CONVERTING YOUR LOCKED-IN RRSPS INTO RETIREMENT INCOME
INCOME FROM GOVERNMENT PENSIONS: Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) • The plans provide a lifetime monthly income based on individual contributions and are indexed to inflation. • You may apply for income to start as soon as age 60 (with reduced monthly payments) or as late as age 70 (with increased monthly payments). Old Age Security (OAS) • The plan provides a lifetime monthly income, indexed to inflation. • Benefits begin at age 65, but you must repay some or all of it if your total income is over a certain amount ($77,580 for 2019) then you will have to repay 15% of the excess over this amount, to a maximum of the total amount of OAS received. ... The clawback is called the "OAS recovery tax" You can delay your income start date up to age 70, to receive an increased payment. Guaranteed Income Supplement (GIS) • This is a monthly non-taxable benefit for low- income OAS recipients. • Your eligibility for GIS is reviewed every year when you file your tax return.
Mutual funds • A mutual fund is a large pool of money belonging to many people that is invested by experts in stocks, bonds or other securities with the goal of increasing the value of the overall pool. • Mutual funds are often held in tax- advantaged retirement income plans as a way of participating in markets. Guaranteed interest products • There are a number of guaranteed interest products that all offer protection for your initial investment and the opportunity for predetermined growth. • The guaranteed return is based on interest rates, the deposit amount, the length of the contract and other factors, depending on the type of product you choose. • You’ll have peace of mind knowing your savings are protected from market fluctuations. Tax-advantaged retirement income plans • A registered retirement income fund (RRIF) is a tax-deferred way for you to use your RRSP savings to generate retirement income • A life income fund (LIF) or locked-in retirement income fund (LRIF) is like a RRIF for “locked-in” money that originally came from a pension plan.
A "locked-in” RRSP may also be called a “locked-in retirement account (LIRA)”, depending on the jurisdiction in which your money is registered. But whatever the account is called, locked-in money originally came from an employer or association pension plan and has rules attached. “Locked-in” money is treated differently than money in a regular RRSP, because the government wants to ensure that money in a registered pension plan will only be used for retirement income. If you put your locked-in money into a LIF or LRIF, there is a minimum amount that you must take out and a maximum amount that you can take out from the plan each year. These rules vary by province.
Locked-in money can be put into an annuity or any of the following income products that
offer LIF or LRIF registration: • Segregated fund contracts • Mutual funds • Insurance GICs
CONVERTING YOUR OTHER ASSETS INTO INCOME You may have assets outside of registered accounts that can also be used to help fund your retirement: • Non-registered investments. These include mutual funds, segregated fund contracts, guaranteed interest products, stocks, bonds or bank accounts. • Real estate. Some people who own their homes choose to downsize and free up some of the value of their home. One of the advantages of this strategy is that there is no tax on the gains when you sell your primary residence. • Inheritance. For some, the prospect of an inheritance can make a big difference in their retirement planning. Because money from these sources is not registered, you can do whatever you want with it, including: • Buy an annuity or a segregated fund contract that guarantees your income for life (or a fixed number of years). • Buy investments that provide income in the form of automatic withdrawals.
CONVERTING YOUR RRSPS INTO RETIREMENT INCOME
Government rules require all RRSPs to be cashed in or converted to income by December 31 of the year you turn 71. You can choose to do this earlier, if you wish. You have three choices: 1. Use the money to buy an annuity. 2. Transfer the money to a registered retirement income fund (RRIF) product. 3. Take the value of your RRSPs in cash. Most people prefer not to cash out because all the money will be taxed in one year. Sun Life product types that offer RRIF registration are: • Segregated fund contracts • Mutual funds • Insurance GICs • Guaranteed Investment Certificates (GICs) The options you choose depend on what you need and whether you want a guaranteed income stream. Many people find that using a combination of these options best fits their needs.
Contact me to build a plan that will fit your life.
▲ Evan Patkai, B.B.A. Financial Advisor Member of Advocis (Photo: Evan Ceretti Photography)
Patkai & Son Financial Services Inc.
184 Buchanan Drive, Charlottetown 902.894.8513 ext. 222 Cell 902.940.6414 evan.patkai@sunlife.com www.sunlife.ca/evan.patkai
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