In this article “Change RRIF drawdown rules: C.D. Howe” from Investment Executive not only makes some good points but raises a big issue I have been discussing with my clients over the last 2 or 3 years.
We are living longer but not necessarily better in the sense that sitting staring into space is not really a lifestyle.
Most people know diddly squat about finances. They’ve been paid a salary all their lifetimes,taxes have been deducted at source,pension monies have been allocated and generally they’ve been in a financial warm blanket.
Now it,s all over and they’ve got a lump sum,payments from which to replace their salaries.
Well it,s not that simple.Now they have to make decisions on their own and they are paralyzed as they have never had the experience of handling hundreds of thousands of dollars at one time.Their financial experience has been limited to not spending too much on food and buying GIC’s with their savings.
Now comes along this great whack of money and they need to make some decisions.Reading books only confuses them as it is their situation which concerns them,not examples.
But they find out they have 2 real choices; a RRIF or an annuity.And the RRIF has a built in fail system if you live too long.But with no real grasp on your finances during your lifetime,you are certainly not going to become a wizard in your retirement and make meaningful comparisons.
So you buy your RRIF, perhaps not realizing that you are being forced to withdraw capital as well as interest to meet the minimum payment.as your capital is not earning enough money to meet that payment each year.
But I disagree with making the minimum payments smaller or allowing withdrawals at will as most people will not have the skills to manage money as they age.If they didn’t have the skills growing up,they,re not going to become smarter when they age.Allowing withdrawals at will is really the 2 foxes and the hen deciding on what to have for dinner.