REGISTERED RETIREMENT INCOME FUND (RRIF)

A Registered Retirement Income Fund (RRIF) is an investment plan aligned with Government of Canada regulations. It allows you to transfer registered funds, typically from your RRSP, without tax liability, establishing a source of retirement income.

Some RRIFs operate similarly to extending an RRSP beyond age 71, with the distinction that you must withdraw taxable income. You can choose the payment level, ensuring it meets the minimum annual amount requirement, with no maximum limit.

With many RRIFs, you can adjust annual payments above the minimum to suit your needs. While higher payments deplete funds sooner, RRIFs can continue for the holder’s lifetime.

Minimum Annual Payments

You aren’t obligated to take any payment in the calendar year the RRIF is funded initially. In subsequent years, the minimum payment varies based on your age and RRIF’s total value at the year’s start.

Choosing your spouse’s birthdate for the minimum payment calculation can be strategic:

1. Opting for a younger spouse reduces the minimum payment significantly.
2. Selecting an older spouse increases the minimum payment without triggering withholding tax.
3. When spouses have RRIFs based on the same birthdates, combining them into one RRIF after one spouse’s passing is an option.

Minimum Payment, Age Less Than 71

If your age (or your spouse’s, if elected) is below 71 at the year’s start, the minimum payment is calculated by subtracting the age from 90 and dividing the result into the RRIF’s value. This formula results in increased payments yearly.

Minimum Payment, Age 71 to 77

For ages 71 to 77, minimum payments depend on whether the RRIF was funded before or after January 1, 1993. Different percentages apply to RRIFs funded before 1993 and those funded after.

Minimum Payment, Age More Than 77

From age 78 onwards, percentages are applied to the RRIF’s value based on the age at the year’s start.

Withholding Tax

Income tax may be deducted from RRIF payments, but only for the portion exceeding the annual minimum. Withholding tax applies to the full amount of payments taken in the RRIF’s opening year.

Estate Considerations

RRIFs simplify estate planning. In the event of death, the spouse/partner can continue receiving income, transfer the account tax-free to their RRIF/RRSP, or have the remaining balance paid to the estate or beneficiary.

Investment Choices

Just like RRSPs, RRIFs come in various forms. To tailor them to your retirement income needs, reach out to our office for detailed information.

WILLS

A will is a legally binding written document that, when properly signed, outlines:

1. The appointed executor(s) responsible for administering the estate.
2. Instructions for handling assets, liabilities, and other matters related to the estate.
3. Additional wishes, such as guardianship of children and burial instructions.
4. It takes effect only upon the individual’s passing.

The primary function of a will is to provide court-approved authority (probate) to an executor or trustee (in the absence of a will) to manage the deceased’s estate and carry out their wishes.

WE DON’T ALWAYS SIGN FOR OURSELVES

Throughout life, different individuals may sign on behalf of a person. Initially, parents or guardians sign documents on behalf of a child until they reach legal age. If someone becomes physically or mentally incapable, a power of attorney or a legally designated person can sign on their behalf. After passing away, an executor or administrator is appointed to continue signing on behalf of the deceased.

WHAT IS A LIVING WILL?

A living will is a document similar to a power of attorney, granting authority to make medical decisions. For example, it might authorize the removal of life-sustaining support systems. Unlike a standard will, a living will does not deal with assets and liabilities.

WHY IS A WILL A GOOD IDEA?

Having a will is crucial because the laws governing intestacy (dying without a will) might not align with your preferences. A will allows you to:

1. Choose your executor(s).
2. Specify beneficiaries and their inheritance.
3. Designate a guardian for minor children.
4. Provide personal instructions.

A will simplifies procedures, ensures your wishes are honored, and can include instructions for beneficiaries to receive their inheritance at a specified age.

WHAT IF I DON’T HAVE A WILL?

Without a will, a spouse, relative, or government-appointed Public Trustee may obtain court authority to handle the estate. This process may take longer and be more costly.

WHAT DOES A WILL COVER?

A comprehensive will should address all assets and liabilities. It can also have provisions for application in other provinces or jurisdictions, but caution is needed for international jurisdictions.

WHEN DOES MY WILL TAKE EFFECT?

