The Right Age to Start Withdrawing from your RRSP

Are you looking to maximize your annual income from your registered retirement plan? Let’s check out some basic FAQs you need to know to reach your goal.

The Difference Between an RRSP and a RRIF

Your registered retirement savings plan is specifically structured to have money put into it. When you are ready to retire, you have to convert your RRSP into a Registered Retirement Income Fund (RIFF). It will provide steady income to you until the age of 90. There are only a few reasons that allow you to take cash out of an RRSP before rolling it into your RRIF. While you can start converting part or all of your RRSP at the age of 65, you must complete the process by age 71. You cannot continue to contribute to your RRSP after the age of 69.

Your Age Determines the Minimum Amount Received from the RRIF Every Year

If you want to protect the principal in your RRIF, you may want to receive a lower annuity over the life of the fund. When you first start taking payments from your fund, the amount is determined by your age and will remain the same until the fund is depleted or until your death. If you access your fund at 65, the payment is lower than if you start accessing it at age 71.

If you need your RRIF to provide a larger portion of your monthly income, it is better to wait for the later start date. Should you want to reinvest some of your RRIF to increase your income in later years, take your initial payments starting at age 65 and turn the unneeded income into guaranteed or secured certificates. Check the current GIC rates to determine how beneficial this play can be. Select an investment term of 6 months to 5 years and enjoy the added security that a healthier retirement fund can provide.

If Taking Early Retirement, Can You Withdraw from Your RRSP Anyway?

Should you find yourself be putting in all the way until your last day before turning the magical age of 65, you might think that using some of your RRSP as income can help defray your living expenses until your spouse joins you in retirement. Think carefully about this tactic. Unless you are buying your first house or spending money on your education, you will have to pay a substantial penalty for this.

You will have to declare the amount you withdrew on your annual income tax form and also pay a penalty ranging from 10% to 30%. You also cannot replace this amount as your annual maximum contribution will not be adjusted. While you might need to take the withdrawal in case of serious financial difficulties, doing so does not help you build a larger nest egg for your RRIF down the road.

Ultimately, the RRIF system is designed to take care of you from age 71 to 90. You can make a few minor adjustments to your financial planning beginning at the age of 65, but this only works for the individual that will not rely on the maximum annual payout available at a later date. Plan wisely and if you are not sure, you can always contact a financial advisor today.

Jerry Kirkham is an investment professional, and like every investment professional, he makes mistakes. Jerry encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at Essential Savings, or anywhere else Jerry may write is an invitation to buy or sell any particular security; at most, Jerry is handing out educated guesses as to what the markets may do.