Information and FAQ
Registered Retirement Income Funds (RRIFs)
Life Income Funds (LIFs)
Once you have accumulated retirement savings and are at a point where you”re considering using them as a retirement income, you have a major decision to make.
Choosing the best option from the wide range available can be confusing as you must understand the various options and how they relate to your needs.
The information herein won’t address all of your questions but it will give you sufficient information to begin exploring the retirement income option best suited to you. For further information, qualified staff at your nearest League Savings Branch, or your local credit union will be please to assist you.
The information contained herein is intended as an information guide only. References to income tax regulations are not exhaustive and where clarification is required, you should refer to the actual legislation. Contact Canada Customs and Revenue Agency (formerly Revenue Canada) or refer to it”s Pension and RRSP Tax Guide.
For further information on retirement options, please contact your nearest League Savings branch office.
The following publications are also excellent sources of information:
- Knowing Your Retirement Income Options – Available from League Savings branches or a participating Credit Union.
- The Basics Booklet on RRSP, RRIF, LIF – Available from League Savings Branches or a participating Credit Union.
- RRSPs and Other Registered Plans for Retirement – CCRA* Booklet T4040
1. At what age do I choose an income option?
You can begin receiving a regular income from your RRSP by converting to a Retirement Income Option at any age. However, you must terminate your RRSP no later than the end of the calendar year in which you turn age 71.
2. What are my retirement income choices?
There are several choices available to all and two others in specified provinces only:
- Registered Retirement Income Fund (RRIF) – Gives you maximum control of your funds and the amount of income paid-out to you.
- Life Annuity – A contract with an insurance company which guarantees a fixed income.
- Term Certain Annuity to Age 90 (TCA 90) – A contract which gives you some control over the investment and earnings.
- A Life Income Fund (LIF) – Combines the benefits of both a RRIF and a Life Annuity if your retirement savings consist of funds subject to either federal or provincial pension plan legislation.
- Locked-In Registered Retirement Income Fund (LRIF) – Available in Alberta, Manitoba, and Saskatchewan only.
3. When is the right time to begin your retirement income?
A very personal decision, but factors to consider are:
- You could use more cash in the form of a regular payment, or
- You are 65 or over and need to qualify for the $1,000 Pension Income Credit, or
- You can pay a lower tax rate on the retirement income now, but may be in a higher bracket or subject to the Old Age Security claw back in later years.
- If you are purchasing an annuity, the best time to take action is when interest rates are at a peak level.
4. What is a Registered Retirement Income Fund (RRIF)?
A RRIF is much like a continuation of your RRSP. A RRIF can only receive funds transferred from your RRSP, another RRIF, a Registered Pension Plan, or a commuted RRSP annuity.
The funds in you RRIF continue to be sheltered from income tax and, only the amount paid-out to you is subject to tax in the year it is paid to you, however, there is an annual mandatory minimum amount that you must receive. The amount you select will depend upon your other sources of income as the amount paid to you is added to your taxable income for that year.
5. Basing payments on your spouse’s birth date.
You are permitted to base your RRIF on your spouse’s birth date. This election must be made at the time you establish your RRIF.
- If your spouse is younger than you, your minimum payment will be lower.
- If you select the age of an older spouse, your minimum payment will be higher without triggering withholding tax at source.
- If you did not make this election when you established your RRIF, or marry later, you can take advantage of this rule by transferring your RRIF to a new plan based on your spouse’s age.
6. Minimum Payment.
You do not have to take any payment on your RRIF in the calendar year it is established. Beginning the following year, there is a mandatory minimum payment which changes each year based on your age (or your spouse’s age if you so elected) and the total value of your RRIF at the beginning of the year.
7. Minimum Payment, ages under 71.
If your age (or your spouse’s age if so elected) is under 71 as of January 1st of the year, your minimum payment for that year is calculated by subtracting the age at January 1st from 90, and dividing the results into the value of your RRIF at the beginning of the year. This formula results in a payment amount that will increase each year.
The percentages in the left column below apply to RRIFs first funded before January 1st, 1993, and to which:
- No additional RRSP funds have been added since January 1st, 1993, and
- No funds have been transferred from another RRIF funded after January 1st, 1993.
