Spotlight on Ending Mandatory Minimum RRIF Withdrawals

RRSPs have been described as a bucket in which your funds accumulate, and an RRIF as a bucket with a tap from which your income flows out.  You can control the tap but you can’t turn it off completely, because currently there is a minimum amount you must remove each year.

Unlike a Registered Retirement Savings Plan (RRSP) which is designed to help you save for retirement, a Registered Retirement Income Fund (RRIF) is a structured way to cash out your earnings.  The earnings themselves are tax-free, but the amounts paid out are taxable upon receipt.

While RRIFs can be opened prior to age 71, once Canadians turn 71, they must convert their RRSPs to RRIFs.  Minimum withdrawals become mandatory in the year following.

The minimum amount is based on your age and a percentage of the value of your RRIF on January 1. For example, if you are 71 on January 1, the minimum amount is 5.28%. If you are 72 on January 1, the minimum amount is 5.40%.  The percentage increases as age increases.

CARP believes seniors deserve to be in control of their retirement savings, and mandatory minimum withdrawals should be eliminated.  Mandatory withdrawals mean that a retiree has no choice but to deplete their capital, which could compound a loss or reduce future growth opportunities.

When individuals are forced to draw down on their savings, they risk outliving their funds. This problem is compounded by longer life expectancies, lower rates of return, declines in personal savings rates, and reduced access to workplace pension plans. Many depend on their RRIF to provide sustained income throughout their later years.

CARP believes the minimum withdrawals are not necessary; the government will receive the tax on the RRIFs ultimately. Suspending mandatory RRIF withdrawals is a tangible action that the federal government can take to immediately improve the financial security of Canada’s retirees.

More than 3 in 4 of our members support this change—it has never been more necessary than it is now.