Understanding Your Options at Retirement - Part II

As discussed in our previous article, ‘Understanding Your Options at Retirement– Part I’, the options you have to access your plan assets at retirement depend on whether the money was accumulated in a pension or a savings plan. In part one we explored the options for pension (or locked-in) money; in this article, we will look at the options available for assets accumulated in a savings plan.

When buying a retirement income product with your registered retirement savings, you have the option of choosing a Registered Retirement Income Fund (RRIF), an annuity or simply cash. To understand these options, keep on reading!

RRIF: A Registered Retirement Income Fund is a retirement income product for all registered funds not subject to lock-in restrictions. The government requires that a minimum level of income be withdrawn from a RRIF. Each year, the minimum income is determined using your balance on January 1st and a percentage determined by your age or the age of your spouse on January 1st.

When a RRIF is purchased with non-locked-in funds, only the amount withdrawn each year is taxable and the remainder of your capital can grow tax-free. With a RRIF, you can increase your income or withdraw extra money to cover emergencies, as there’s no restriction on the amount you can withdraw. It must be noted that this option could exhaust RRIF funds at a faster rate.

At the time of death, the value of the RRIF can be distributed various ways. It can be paid as a lump sum cash payment to the beneficiary, used to provide an income to your surviving spouse, transferred by your surviving spouse tax-free to a personal RRSP or RRIF of their own, or it can be converted to an annuity.

Payout annuity: A payout annuity, also known as a life or term annuity, provides you with a series of payments for either a specified number of years after retirement, for your lifetime, or for the lifetime of you and your spouse.

Annuities provide stability and security through guaranteed payments. The amount of your payments depends on your age, the amount of money you invest in your annuity and the type of annuity you select. The three main types of annuities include: life annuity, which provides you with payments for as long as you live; joint life annuity, which provides you with payments for as long as you and your spouse live; and a term certain annuity, which provides you with a specified number of payments.

There are various types of retirement products to select from, depending on the type of savings you have. Understanding your options for retirement will help in selecting the appropriate product to meet your lifestyle.