A will only becomes effective upon your death. It can be written years in advance but must be regularly reviewed and can be revoked or replaced by a new will at any time.

For more information on wills, contact our office.

ESTATE PLANNING ADVISOR IN CALGARY

Why Estate Planning Matters

Many believe estate planning is a concern only for the affluent. The reality, however, is evident in the numerous Canadians who pass away without a will each year, leading to the province taking control of the estate’s distribution. Even for smaller estates, the costs and delays of probate can have significant consequences. Estate planning aims to structure your financial matters, ensuring a swift and comprehensive transfer of assets to your heirs.

A positive aspect for Canadians is the absence of estate tax when assets are transferred to heirs after death. Nevertheless, depending on the estate’s asset types, a “deemed disposition tax” may apply, potentially disrupting the financial lives of surviving family members. Properly planned estates strategically organize and title assets to minimize taxes. Tools like trusts are often employed to reduce tax exposure. Estate planning is not solely about preparing for death; it’s also crucial for ensuring your wishes are honored while you’re alive. In instances of mental or physical incapacity, tools like a power of attorney become essential for life planning.

ESTATE PLANNING PROFESSIONAL IN CALGARY

The complexity and cost associated with estate planning are often overstated, especially for most estates. Collaborating with an estate planning professional or attorney to execute legal documents is advisable, and considerable time and expense can be saved by organizing financial information and defining goals before such a meeting. At a minimum, having a simple will, considering its low cost relative to the distress and potential expenses it can prevent, is highly recommended. Larger estates may necessitate additional estate planning tools like trusts. Regardless of estate size, pre-planning significantly streamlines and reduces the cost of the process.

For many Canadians, retirement stands as a significant financial goal that demands careful consideration and planning. A whopping 49% of Canadians aspire to retire before the age of 60.* Whether you’ve already initiated a Retirement Savings Plan or are just embarking on the journey, the timing is opportune to commence or refine your saving strategy.

LEARN MORE: Government Benefits Canadian Retirement Income Calculator Canada Pension Plan – Overview

SEVEN KEYS TO SUCCESSFUL RETIREMENT PLANNING

1. DETERMINE YOUR RETIREMENT INCOME NEEDS Retirement planning is a pivotal financial goal. Whether you’re already on the savings path or starting anew, the initial step involves assessing the financial landscape of your retirement. For a thorough analysis of your retirement income needs and opportunities, reach out to our office.

2. EMBRACE THE THREE “S”S Save now, Start now, and Stay invested. Kickstart your journey by investing what you can, with periodic increases over time. Utilizing a pre-authorized deposit plan facilitates consistent contributions to your retirement savings. Remember, even small contributions can amass into significant amounts with the magic of compound growth. The key is to remain invested for the long haul.

3. PRIORITIZE DIVERSIFICATION Diversification is the bedrock of risk management. Spread your investments across various vehicles to mitigate the impact of a single underperformer in your portfolio. Experts affirm that over 80% of your portfolio’s return is attributed to the asset mix encompassing safety, income, and growth.

4. EMBARK ON THE JOURNEY EARLY Initiate your retirement savings journey in your 20s or 30s with your first Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). This early start positions you for a robust strategy carrying you seamlessly into retirement.

5. COMMIT TO REGULAR CONTRIBUTIONS Adopt a steady approach to your RRSP/TFSA by contributing small amounts regularly. Consistent contributions are the linchpin for ensuring long-term success.

6. STRIVE FOR MAXIMUM CONTRIBUTIONS Endeavor to contribute the maximum to your RRSP/TFSA whenever feasible. Understanding whether an RRSP, TFSA, or a combination is optimal for building your nest egg is crucial.

7. SAFEGUARD YOUR RRSP/TFSA Consider your RRSP/TFSA untouchable unless it aligns with a planned strategy. While these funds can serve as a safety net during financial crises, avoid tapping into them unless absolutely necessary. Funds withdrawn today diminish the resources available for your retirement needs.

As a trusted retirement planning advisor in Calgary, our mission is to guide you through the complexities of retirement planning, ensuring you embark on a journey that leads to a secure and fulfilling retirement. Contact our office for personalized assistance and expert guidance on your retirement path.