked-in. Withdrawals may not
be made from a LIRA. By the end of the year in which
the taxpayer turns 71, a LIRA must be transferred
to one of the following:
Federal or provincial pension legislation defines
the minimum age at which a LIRA can be transferred
to a life annuity, LIF or LRIF.
Mandatory conversion to life annuity
In some provinces, the LIF or LRIF must be converted
to a life annuity at a certain age (usually 80).
For LIFs and LRIFs under federal jurisdiction, this
is no longer required.
See the article
Unlocking your locked-in pension accounts, which
includes information on the 2008 Federal Budget
changes regarding federally-regulated pension plans.
There are rules enabling current LIRA holders opportunity
to start withdrawing income from the LIRA after
it has been changed to a LIF. Note: The income stream
cannot be reversed and is subject to income tax.
Important Information regarding fees: Subject to
any contractual fees associated with deferred sales
charges, annuity charges, and GMWB charges. If this
type of retirement income seems too expensive, the
market price should tell you something about what
true pensions are actually worth. Pensions seem
expensive because they are valuable, even if you
don’t think so.