Make time for your RRIF decisions
What a difference two months make.
As the June issue of CARPNews came off the press, I was writing articles about Registered Retirement Income Funds (RRIFs). Today, I have just completed an entire book on the subject.
The book is titled Everything You Ever Wanted to Know About RRIFs… But Were Too Young to Ask and is being published by ITP Nelson next month. I took on the task of writing it in such a short period when I realized that there was very little in print that could help the 400,000 Canadians (many of whom are CARP members) who must make RRSP conversion decisions before the end of this year.
In order to fully understand RRIFs, annuities, how to deal with a low interest rate environment, and appropriate investment strategies as one grows older, a person would have to find, buy, and wade through as many as a dozen books.
I felt there could and should be a single, straightforward guide focusing on those subjects — so I wrote one.
The great focus on RRIFs in the next five months is the direct result of a change in government policy. Ottawa’s 1996 budget reduced the RRSP age limit from 71 to 69 effective in 1997 — making this the transitionayear in which those who are 69, 70 and 71 all have to convert their RRSPs into a retirement income stream.
The 400,000 RRSP holders affected will be making one of the most important financial decisions of their lives, and recent studies show many are confused and have no idea of what to do or how to do it. And a lot of money — about $20 billion, an average portfolio of $50,000 — is involved. If you are at conversion age, don’t wait another minute. You need time to consider your options, and, if you want solid, professional advice, you should approach financial advisors now, before they are swamped by the inevitable last-minute rush. There is nothing to lose, and much to gain, by starting your conversion process today.
In addition, we must recognize that as both governments and corporations rush to save money by getting out of the retirement business as quickly as possible, the onus is increasingly shifting to us, as individuals, to take on more and more responsibility for our security in later life.
I believe, for example, that the government’s reduction of the RRSP cutoff age in its 1996 budget from age 71 to 69 was only the first step in a larger scheme.
There is evidence that the government does not want to stop at 69. Reductions in the age limit will come around the corner again, perhaps even down to 65 in several stages. Ottawa wants to go back to this well again. They can save millions of dollars a year in tax deferrals now, despite the fact that such policies will cause tremendous problems for individuals and society as a whole in the future. Ottawa is opting for short-term gain over long-term pain — but why should that come as a surprise where politicians are concerned?
This “shifting sand” approach fosters anxiety and uncertainty — scarcely a responsible way to encourage or motivate people to plan and save for retirement.
If the rule book continues being re-written, we will not be able to save properly for retirement and will face severe financial difficulties in the future. Then the government of the day, pressured by general public concern and aggressive aging baby boomers, will eventually have to bail us out.