Converting your RRSPs to Income

Tailoring Your RRIF to Your Needs

Because of their inherent flexibility, RRIFs can be tailored to meet a variety of personal income needs and objectives.

Whether your primary concern is:

• meeting your immediate income needs
• providing for the long-term benefit of your loved ones
• preserving the tax-sheltered status of your savings for as long as possible

...or a combination of the three, you can structure your RRIF to fit the bill.

Where do you begin? First by understanding that the foundation of your RRIF strategy rests on four fundamental building blocks:

• payment amount
• payment frequency
• investment of principal
• liquidation of assets

To fine-tune your strategy, you'll need to consider each element in turn and make decisions that satisfy your personal needs and objectives.

Payment Amount

Your Strategy:

• in general, select the minimum income payment amount you are permitted
• in fact, if applicable, choose the age of the younger spouse to calculate your annual minimum RRIF income payment, as you're permitted by law
• by making this election, you'll automatically reduce your minimum payment, reducing the tax you pay in the process!
• if the minimum payment doesn't meet your income requirements, take only the amount you do need.
• this strategy ensures you'll minimize the taxes you pay while allowing for the maximum growth of your assets over time.

Tip:

• remember that withholding tax is automatically deducted on amounts exceeding the minimum payment amount
• factor this tax-reduced payment into your calculations if you do select a higher-than-minimum amount

Payment Frequency

Choosing the right income payment frequency depends on the type of income you require from your RRIF.

Your Strategy:

• if your RRIF payments are your primary source of retirement income, monthly payments are probably most suitable.
• if they act only as a secondary source of income, you might choose quarterly or annual payments, timed to meet seasonal expenses such as property or income taxes.

Tip :

• whenever possible, delay taking your RRIF payments for as long as possible to maximize your tax-sheltered earnings longer

Investment of Principal

Like all the investment decisions you make, the strategy you use to manage your RRIF is personal.

Your Strategy:

• not only should it take into consideration your personal preferences, your investment objectives and your tolerance to risk, it should allow for diversification and include a growth component designed to protect you from inflation over the long term

Liquidation of Assets

For many, this is the greatest challenge in designing a RRIF - keeping your assets liquid enough to meet your payment schedule while maximizing your return.

Your Strategy:

• although your decision about which investments to draw from will depend largely on the type of investments you hold, consider the following when you choose how you will invest your RRIF funds.

Savings Accounts

Many RRIF-holders choose to keep a portion of their funds in a RRIF savings account - either to take advantage of investment opportunities that may arise, or sometimes simply to "park" funds temporarily while awaiting the transfer of other funds.

Guaranteed Investment Certificates (GICs)

By drawing from GICs with the lowest interest rates, you will maximize the interest you're earning on higher yielding investments.

RBC Royal Bank offers a full range of GIC options to choose from as well as the information and expertise you need to make the investment decision that's best for you.

Mutual Funds

If you wish to retain a specific fund mix to meet specific investment goals, consider drawing a percentage of your payment from each fund.

Alternately, you may prefer to draw income exclusively from a single fund until it is depleted.

The strategy you choose to manage your income stream payments is as unique and personal as your investment strategy. Your RRIF-provider can help you design a plan and assist you in developing your schedule.

RBC Funds offer investors a full range of choice for Candian, U.S., International and Global investing. Invest in RBC Funds by phone through any RBC Royal Bank branch, RBC Royal Bank Online Banking, RBC Direct Investing, RBC Investments and other authorized brokers and dealers.

Tips for Self-directed RRIF holders

Individuals with self-directed RRIFs should remember that income payments cannot be drawn directly from investments (i.e. from GICs that have not yet matured).

Instead, investments must be converted to cash or cash-equivalent investments before being used for payments.

To avoid having to sell assets hastily to generate needed cash, ensure that your investments are suitably liquid and structured to satisfy your income requirements.