How to drain a RRIF

There’s nothing wrong with planning to spend every last penny you’ve saved



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How to deplete a RRIF

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Q: If one does not care to leave any RRIF capital for their heirs, one could spend and enjoy the RRIF returns and some capital every year until the capital is almost depleted by the expected age of 90. Is there anything wrong with this retirement plan? My heirs will still have the debt-free property to inherit.


A: If nothing else, Ray, retirement plans are personalized. Your retirement plan might be to draw your investments to zero. Some people aim to maintain their capital. Others factor in a home downsize or sale. There’s no right or wrong way in my opinion–perhaps just better and worse. I suggest that you start with what’s right for you.

Just for argument’s sake, Ray, I wanted to help you figure out what your target withdrawal could be from your RRIF each year to draw it down to zero at age 90. I want to give you a notional annual withdrawal you could take in year No. 1 and increase by 2% inflation each year–building yourself a notional indexed pension.

If you had $100,000 in your RRSP at the end of your age 71 and started your RRIF withdrawals at age 72, you could take $6,747 per year from your RRIF, indexed at 2% inflation, to draw your RRIF to 0 by age 90. That’s about 6.75% of your initial account value, indexed to inflation. This assumes a 5% rate of return. Under the old rules, you would have been required to take a minimum of 7.38% from your RRIF at 72, but the recent federal budget requires only 5.28%.

If you earned 3% on your RRIF, the notional “drawdown to zero” amount would be $5,738 per year, indexed at 2%. So that’s 5.74% of your initial account value.

And assuming a 7% rate of return, you could target $7,825 per year, indexed at 2%. That’s 7.83% of your initial account value.

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So there you have some hard facts. Now I’ll give you some non-numerical analysis to consider.

I don’t think parents should go out of their way to preserve some sort of notional inheritance for children out of obligation. You sound as though you feel guilty about planning to draw down your retirement savings. You saved that money for your retirement! You’re retired. Spend it, Ray.

If you have a house that you think you can leave to your kids as an inheritance, that will likely amount to hundreds of thousands, if not millions, of dollars. That’s nothing to feel guilty about, especially if you have helped provide for your children financially during their adult years by paying for post-secondary education or weddings or home down payments.

I might go so far as to say you should at least consider how the eventual sale of your house or at least a downsize might help you fund your retirement if you think your savings and government pensions might cause you to be a bit tight, Ray. What’s wrong with considering using a bit of home equity eventually and drawing your RRIF to zero at age 85? Who knows–you might not make it to 90.

You do need to take into account the potential for long-term care costs in your later years, but I don’t think maintaining your RRIF or ensuring a large estate should be at the top of your priority list when planning your retirement.

I’d be more inclined to plan how you’d like to live in retirement, plan for contingencies like new cars, home repairs and medical costs, then consider how to optimize your estate for your kids–but not at the expense of, say, eating organic food, golfing in Florida or spoiling your grandkids, if those things are important to you. Your retirement savings is yours and yours alone until it turns into an inheritance.

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Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

3 comments on “How to drain a RRIF

  1. Great article! I am constantly telling my clients NOT to feel guilty about spending the RRIF money they’ve worked so hard to accumulate. We constantly see clients worried about how much they are spending and NOT because they are afraid THEY will run out of money, but because they want to leave something to their children. If you’d like to leave an inheritance what about buying a permanent insurance policy (provided you are healthy enough to do so)? Leave the proceeds of the insurance policy to the kids and SPEND every last dime of that RRIF enjoying the retirement you’ve planned for!


  2. Interesting article but why do you and other advisors continue to suggest that we should pay for post secondary education and house down payments in addition to weddings? We are now retired, quite comfortably, but without seeming cheap, we didn’t pay for post secondary education nor house down payment for our children. Our parents didn’t pay ours and I got a scholarship and worked during University vacations. We had a basic small wedding, paid for by parents. We saved for our down payment and in 1973, bought a ‘starter’ home (no granite countertops or SS appliances, almost no furniture, one bathroom and undeveloped basement, single unattached garage but affordable on one salary). RESP are a good idea as you get free government money and we give money for grandchildren’s birthdays and Christmas that goes into their plans as they have more toys etc than they need.
    I had no company pension plan but they did give some percentage in matching RRSP funds, so I tried to contribute the maximum. Again free money / good return on my investment savings. We have no plans to leave an estate for our children but unless the economy goes to hell, inflation goes crazy and the market collapses, there will be a significant amount. I believe that your retirement expenditures can be divided into 3 periods: first 10 years 65 to 75, relatively expensive as we travel while reasonably heathy; second 10 years 75 to 85, lower costs as travelling ceases to be as easy or as much fun; and finally, 85 to 95 more expensive with health care costs. As noted in a number of articles, you should allow for long term care in your old age and I expect that the government facilities will be overtaxed and so I expect we should allow for some private care – cost of which is unknown. I don’t want to be homeless or visiting food banks when I’m 90 so I didn’t retire at 55 but at 64.


  3. Love this article. I am fortunate enough to have a decent pension when I retire someday before age 60. I look at the RRSP/RRIF money as play money and plan to wind it down and have it spent by age 75. I paid for my own University and feel no guilt about leaving my 3 kids a small inheritance if anything. I paid for their education now they can get out there and work like I did.


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