From RRSP to RRIF: managing your investments after retirement – MoneySense

When the time comes, RRSP or Registered Retirement Savings accounts will be converted to RRIF or Registered Retirement Income Fund accounts, a change that must be made by the end of the year you turn 71.

Shifting your portfolio for RRIF withdrawals

You can hold the same investments in a RRIF as you would in an RRSP, but you cannot make new contributions as you did before the conversion. The opposite is more likely to be the case. Every year you must withdraw amounts based on your age. The percentage increases as you get older. “It’s designed to be depleted throughout your life. I think that’s a challenge for a lot of people,” Andrade says.

Part of the shift in retirement may be a change in the composition of your portfolio. Andrade said that when building a RRIF portfolio, she typically takes a “bucketing” approach for clients, where a portion is set aside into something with no or very little risk that can be used for withdrawals. That way, if the market as a whole slumps, customers aren’t forced to sell investments at a loss because they need the money.

Schedule withdrawals to protect retirement income

Andrade says it’s important to have enough cash if you’re relying on your investments to fund your retirement. “I want to make sure the money is there when I need it and if the market performs poorly or there is a recession, you still have time to recover,” she says.

Withdrawals from a RRIF are considered taxable income. So even though the money may come from capital gains or dividend income within the RRIF, when you withdraw it, it will be taxed as income, making planning for withdrawals important.

There is no cap on your RRIF withdrawals in any given year, but you could incur a significant tax hit if the amount is large and puts you in a higher tax bracket. If a large withdrawal pushes your income high enough, you may also experience chargebacks to your OAS.

Tailor your pension plan to your wishes

Just because you take the money out of a RRIF account doesn’t mean you have to spend it. If you don’t need the money and have the contribution room, you can put the money into a TFSA where it will grow, protected from taxes.

Sandra Abdool, a regional financial planning consultant with RBC, says having money outside your RRIF can help you avoid big withdrawals and a big tax hit if you suddenly need to make an expensive home repair or make a major purchase, such as a new vehicle.

“How you set this up is very specific to each client. It will really depend on what your sources are, how much income you need, what is your current tax bracket and what the projected tax bracket will be by the time you turn 71,” she says.

Abdool says you should have conversations with your financial advisor well in advance of retirement so you’re ready when the time comes. “By putting a plan in place, you’ll be prepared knowing that the income you’re looking for will be there and you can have peace of mind knowing how things will develop in the future,” she said.

Read more about pension: