Wants to know about RRIFs

Q – What are RRIFS?  When do you have to start one?  Why would you start one?  How do they work?  I’m sure I’ll have more questions but the answers to these will get me going.  – F.R.

A – RRIF stands for registered retirement income fund. It is a registered plan that is used to generate retirement income. Think of it as the successor to your RRSP. In your RRSP, you save for years to build a retirement fund. The RRIF is the vehicle by which you draw out that money to live on after you stop work.

A RRIF can be set up at any time, but most people wait until they are actually retired to do so. However, some people prefer to hold off as long as they possibly can. That’s the year in which you turn 69. By law, your RRSP must be terminated by Dec. 31 of that year. This means you must convert to a RRIF (or a Life Income Fund, which applies for locked-in money), buy an annuity, or draw out the cash and pay tax on it.

The government requires that a minimum withdrawal be made from a RRIF each year. The percentage of the plan’s value that must be taken out increases as you grow older. This money is taxable as regulaincome.

You can open a RRIF at the same institution that holds your RRSP – it’s simply a matter of completing some paperwork. But you probably don’t want to continue holding the same assets. Whereas the goal of an RRSP is to build assets over time, the objective of a RRIF is cash flow at minimum risk. So different types of securities are required.

I have co-authored a book titled The Complete Guide to RRIFs and LIFs with David Tafler. It will be published in the spring by Prentice Hall Canada. You can also find information about RRIFs in Gordon Pape’s 2002 Buyer’s Guide to RRSPs. – G.P.