Time to set free the RRIFs

The stock-market crash has provided more fuel for the argument that Ottawa needs to give retirees a break on forced taxable withdrawals from their registered retirement income funds (RRIFs).

Even before the crash, arguments for reducing or eliminating forced RRIF withdrawals were made in April by the Investment Funds Institute of Canada (IFIC). The institute’s president, Joanne De Laurentiis, told the Finance department that RRIF minimum withdrawal levels should be reduced to the point where today’s longer-living seniors could generate a steady 4% annual return from ages 71 to 96.

Then, in July, Bill Robson of the C. D. Howe Institute argued that with returns down and life expectancy up, Ottawa should go further and scrap mandated annual withdrawals altogether.

This month, CARP, which lobbies for Canadians ages 45 years and up, asked for a two-year moratorium on forced RRIF withdrawals. It raised the issue of seniors being forced to sell stocks at a loss this year, while the annual percentage withdrawal (7% and rising with age) must be calculated based on pre-crash portfolio values last January.

As Susan Eng, CARP’s vice-president of advocacy, said in an interview, the association views the situation as an “absolute emergency.”
The issue of forced withdrawals is not restricted to Canada. CARP’s equivalent in the United States, the powerful American Association of Retired Persons (AARP), recently wrote to Henry Paulson, the U. S. Treasury Secretary, urging him to take “immediate action to temporarily freeze mandatory retirement account withdrawals.”
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