Your Complete Guide to Registered Retirement Income Funds (RRIF)

A Registered Retirement Income Fund (RRIF) is a great tool for those looking to transfer their RRSP upon retirement. 

There are several tax-advantaged accounts available to Canadians that you can leverage to ensure you’re living your best life at retirement. 

A Registered Retirement Income Fund (RRIF), and a Life Income Fund (LIF) are great ways for Canadians to ensure their financial security later in life. 

For this post, we’ll help guide you through an RRIF and help you determine the right account for you.

Googling “What is an RRIF?” will lead you down a personal finance rabbit hole that can be frustrating, and may result in you ditching the entire learning experience altogether. I’ve pulled a few highlights from what I consider to be great source material to help provide the benefits and drawbacks of an RRIF. 

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Here are 8 Things Canadians Need to Know Registered Retirement Income Funds (RRIF)

1. What is an RRIF?

A Registered Retirement Income Fund (RRIF) is a type of registered retirement income fund in Canada that can be used to store your RRSP earnings when you retire when you retire.

Unlike an RRSP, a Registered Retirement Income Fund cannot be withdrawn in a lump sum. Owners must leverage the fund in a manner that supports retirement income (taking out a little bit at a time). 

A RRIF is a Registered RRSP Conversion Option. Some Canadians choose to build up their savings in a traditional or tax-free savings account, and some have a pension plan through their employer. While pension plans are if you have one, it should be noted that only Registered Retirement Savings Plans can be converted to RRIFs. 

2. What are the Benefits of an RRIF?

Reduced Taxation

Money earned in the RRIF grows tax-free, but withdrawals are subject to taxation. At this point in your life, your marginal tax rate should be considerably less than when you were consistently working, so the financial implications should be minimal.

Financial Security

Funds within a RRIF are creditor-protected, and thus, can’t be seized to pay off debt obligations.

3. How Much Can I Withdraw From my RRIF? 

With an RRIF, You Must Hit a Minimal Withdrawal Threshold 

The table below shows the RRIF minimum payout percentages for different ages. As you can see, the annual percentage payouts gradually increase to age 95.

Age At the Start Of the Year	RRIF Minimum Payout Percentage
65	4.00%
66	4.17%
67	4.35%
68	4.55%
69	4.76%
70	5.00%
71	5.28%
72	5.40%
73	5.53%
74	5.67%
75	5.82%
76	5.98%
77	6.17%
78	6.36%
79	6.58%
80	6.82%
81	7.08%
82	7.38%
83	7.71%
84	8.08%
85	8.51%
86	8.99%
87	9.55%
88	10.21%
89	10.99%
90	11.92%
91	13.06%
92	14.49%
93	16.34%
94	18.79%
95 and older	20.00%

For example, if your RRIF is valued at $100,000 when you’re 65, at the start of the year your minimum annual payout will be $4,000 (4.00% of the value of the plan at the beginning of the year).

Note: There is no maximum withdrawal amount

4. What Investment Types Can I Put Into my RRIF?

RRIFs can consist of a wide variety of investments, including: 

GICs

GICs offer a rate of return typically higher than a high-interest savings account, but lower than having your money invested in stocks or ETFs. 

The one important factor to consider when putting money into a GIC is the need for you to access the funds. Money in a GIC is inaccessible for a predetermined amount of time (this can range from 1 month to 5 years).

Overall – GICs are a low-risk low-reward investment vehicle since you are guaranteed to receive your initial investment back, plus interest. The interest is typically lower than other investment options.

Bonds 

You can purchase government or corporate bonds in your TFSA. Bonds are unlike GICs in that the money is accessible but similar to GICs in that the rate of return is less than stocks or ETFs. 

Overall – Bonds are great for Canadians who need a low-risk savings portfolio (those closer to retirement for example). As a rule, government bonds are usually less risky than corporate bonds. 

