What is a RRIF?

A RRIF is really a continuation of your RRSP, but with a twist: you can’t make regular contributions to a RRIF – only withdrawals. That’s because the main purpose of a RRIF is to provide a source of ongoing retirement income. Here’s how a RRIF works:

  • Transfer assets in. A RRIF can only be funded by a transfer of assets from RRSPs or RRIFs owned by you or a deceased spouse/common-law partner, a registered pension plan or a deferred profit sharing plan. You can’t make contributions to a RRIF (with some rare exceptions).
  • Keep savings tax-sheltered. Like an RRSP, a RRIF is a tax-sheltered vehicle in which you make the investment decisions. You have complete flexibility in tailoring an investment strategy to meet your financial needs.
  • Make ongoing withdrawals. Each year, you must withdraw a minimum amount from your RRIF. The minimum withdrawal is based on a percentage of your RRIF assets and increases with your age. For example, the minimum RRIF withdrawal rate is 7.38% at the age of 71 (the last year in which you can hold an RRSP) and levels off at 20% at 94 years and over.

Just like withdrawals from an RRSP, all withdrawals from a RRIF are taxable, and there is no maximum withdrawal limit.
 

Why use a RRIF in retirement?

There are several reasons why people use RRIFs as a means of growing and generating their income in retirement:
 

Flexible withdrawals

RRIFs give you a significant amount of flexibility in structuring your retirement income plans. For example, you may want to take out more money in your early, more active retirement years, and reduce your withdrawals later in life. Or you might take out more later in retirement to cover additional medical expenses that you incur. You may also want to withdraw more at a certain time of year (winter vacations for example) to match your anticipated expenses. RRIFs give you the flexibility to withdraw retirement income as you need it.
 

Continued tax sheltering

 While you have to take a minimum amount out of your RRIF each year, the remainder stays tax sheltered. That means your RRIF investments can continue to grow on a tax-deferred basis during your retirement. With many people living 20 to 30 years in retirement, this tax sheltering can provide much needed compounded investment growth.
 

Control over your investments

You have the same investment choices for a RRIF as you do with an RRSP. If you’ve developed an investment strategy to save for retirement, you can also design an investment strategy to meet your retirement income needs.

If, for example, you retire early and expect to live into your eighties, you might allocate a portion of your RRIF to higher risk investments (such as equities) to take advantage of the higher potential returns over the long term. Or, if security is your primary concern after retirement, you can weigh your investments more heavily in guaranteed income products. With RRIFs, the choice is yours.
 

Option to convert to an annuity later

If you reach a point in your retirement where a guaranteed stream of income is a more important priority than investment flexibility, you can transfer some or all of your RRIF assets to an insurance company to purchase an annuity, while still maintaining the tax sheltered nature of the assets. You only pay tax on the annuity payments as they’re made to you.

Start with your zip code to compare car insurance

    Start with your zip code to compare Home insurance

      Start with your zip code to compare life insurance

        Start with your zip code to compare health insurance

          945+ Reviews

          Client Logo
          Maria Marlin Retired Govt Officer, ON, Canada

          Very helpful fully explaining the different plans. Cash value is accessed via policy loans, which accrue interest and reduce cash value our valuable items.

          Client Logo
          Maria Marlin Retired Govt Officer, ON, Canada

          Very helpful fully explaining the different plans. Cash value is accessed via policy loans, which accrue interest and reduce cash value our valuable items.