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Which is better, a RRIF or an Annuity?

RRIF vs Annuity

 

 

RRIF Withdrawal Schedule

 

RRIF Withdrawal Schedule 2013

What’s a RRIF?

A Registered Retirement Income Fund (RRIF) is created by converting your RRSP into an income.

 

The RRIF gives you a monthly income which increases each year. You can choose various types of investments to hold within your RRIF; most people use GIC's and funds.

 

Facts about RRIFs

You must convert your RRSP into an annuity or a RRIF by December 31 of the year in which you turn 71.

 

The Income Tax Act requires that you take a minimum amount which increases each year.

 

RRIF payments are taxable income and will be added to your income for tax purposes.

 

How does a RRIF work?

The Canada Revenue Agency (CRA) requires that you take minimum payment amounts out of your RRIF each year.

 

That amount is determined at the beginning of each year by a calculation that uses your age and the market value of the assets in your account as of December 31 of the previous year.

 

RRIF payments are considered taxable income in the year they are withdrawn and will be added to your income for tax purposes. RRIFs are extremely flexible - you may make withdrawals as often as you like and you may withdraw over your minimum annual amount.

 

RRIF Withdrawal Formulas

There are two formulas to be used to calculate the RRIF minimum payments

 

1. 90 Age Formula

 

Minimum amount = Market value of RRIF as at Dec. 31 divided by 90 - the plan holder's age (as of Dec. 31)

 

2. Percentage Formula

 

Minimum amount = % based on age x RRIF value on Jan. 1 (see guide above)

 

 

RRIF Withdrawal Schedule 2013

Age RRIF Minimum Payment
60 3.33%
61 3.45%
62 3.57%
63 3.70%
64 3.85%
65 4.00%
66 4.17%
67 4.35%
68 4.55%
69 4.76%
70 5.00%
71 7.38% (5.26%)*
72 7.48% (5.56%)*
73 7.59% (5.88%)*
74 7.71% (6.25%)*
75 7.85% (6.67%)*
76 7.99% (7.14%)*
77 8.15% (7.69%)*
78 8.33%
79 8.53%
80 8.99%
81 8.99%
82 9.27%
83 9.58%
84 9.93%
85 10.33%
86 10.79%
87 11.33%
88 11.96%
89 12.71%
90 13.62%
91 14.73%
92 16.12%
93 17.92%
94+ 20.00%

 

(* if RRIF was established before 1993)

 

Infographic of RRIF Withdrawal Table

 

 

RRIF Rates as of April 25, 2013

Company Term in Years
1 2 3 4 5
B2B Bank 1.450 1.800 1.900 2.100 2.250
BMO Bank of Montreal 1.000 1.150 1.350 1.600 1.950
Bank Nova Scotia Mtg .900 1.100 1.250 1.400 1.750
Boomerang Credit Union 1.100 1.650 1.800 2.000 2.150
CIBC .900 1.100 1.250 1.400 1.750
Canada Life .900 1.150 1.300 1.350 1.400
Desjardins Fin. Security 1.000 1.000 1.200 1.400 1.600
Effort Trust 1.800 2.100 2.150 2.200 2.350
Empire Life 1.000 1.250 1.375 1.500 1.750
Great-West Life .900 1.150 1.300 1.350 1.400
Home Trust Company 1.750 1.900 2.050 2.150 2.300
Laurentian Bank Canada .900 1.200 1.250 1.600 1.750
London Life .400 .650 .800 .850 .900
Manulife Investments 1.100 1.200 1.350 1.400 1.500
National Bank .900 1.200 1.250 1.600 1.750
Ontario Civil Service CU 1.000 1.100 1.350 1.600 1.900
PACE Savings & Credit Un 1.200 1.500 1.600 1.750 2.100
Parama Credit Union 1.700 1.850 2.100 2.250 2.400
Standard Life 1.350 1.450 1.550 1.700 1.850
Sun Life - Insurance 1.100 1.400 1.550 1.700 1.850
TD Canada Trust 1.000 1.100 1.350 1.600 1.850
Teachers Credit Union 1.400 1.650 1.800 2.200 2.500

 

Should you convert your RRSP to a RRIF or an Annuity?

 

At age 71, you are no longer able to contribute to your RRSP. At this point, you have two options. You can transfer your RRSP savings into either a Registered Retirement Income Fund (RRIF) or an annuity. You could also withdraw the full value of your RRSP, but this would mean paying taxes on the full amount of your RRSP.

 

Annuities are an alternative to RRIFs when you’re converting your RRSP savings to retirement income. Annuities are available through insurance companies. With life annuities, you make a lump-sum payment up front, and then receive a set monthly amount for the rest of your life.

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