Stocks 

Stocks offer a higher rate of return when compared to GICs and Bonds, but also come with inherent risk. Investing in stocks within your TFSA is the same as investing in stocks within a consumer platform, except your capital gains are not taxed. 

Overall – Stocks are great investments for Canadians who have a higher risk tolerance and can afford to ride out downturns in the market. 

Mutual Funds 

A Mutual fund chooses stocks, with the financial backing of private investors. The goal of investing in a mutual fund is to have your fund outperform the market, without having to do the legwork yourself. 

Mutual funds consist of both stocks and bonds, and your financial institution should provide you with an initial questionnaire to determine your level of risk. This questionnaire should help guide which mutual funds are best for you.

Overall – Mutual Funds are great investment options for Canadians who want to invest passively (a TFSA is a great way to do just that). 

Exchange Traded Fund (ETF) 

ETFs trade just like a stock and consist of a basket of securities. Much like a Mutual Fund, the goal of the ETF is to outperform the market. 

ETFs contain all types of investments and offer lower brokerage commissions when compared to individual stocks.

Overall – ETFs are great investment options for Canadians who want to invest passively

 

5. How are Registered Retirement Income Funds Taxed?

Money earned in the RRIF grows tax-free, but withdrawals are subject to taxation. At this point in your life, your marginal tax rate should be considerably less than when you were consistently working, so the financial implications should be minimal.

6. How Does a RRIF Compare to a LIF?

A Life Income Fund (LIF) is another retirement acronym you will come across during your retirement planning roadmap.

It’s important to understand that a LIF is an account very similar to a RRIF, BUT the funds originate from a registered Canadian pension plan through your employer.  

An LIF also has a minimum withdrawal limit, but unlike an RRIF, it also has a maximum amount which you can withdraw on an annual basis. 

In Conclusion….

RRSPs ——-> RRIF

Pension Plans ——-> LIF

Read: Your complete guide to RRSPs

Red: Your complete guide to Pension Plans

7. How to Open an RRIF

You can open an RRIF anytime before the year you turn 71. RRSPs can be converted to RRIFs anytime prior to this point as well. 

There is little need to open up an RRIF many years ahead of your retirement, as the process to do so is extremely simple. 

There are several establishments that offer RRIFs including:

• Banks
• Credit Unions
• Insurance Organizations
• Online brokers (like Wealthsimple or Questtrade)

In Canada, one of the more popular trends is to open up an RRIF with a “robo-advisor”

What is a Robo-Advisor? 

A robo-advisor is a service that uses computer algorithms to build and manage your investment portfolio. You set the parameters, such as time horizon and how much risk you’ll accept from them; then let these models do all of the hard work for you.

Robo-advisors are a great low-cost alternative to traditional investment management services.

Robo-advisors can automate investing strategies that optimize the ideal asset class weights in a portfolio for a given risk preference. Some traditional advisors are now offering robo-advisors-as-a-service as part of the portfolio construction and investment monitoring side of a more holistic financial planning practice

Robo-advisor is best for the following individuals:

• Those who are technologically savvy 
• Those looking to save on investment fees 
• Entry level investors
• Those who use a traditional financial advisor, but do not engage with them on a regular basis

Robo-Advisor vs Traditional Financial Advisors

Benefits of Financial Advisors	Benefits of Robo-Advisors
The human element means you can call someone in case you have a question. The importance of technology is somewhat lessened.	The fees are much lower than traditional advisors, and the ease of opening a portfolio cannot be stressed enough.
The technology behind the algorithms eliminates the human error aspect of investing. Remember, 50% of financial advisors are below the median. Knowing that your money is being managed by a best-in-class algorithm compared to a human, instills a “set it and forget it” mentality (which is a good thing when talking about retirement planning)..	The technology behind the algorithms eliminates the human error aspect of investing. Remember, 50% of financial advisors are below the median. Knowing that your money is being managed by a best-in-class algorithm compared to a human, instills a “set it and forget it” mentality (which is a good thing when talking about retirement planning).
Most financial advisors can answer questions about topics that go beyond investment & retirement portfolios (life insurance, annuities, etc)	The consumer facing platforms are much easier to use compared to their traditional counterparts.

