If you celebrated your 69th birthday this year or will do so before the end of December, you have some important decisions to make. That’s because you’ve reached a milestone in your financial life, the point at which your RRSP has to be wound up.

Recently, CARP received an e-mail from a member who is in exactly this position. It contained a number of questions that she asked us to answer. Here they are, with my responses.

Q: What are the current rules on when an RRSP must be wound up?

A: By Dec. 31 in the year you turn 69.

Q: If you convert your RRSP to a RRIF (registered retirement income fund), what differences apply to the management of the RRIF?

A: An RRSP is a savings vehicle. The purpose of a RRIF is to generate income. So the portfolio needs to be restructured to provide the needed cash flow. A RRIF should also be managed more conservatively to guard against capital losses, which means less emphasis on stocks and equity funds.

Q: What are the minimum withdrawal rates for a RRIF, and when must those withdrawals be made?

A: The minimum is based on the market value of the RRIon Jan. 1 of the year in question. Until age 71, the minimum is calculated by subtracting your age on Jan. 1 from 90 and dividing 100 by that figure. The resulting percentage is applied to the value of the RRIF to determine the minimum withdrawal for that year. Thus, a person who is age 70 on Jan. 1 would divide 100 by 20, producing a five per cent withdrawal percentage. From age 71 on, the minimum is based on a government table, with the percentages escalating each year. The withdrawals can be made at any time within the year.

Q: Are there restrictions on withdrawals, e.g. frequency, maximum limits?

A: There are no government restrictions. However, your RRIF administrator may have some relating to frequency, so check with them. There are no maximum limits on RRIF withdrawals, but there are on life income funds (LIFs).

Q: Is it necessary to withdraw equally from each component of the RRIF, or can all of the minimum withdrawal be from one area? If the latter, which area of the fund should be attacked first?

A: The money can come from anywhere within the RRIF – there are no restrictions. As to which source to tap into first, I advise setting up the RRIF in such a way that it generates good internal cash flow. Draw against that cash flow before dipping into the principal.

Q: Under what circumstances would it be beneficial to withdraw more than the minimum amount required  and reinvest the excess in a non-registered account?

A: If you expect to have a higher income in future years, which would mean higher taxes on your withdrawals.

Q: Are there any circumstances in which it would be beneficial for a mid-60-year-old to make early withdrawals from an RRSP and reinvest those funds in order to reduce the taxes on future RRIF withdrawals?

A: Yes. If you expect your income to be higher after you retire, this approach might make sense. Also, if your RRSP is very small and you are a candidate for the Guaranteed Income Supplement (GIS), graduated withdrawals to reduce the plan to zero would be a smart move. Income from a RRIF will reduce GIS eligibility by \$0.50 on the dollar.

Withdrawals from a non-registered capital account have no impact on GIS eligibility.

Opinions expressed are those of the writer and should not be understood as offering advice. Information is of a general nature and may not be appropriate for any single individual.