This week I got an unexpected opportunity. I wrote my first opinion piece for The Globe and Mail, and the topic was something that has become a recurring feature of Canadian pension debates: proposals to reduce or eliminate minimum RRIF withdrawal rates.
The idea is often presented as a compassionate solution to protect seniors from outliving their savings, but in practice, blanket savings would mostly benefit wealthy couples and the financial industry, not the average retired politicians who say they want to help. That became the focus of the piece.
After working with hundreds of retirees on their actual withdrawal plans, I have never seen a client with modest savings worry about the minimum. They almost always withdraw more than the minimum to finance their lifestyle. Lowering the RRIF minimum will not achieve anything for these households.
Related: Your ultimate guide to RRIFs
In the meantime, if you don’t need the income, you can simply move some of the January mandatory withdrawal into a TFSA and let it grow tax-free. The forced spending story falls apart quite quickly.
So if lowering the RRIF minimums doesn’t help the people it’s supposed to help, who does it help? A married couple with large RRIF balances and access to income sharing can earn roughly $186,000 dollars in total retirement income before exceeding the OAS clawback threshold, because the clawback starts at approximately $93,500 dollars per person.
A single retiree does not have the option to transfer income to a spouse from a lower income bracket. That is a major structural disadvantage.
This is important because single people don’t spend half of what couples spend. Fred Vettese makes this point clear Pension income for life. When one spouse dies, family expenses typically fall by only about 30 percent, not 50 percent.
Sure, the grocery bill would go down, and you’d buy one plane ticket instead of two, but housing costs, property taxes, insurance, maintenance and utilities, hotel rooms, etc. would basically remain unchanged. That means a single retiree generally has to spend about 70 percent of what a couple spends to maintain the same lifestyle, yet pays higher taxes on the same income and has none of the benefits of splitting up.
There is another feature that is rarely mentioned in the RRIF debate. A married couple may choose to calculate their RRIF minimum based on the age of the younger spouse. If one spouse is 71 and the other is 65, the RRIF minimum drops from 5.28 percent to 4 percent simply by checking a box. This is already built into every financial institution’s RRIF system. A single retiree does not have an equivalent option. They pay higher taxes on the same savings, are more likely to be charged back by the OAS, and are forced to pay a higher minimum even if they don’t need the money.
With that in mind, my op-ed proposed a simpler and more targeted reform. Reduce RRIF minimums for single retirees by 25 percent.
In practice, this means that one retiree must use age 65 to calculate his RRIF minimum, which would lower the age 71 minimum from 5.28 percent to about 4 percent.
It feels like a fair place to start. It softens the impact of mandatory withdrawals for the structurally disadvantaged group without creating a broad giveaway to households already benefiting from retirement income splitting, greater flexibility to stay below the OAS clawback threshold, twice the TFSA headroom, and a lower RRIF minimum through the younger spouse rule.
The encouraging thing is that this does not require new systems or bureaucracy. Financial institutions already have a field where they can enter the age used to calculate RRIF minimums. For a couple, this is often the youngest partner. For a single retiree, the age of 65 would simply be used in that same field. One small change that ensures a slightly more balanced result.
The response to the piece was thoughtful and positive, especially from single seniors living in this divide, and from other planners who only offer advice and see the same patterns every time a spouse dies.
It’s a good reminder that not all questions about retirement policy are about draining the RRSP too quickly. Sometimes they are about who gets the benefit of the rules we already have, and who is left out. If Canada is going to revise the RRIF rules, I think fairness for singles is a better starting point than a blanket reduction that mainly preserves large RRIFs.
This week’s summary:
Last week I wrote about why so many Canadians use CPP early, even though they shouldn’t.
Earlier this week, I reflected on my impact on Canada’s personal finance landscape and shared some ideas I want more Canadians to embrace.
Since that Globe & Mail piece resonated so well, I hope to contribute more often in the new year – so stay tuned.
Promo of the week:
I continue to say that Wealthsimple offers the best experience in Canada for most DIY or robo-advised investors. I say ‘most’ because the self-driving platform is still relatively new and had to solve a few problems. Self-directed RRIFs for spouses were one of those missing pieces, but that has now apparently been resolved according to a few emails from readers and customers.
If you’re the type of investor who just wants to buy and hold a simple portfolio of Canadian-listed ETFs, then I highly recommend making the switch to Wealthsimple. For retirees, Wealthsimple offers an incredibly easy-to-use platform where you can automate most things and they won’t charge you $25 to $50 for partial RRSP withdrawals (they’re free).
It’s a perfect place to implement a one-fund solution (the risk-matched asset allocation ETF) during your working years, and my recommended two-fund solution (where you add a 10% cash wedge) in retirement.
Right now, you can get a new iPhone, Macbook, or both if you transfer or deposit up to $100,000 or more into your Wealthsimple account.
One thing to note when transferring registered accounts to Wealthsimple (or any other platform) is that you will need to re-select your beneficiary or successor. And if you’re a Wealthsimple customer, you’ve probably noticed that it’s not clear where to add a successor to your TFSA (and you should!).
No problem. Simply visit this link where you can designate any beneficiary(ies) and/or successor to your registered accounts with Wealthsimple
Wealthsimple: Designation of beneficiary(ies) for registered plans
An easy way to think about these designations is that a beneficiary gets the money, while a successor gets the bill.
Weekend reading:
Speaking of RRIFs, Russell Sawatsky explains how much tax you have to withhold of your RRIF payments.
CRA has released the new tax numbers for 2026. Here it is what you need to know for next year.
Here’s how to donate valued securities in kind increases tax benefits.
Damir Alnsour debunks the seasonal myths surrounding a Santa Claus gatheringthe January effect and predicting Super Bowl winners. Great piece!
Canadians are too obsessed with buying houses. Here it is is the case for lifelong renting.
A wonderful conversation between David Chilton and Morgan Housel about the psychology of money and the art of spending:
The federal government continues prohibit account transfer fees. Most financial institutions charge around $150 to transfer money to another institution. On the one hand, most receiving institutions usually foot the bill, but usually have a minimum threshold of $25,000 or more. This fee ban will help people move those smaller accounts to better consolidate accounts and platforms.
Mark McGrath explains anatomy of a pig slaughterhouse after a neighbor’s father lost $100,000 in such a scam. Such a shame.
Advisor-only planner Jason Heath explains how a pension purchase works and whether it is a good idea.
Finally it’s time for behavioral nudges to become nudges? Preet Banerjee weighs in on the effectiveness of opt-in savings plans.
Have a nice weekend, everyone!
#Weekend #Reading #RRIF #Reform #Fairness #Singles #Globe #OpEd