Adrian Mastracci, investment counsel at KCM Wealth Management, says “Consider someone who starts an RRSP at age 30. The RRSP/RRIF planning could easily cover the next 50 to 60 years. Similarly, a couple around age 50 could be planning for more than 35 years.”

For Immediate Release

Vancouver, BC (October 18, 2004): Two investment plans have gained a good deal of prominence for retirement planning. You guessed it, the RRSP and RRIF. Each requiring considerable thought to accommodate individual needs.

Adrian Mastracci, investment counsel at Vancouver's KCM Wealth Management, comments, “The RRSP and RRIF can make significant contributions to retirement income needs. However, dealing with the RRSP and the subsequent RRIF is truly a marathon of investment decisions. Especially, as the RRSP/RRIF combination spans much of the investor's lifetime.”

“The RRSP is approaching senior status, celebrating its 57th birthday. It was created in 1957,” recalls Mastracci, “And has undergone many a facelift since then. Such as the maximum deposit starting at $1,500 per year.”

"That's one big reason why it's important to be aware of the rules and options governing RRSP’s and RRIF’s," mentions Mastracci, “Even if it's too early to implement them.”

“Consider someone who starts an RRSP at age 30. The RRSP/RRIF planning could easily cover the next 50 to 60 years,” notes Mastracci, “Similarly, a couple around age 50 could be planning for more than 35 years. Therefore, investment time horizons of 5 to 10 years should not be a problem.”

“Let’s begin with the central question: What is important about the RRSP and RRIF to you?” says Mastracci, “That perspective guides the path that makes sense for your situation.”

“The RRSP/RRIF may be the major source of retirement capital,” adds Mastracci, “Particularly for the self-employed who don’t have pension plans.”

“Many investors focus on capital preservation, both before and after retirement. Some emphasize portfolio growth,” indicates Mastracci, “Others concentrate on solidifying retirement income streams.”

“The multitude of individual needs means that the RRSP to RRIF progression requires skillful maneuvering for each situation,” points out Mastracci, “Thus, the marathon of appropriate decisions is of particular importance to every investor. It’s a long journey to navigate successfully."

RRSP overview

Start with the RRSP overview for this year:

• The 2004 RRSP deposit is 18% of your 2003 earned income, to a maximum of $15,500 and reduced by your pension adjustment. Past service contributions may also affect it.
• The maximum 2004 RRSP entitlement is reached with 2003 earned income of $86,100. RRSP deposits must be made by March 1, 2005 to be deducted in your 2004 tax filing.
• Don’t forget unused RRSP contribution room accumulated from previous years. Check your 2003 Tax Notice of Assessment for the total RRSP entitlements. The $2,000 lifetime overcontribution is also allowed as part of your RRSP deposit, but is not included in your tax notice.
• RRSP contributions can be made in cash or with other qualified investments. However, review the tax implications of contributing existing investments.

RRIF considerations

Next, review the RRIF and transition from the RRSP:

• RRSP’s are primarily savings vehicles, whereas RRIF’s are income withdrawal vehicles. No contributions are allowed to be made into a RRIF.
• Investors who turn 69 during 2004 must convert their RRSP by December 31, 2004. Younger investors, who may require income from the RRSP, are better off not converting the RRSP until age 69. RRSP withdrawals can be made as and when required until then.
• All RRSP deposits must be made before conversion to a RRIF. Where applicable, the RRSP deposit can be made to the younger spouse. If there is no spouse, the planholder may consider making the 2005 RRSP contribution before converting the RRSP in 2004. A penalty would apply and the RRSP deduction is then claimed in the 2005 tax return filing.
• The choices available at time of conversion include cashing out the RRSP, a life annuity, a term annuity to age 90, and the venerable RRIF. The RRIF has risen to be the most popular because it delivers considerable flexibility.
• The eligible investments for the RRSP and RRIF are the same. Hence, existing RRSP investments can be transferred directly to the RRIF. Investment strategy need not change if it accommodates the periodic withdrawals. Having something mature every year usually suffices.
• All minimum RRIF withdrawals are governed by a formula (see table provided) and are fully taxable as regular income. The first RRIF withdrawal commences in 2005 for those who convert the RRSP in 2004. If the spouse is younger, there is an election to receive the minimum RRIF payments based on the age of the younger spouse.
• An investor may have more than one RRSP and RRIF. Of course, designate the beneficiary for each RRSP/RRIF plan as appropriate, such as the spouse and children. If the investor is over age 65 and does not receive employer pension payments, the RRIF income qualifies for the $1,000 pension income credit.
• Voluntary RRIF withdrawals, in excess of the annual minimums, can be made at any time. However, if the RRIF resulted from the conversion of a spousal RRSP, the three-year attribution rule still applies to RRIF withdrawals that exceed the minimums.

“The fundamental advantage offered by the RRIF is remarkable flexibility,” suggests Mastracci, “Each investor situation can be customized, year after year.”

“Investors can choose the maximum level of annual income withdrawn, the frequency of the withdrawals and the plan's investments. That's what makes the RRIF so flexible as a retirement planning vehicle,” concludes Mastracci.

"Upon the death of the planholder, the RRSP/RRIF accounts can be passed onto the surviving spouse and, ultimately, to other beneficiaries named in the will,” explains Mastracci, “Hence, the value can accrue to family members as part of the estate."

“Navigating the RRSP and RRIF paths is an important page of financial security,” summarizes Mastracci, “Paying special attention to the available choices, vis-a-vis one's goals, is a valuable exercise.”

Minimum RRIF withdrawals

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.