When the time to close your RRSP approaches (age 71), your investment planning advisor at CDSPI Advisory Services Inc. can explain the retirement income solutions available to you, such as a RRIF (registered retirement income fund) and insured annuity.
Converting your RRSP into a RRIF provides the greatest potential for retaining control of, achieving further growth from and minimizing tax on your retirement savings. A RRIF is basically an RRSP in reverse. Instead of adding money, you take money out of the plan. Money inside your RRIF remains tax-free until it’s withdrawn as retirement income.
Selecting any other income option but a RRIF at the outset of retirement means there’s no turning back once the decision is made. Choose a RRIF first, however, and you leave the door open. You can use some or all of your RRIF proceeds to buy an annuity at a later date. And if you need a lump sum of money that’s larger than your regularly scheduled RRIF payouts, unlike an annuity, a RRIF gives you the flexibility to take out as much cash as you need — whenever you like.
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Government regulations require you to withdraw at least a minimum amount from your RRIF each year. The younger you are, the lower the amount you're required to withdraw. You can reduce the amount you must withdraw annually from your RRIF by setting up your RRIF based on your younger spouse's age. This set-up could minimize your yearly taxable income and preserve your RRIF capital longer. You may want to consider this strategy if you have other sources of income, such as rental income, government or private pensions and non-registered investments, and will be satisfied receiving a lower minimum payment.