What happens to my RRSP when I retire?

Most transfer their assets into a RRIF at 71 for regular monthly payments.

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From the February/March 2013 issue of the magazine.

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(JGI/Jamie Grill/Getty Images)

(JGI/Jamie Grill/Getty Images)

You can leave your investments inside your RRSP until you’re 71, regardless of whether you’re working or not. But at age 71, you have to wind up your RRSP and start taking the money out. If you took all the money out at once and claimed it as income, you’d get a massive tax bill that year, so most people transfer their assets into a Registered Retirement Income Fund, or RRIF, so they can convert them into a regular monthly retirement income.

You don’t have to liquidate your investments to convert your RRSP to an RRIF. You just sign a document and change the name of the account. What really changes is the rules: You can’t put any more money in, and you are forced to start taking money out. Your financial institution will send you a notice telling you the minimum amount you need to take out each year. Typically, at age 71 you have to take out around 7%, and that amount gradually increases to 20% by age 94.

Most people decide to change the composition of their investments when they retire, as income and safety are now priorities, rather than growth. This can mean adding an annuity, which guarantees a set monthly payment for a set period of time (often for life). Unfortunately, rates are very low right now, so annuities aren’t a great buy. Other options include bonds, dividend-paying stocks and even income trusts.

One comment on “What happens to my RRSP when I retire?

  1. Can a RRIF be set up when a person retires early – eg. age 55 when there are no plans to contribute anymore into the RSP? If yes, can we determine how much we take out of the RRIF until we are forced to take out a fixed amount at age 71. Thanks

    Reply

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