Doing The Math:

For those who are good savers, it has always been considered "mandatory" to contribute to an RRSP each year and to maximize the tax benefit for doing so. 

Most do not necessarily grasp the implications that may arise with eventually withdrawing that money.

The "common" thinking on the subject is that you continue to age 71 and then convert to a RRIF and start withdrawing the yearly minimum (which starts at 7.48% of the total) in the year that you turn 72.

So, if you have been a good saver for a long time, you may have amassed a pretty sizable RRSP/RRIF.

For example, let's say you have a RRIF that is $1,000,000.

• The year you turn 72 you are going to receive additional taxable income of $74,800.
• That could be a significant taxable event, depending on how you have been funding your retirement lifestyle up until then.
• Everyone will have somewhat different circumstances, so it is important to ensure that you confer with your advisor on exact details:
• However, it may be worth thinking of converting your RRSP to a RRIF earlier (you do not necessarily have to wait until 71).
• This will allow you to reduce the size of your RRIF over a longer period of time.
• RRIF minimums prior to 71 are calculated as 1 / (90-your age), for example if you are retired and want to start at age 55, (1 / 35 = 2.857% ), you can withdraw a relatively low annual minimum and if it makes sense, potentially reduce your future RRIF payments (and taxable income) when the minimums become larger.
• Check with your Certified Financial Planner (CFP) professional to see if this strategy might make sense for you.

The views expressed are those of the author, Scott Tomenson, a Raymond James Financial Advisor, and not necessarily those of Raymond James Ltd. It is provided as a general source of information only and should not be considered to be personal investment advice or a solicitation to buy or sell securities. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. The information contained in this blog was obtained from sources believed to be reliable, however, we cannot represent that it is accurate or complete. Raymond James Ltd. is a member of the Canadian Investor Protection Fund.