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As part of our RRSP coverage, we are asking Clay Gillespie, a Vancouver-based certified financial planner and chartered investment manager, to answer selected reader questions.
Question:
When I reach 71 years, what is the minimum yearly amount I must withdraw from my RRSP? Richard
Answer:
Richard, RRSPs must be converted into a RRIF, life annuity or taken in cash in the year in which you turn 71. The most popular strategy is to convert your RRSP funds into a RRIF. The income from the RRIF or annuity does not need to start until the year you turn 72.
A RRIF is almost exactly the same as an RRSP with the exception that with a RRIF you are required by law to withdraw a set minimum percentage of the RRIF account each year.
RRIFs are designed to provide an income for both the annuitant and his or her spouse. With this in mind, the minimum withdrawal percentage can be based upon the younger spouse's age to reduce the required minimum withdrawal percentage.
Under the age of 71 the minimum percentage is calculated as 1 divided by (90-minus-your age) – thus if you are 70 it would be 1 / (90-70) = 0.05, or 5 per cent.
At age 71 the RRIF minimum jumps to 7.38 per cent (an increase of 47.6 per cent over the previous year). As a result, after the age of 71, it becomes increasingly difficult to preserve the capital in your RRIF.
It slowly increases over time and at age 75 it is 7.85 per cent, age 80 it is 8.75 per cent and by age 94 you need to withdraw 20 per cent per year.
Clay Gillespie, a certified financial planner and chartered investment manager, is a financial adviser and managing director at Rogers Group Financial in Vancouver. The views expressed are those of the author and not necessarily those of Rogers Group Financial, which makes no representations as to their completeness or accuracy.