Robo-Advisor Options in Canada

If you have questions about robo-advisors, or if you feel you may benefit by switching to a technology-based solution, I strongly encourage you to check out Wealthsimple. 

It won’t take much research to conclude that Wealthsimple is Canada’s top robo-advisor, and it’s a product I use. Wealthsimple is a robo-advisor, but still provides clients with access to human advisors to answer their questions (a best-of-both-worlds situation). Wealthsimple offers an easy-to-use platform and does not require a minimum investment to get started. 

Here is a detailed review of the user experience by Canadian Youtuber Brandon Beavis 

Bottom line…….check out Wealthsimple

7. You Can Have Multiple RRIFs 

Yes, you can have multiple RRIFs, although there are only a few reasons to do this. To streamline your financial initiatives you probably only want one RRIF. 

If you have multiple RRSP’s, you can transfer each of them to your individual RRIF. 

Having one RRIF will also help you track whether or not you’ve hit the minimal withdrawal amount for the year. 

Conclusion 

Retiring can be stressful because of a financial situation. It’s a big mental hurdle to drastically reduce your income, and switch to living off of your savings. 

Savings for retirement can be stressful, and I hope you’ve made the right decisions that will set you up for financial success in your post-retirement life. 

If you have an RRSP, you should strongly consider transferring it to an RRIF upon retirement. Withdrawing 100% of your RRSP at retirement means you will be heavily taxed, and considering many Canadians are working into their 70s (at least on a part-time basis), this taxation could be financially devastating. 

An RRIF allows for tax sheltering well into retirement and also provides you the opportunity to continue to grow your retirement income in a tax-free environment.  

Since there is no maximum amount you can withdraw, it also provides you with financial flexibility later in life. 

RRIF FAQ

What Happens to an RRIF After Death? 

As you probably expected, the money left over in your RRIF once you pass on will be given to your beneficiary or your estate. 

How do I Transfer my RRSP into an RRIF? 

This can be broken down into 4 basic steps 

A. Choose Your Financial Institution

This can be one of the many traditional or robo-advisors in the market. There is some obvious simplicity in keeping your RRIF with the same financial institution that holds your RRSP.

B. Complete an RRIF Application 

This step should be initiated by your financial advisor.

C. Choose a Beneficiary 

This is part of the application process and is controlled by the applicant. Therefore, the beneficiary can be an individual or an estate. 

D. Choose a Withdrawal Schedule 

As mentioned earlier, a minimum amount must be withdrawn from your RRIF annually (refer to the table above). These withdrawals can be done on an annual, quarterly, or monthly basis, and must begin no later than your 71st birthday. However, if you have a younger spouse, you can use his/her birthday to initiate the withdrawals, providing you with more flexibility, and decreased taxation. 

Can I Still Earn Money if I Have an RRIF? 

You can earn money with an open RRIF, and thus many Canadians are doing this more and more. 

If you are under 71, you can put money in an RRSP for tax deferral, and transfer that money to a RRIF. You cannot put money directly into an RRIF. 

If you are over 71, TFSAs, GICs, or investment accounts are all options for your earnings. 

4 Tips to Help You on Your Financial Wellness Journey 

1. Set a budget based on your monthly income, and determine what amount needs to be allocated towards your retirement (15%). Once you’ve calculated the 15%, verify your retirement income needs by using one of the many Canadian-specific retirement calculators on the internet. Double-check that your monthly retirement allocations are in line with what you require
2. Leverage technology to set up automatic transfers between your checking account and your retirement vehicle. This figure can be based on the numbers calculated in Tip #1
3. Should you have an RRSP, strongly look into transferring those funds into an RRIF upon retirement, rather than withdrawing your earnings in one lump sum
4. Remodify your budget based on your new RRIF payouts so you don’t miscalculate your spending