Adrian Mastracci, portfolio manager at KCM Wealth Management, says “The venerable RRIF remains firmly entrenched as a prominent retirement planning vehicle."

Vancouver, BC (October 9, 2007):  It's time to pay special attention to RRIFs. The sooner, the better.

The venerable RRIF remains firmly entrenched as a prominent retirement planning vehicle. It has become an essential foundation of many a nest egg.

Adrian Mastracci, portfolio manager at Vancouver based KCM Wealth Management, says, “RRIFs deserve periodic reviews to make sure the game plans are on track. The December 31st conversion deadline is not far away.”

Starting RRIFs at age 71 implies planning say for the next 20 to 30 years. Especially, if there is a younger spouse. That's one very good reason to be aware of the details.

RRIFs are income withdrawal plans. No contributions are allowed to be made into a RRIF. However, the age rules for converting RRSPs have changed in 2007.

Overall philosophy

• Many investors focus on capital preservation and sustaining retirement income streams. Particularly, the professionals and self-employed who don’t have employer pensions. A RRIF becomes a far more important planning tool for these groups.
• The preferred strategy is to integrate the RRIF into the overall investment plan. A diversified plan with the appropriate asset mix and tolerance for risk. Be aware of risks taken inside the RRIF. Some investments, like equities, may make more sense outside these plans.
• Eligible investments for the RRSP and RRIF are the same. Hence, investment strategy need not change if it accommodates the RRIF periodic withdrawals. Investors, who require income from the RRSP, are better off not converting the RRSP until age 71. RRSP withdrawals can be made as and when required until age 71.
• Investors may have more than one RRIF. Designate the appropriate beneficiary for each plan, such as the spouse and children. RRIF accounts can be passed onto the surviving spouse. Ultimately, to other beneficiaries named in the will. RRIFs are part of the estate planning.
• The conversion choices include cashing out the RRSP, a variety of annuities and the venerable RRIF. The RRIF is most popular because it provides considerable flexibility. Further, RRIF income qualifies for the $2,000 pension income credit for investors age 65 or older.

RRIF tips

• Converting the RRSP to a RRIF was mandatory for those who turned age 69 in 2007. The March budget changed it to age 71. Conversions must still be finalized by December 31st. Additional RRSP contributions (personal & spousal) could be made by some who converted in 2006.
• Minimum RRIF withdrawal rules are waived in 2007 and 2008 for RRIF owners turning 70 or 71 in 2007, or 71 in 2008. Anyone in the new age limits, and receiving periodic RRIF payments, may wish to review the wisdom of suspending the payments.
• RRSP deposits must still be made before converting, unless there is a younger spouse. If there is no spouse, the planholder may make the 2008 RRSP contribution before converting the RRSP in 2007. A penalty applies and the RRSP deduction is then claimed in the 2008 tax return.
• Minimum RRIF withdrawals, taxable as regular income, are governed by formula shown in the table below. Please note the substantial withdrawal rate jump at age 71. RRIF withdrawals commence in 2008 for those who convert the RRSP in 2007. There is an election to receive the minimum RRIF payments based on the age of the younger spouse.
• Voluntary RRIF withdrawals, in excess of minimums, can be made 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 real advantage offered by RRIFs is significant flexibility. Each investor situation can be customized, year by year. Investors can choose the amounts withdrawn above the minimums, the frequency of withdrawals and the investments. Three things that make the RRIF so flexible.

The vital question is still what’s important about the RRIF. That perspective guides the path that makes sense for the individual situation.

Stickhandling the RRIF path is important for both retirement and investment planning. Paying special attention to details, vis-a-vis one's goals, is a valuable exercise for the long-term.

Minimum RRIF Withdrawals

I welcome your questions, comments and opinions.

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.