Retirement Planning
A retirement plan analysis can be used to answer these common questions:
- When is the best time to convert to a RRIF/LRIF/LIF?
- When should I start collecting CPP and OAS?
- How can I avoid OAS Clawback?
- When can a line of credit be useful for retirement income?
Enjoy your Wealth
While the ultimate dream for most people is financial independence, the ultimate goal is usually a comfortable home, enough income to enjoy life, and time with friends. Throughout our working careers, we might plan to buy a home, renovate it, buy a cottage, and travel, and eventually, we'd like to continue to do the same without needing to work!
The definition of retirement has changed over the years and today it's common to transition from full employment to full retirement over a number of years. While the ability to save becomes harder with a decrease in income, any income still serves to defer withdrawals and allows portfolios to grow further. A key challenge is determining the best strategy for converting savings into income.
A retirement plan analysis will help you understand how much wealth you can reasonably accumulate and how much you can spend during your retirement years. It will also consider how to be tax efficient as you draw income from various savings or sources of capital.
Registered Retirement Income Fund (RRIF)
A RRIF is a fund you establish with a carrier and that is registered with the Canada Revenue Agency. You transfer property to the carrier from an RRSP, RPP, or from another RRIF, and the carrier makes payments to you. Establishing a RRIF can be done at anytime, but must be done no later than the year the annuitant turns 71. Once a RRIF is established, there can be no more contributions made to the plan nor can the plan be terminated except through death.
You can have more than one RRIF and you can have self-directed RRIFs. The rules that apply to self-directed RRIFs are generally the same as those for RRSPs.
Source: Canada Revenue Agency
Life Income Fund
A Life Income Fund (LIF) is a type of registered retirement income fund that is used to hold pension funds, and eventually payout retirement income. The life income fund (LIF) cannot be withdrawn in a lump sum; rather, owners must use the fund in a manner that supports retirement income for their lifetime. Each year's Income Tax Act specifies the minimum and maximum withdrawal amounts for LIF owners, which takes into consideration the LIF fund balance and the owner's annuity factor.
For more information on Life Income Funds, please contact us.
What is an Annuity?
An annuity is a plan that makes payments to you on a regular basis. It might be a general annuity, a payment from a registered retirement income fund (RRIF), or a variable pension payment. These payments are part of your total income and are reported on your tax return.
Source: Canada Revenue Agency
Annuity options
The Manulife Principal Protected AnnuityTM is a Life Annuity option that provides you with principal protection by ensuring the money invested will always be received as income to you or as a legacy for beneficiaries.
Life Annuities will provide you with guaranteed, regular income for life. They can be purchased as a single life, based on one person’s life, or as a joint and survivor, based on the lives of two people.
Term Certain Annuities provide investors with guaranteed, regular income for a selected period of time. Once this period is over, income payments cease and the annuity contract ends.
Prescribed Annuities offer preferential tax treatment if you are investing using non-registered funds. Each payment includes the same amount of interest and capital. This evens out the amount subject to tax and provides some tax deferral. A Manulife Annuity may qualify as “prescribed.”
For more information about annuity options, please feel free to contact us.
The Manufacturers Life Insurance Company is the issuer of all Manulife Annuities. Manulife Principal Protected Annuity is a trademark of the Manufacturers Life Insurance Company and is used by it and its affiliates under license.
Retirees face two important risks as they transition from saving to spending:
Sequence of Returns - When saving for retirement, the sequence of positive or negative returns has no effect on the ending value and whether you reach a financial goal; however, retirees that have the unfortunate luck of experiencing negative returns within the first few years of retirement, have a much greater risk of outliving their money than someone who experiences positive returns during those early years.
Longevity Risk - This is simply the likelihood that you will outlive your savings.
Portfolio design needs to consider both factors. We need to use low risk assets to protect from an unfortunate sequence of returns, yet have enough higher risk assets to outpace inflation and provide for unknown longevity. Balanced funds are a poor choice for retirement income because you have no control over which asset is sold under different market conditions.
A retirement plan analysis can be used to test how much you can comfortably withdraw. The plan requires personal budgeting, thinking about needs versus wants, and knowledge of how to minimize tax.