The “post-1992 RRIF” column applies to RRIFs first funded after January 1st, 1993, or any previous RRIF that receives funds from RRSP or another RRIF after that date. All calculations are based on the total value of the RRIF at the beginning of the year.
10.Life Income Fund (LIF).
A LIF is a special type of RRIF which holds funds that are locked-in under pension legislation. The amount of payments you may receive in any one year is subject to the same minimum payments as with a RRIF, however, with a LIF there is also a maximum payment amount for each year. The payment maximum is to ensure there will be a balance remaining in the fund at age 80 at which time a life annuity must be purchased.
LIFs are available in all provinces except PEI.
11. Life Income Fund advantage.
If you have retirement funds that are restricted under pension legislation, a LIF offers you flexibility in the amount of payments you receive, as well as the types of investment(s) held within your plan. There are also estate preservation issues to consider.
12. For more LIF information?
If you have retirement funds that fall under pension legislation and want more information on how LIF can provide you with a retirement income, contact you nearest League Savings Branch, or your local credit union.
13. Term certain annuity to age 90 (TCA 90).
This annuity pays regular periodic payments which can continue until your 90th year. A TCA 90 can be based on a younger spouse”s age. This retirement income option is not nearly as popular as the RRIF, and the number of issuers is somewhat limited.
14. Life annuity.
15. Single life annuity.
A single life annuity with no guaranteed period provides the highest initial payments, but only for your lifetime, with no further payments after our death.
16. Joint and last survivor annuity.
This contract provides payments that will continue as long as either you or your spouse (the joint annuitant) are living. You can elect to have level payments right from the beginning, or receive a higher payment while both spouses are alive and reduced payments upon the death of either spouse.
17. Other life annuity variations.
Other variations that may be incorporated in your RRSP life annuity include:
- Integration with Old Age Security whereby you receive increased annuity payments to age 65 at which time, the payments are reduced by the amount you will receive from Old Age Security.
- Indexed Life Annuities provide payments that increase each year based on the return of a specified group of assets. This provides you with some inflation protection; however, there is a related cost by way of reduced payments to you in the early years of the contract.
18. What are the risks involved?
The RRIF and the TCA 90 are designed to repay your full investment and earnings to you or your beneficiaries. If your RRIF is invested in mutual funds or equities, you have the risk of losses normally associated with those investments.
In most provinces, your investment in a financial institution RRIF or TCA 90 will be protected by the same deposit insurance fund that covers RRSP depositors (see CDIC information). Most insurance companies are members of a consumer protection fund to safeguard their RRIFs or life annuity income, should an insurance company fail to meets its obligations.
With a life annuity, there is a risk that not all of your capital and its earnings will be repaid to you by the time payments cease at your death. Purchase of a joint annuity and/or a guaranteed period can moderate this risk.
19. What happens in case of death?
Payments from a single life annuity with no guarantee cease upon death. If you purchase a TCA 90 and you die before age 90, or if you die before the end of the guarantee period of a single life annuity, payments can continue to your spouse for the remainder of the guaranteed payment period. With a joint and last survivor annuity, payments continue to the surviving spouse until their death subject to any unexpired guaranteed period.
With a RRIF, your spouse, if named the successor annuitant, assumes control of the fund without tax consequences and may amend the income and payout term. If your spouse is named beneficiary, they can transfer the RRIF balance without taxation to a RRIF or annuity in their name, or back to an RRSP if they are not beyond age 69.
Where your estate or someone other than a spouse or a dependent or a dependent child or grandchild is the beneficiary, the remaining value at that time (the RRIF value, or cash value of remaining guaranteed life annuity payments), will be paid in a lump sum to your estate or beneficiaries. This lump sum is taxable on your final income tax return.
There are special provisions for tax relief where your beneficiary is a physically or mentally handicapped child or grandchild who was financially dependent on you at the time of your death.
20. How do you choose an option?
Selecting a retirement income option depends on your personal situation. Factors such as:
- your health,
- other income,
- cash requirements,
- tax brackets,
- desired inflation protection, and
- estate preservation
All play a part in your decision. As well, the amount of involvement and control you wish to have in future has a major bearing on the option you select.
21. How does interest accrue?
Interest accrues daily and is paid annually on the anniversary date.