Retired Money

By Jonathan Chevreau on April 16, 2025
Estimated reading time: 9 minutes

By Jonathan Chevreau on April 16, 2025
Estimated reading time: 9 minutes

Once you start RRIFing, how do you make sure you have enough cash, and should you dial down risk?

After decades of using registered retirement savings plans (RRSPs) to reduce taxable income, it can come as a shock to discover the shoe will one day be on the other foot. At the end of the year you turn 71, you have to either cash out your RRSP (not recommended), annuitize it or convert it into a RRIF, a registered retirement income fund.

The latter is the most popular action. In a recent TSI Wealth Network blog, investment analyst Patrick McKeough said he prefers RRIFs to annuitizing or cashing out.

Converting your RRSP to a RRIF is clearly one of the best of three alternatives at age 71, he says. “That’s because RRIFs offer more flexibility and tax savings than annuities or a lump-sum withdrawal, which in most cases is a poor retirement investing option, since you’ll be taxed on the entire amount in that year as ordinary income. Like an RRSP, a RRIF can hold a range of investments. You don’t need to sell your RRSP holdings when you convert,” McKeough explains: you just transfer them to your RRIF.

As I’ve discovered since I started up my own RRIF this past January, the sweetness of the RRSP tax deduction over the decades is offset by the sourness of having to pay tax on withdrawals on your new RRIF. I am a DIY investor who uses one of the big-bank discount brokers to self-manage the taxable distributions and the remaining investments, most of them carryovers from my RRSP.

While accumulating funds in an RRSP was a matter of making annual contributions and reinvesting dividends and interest, you need to think about the RRIF a bit differently. RRSPs are a long-term wealth-building exercise while RRIFs deal with current (and taxable!) cash flow. Suddenly, regular selling is necessary. The RRIF rules mean that in the first year you’ll have to withdraw something like 5.28% of what your balance was at the start of the year (rising to 5.4% at age 72 and ever upwards with each passing year).

If you choose to receive monthly payments, as I did, that means every month you must have 1/12th of the required annual distribution in the form of ready cash to be whooshed out on whatever date you specified. Like most Canadian retirees, I receive other pensions near the end of the month, so I chose mid-month for the RRIF distribution.

You also need to choose the percentage of tax you wish to pay to the Canada Revenue Agency (CRA). I picked 30%, which automatically leaves my account each month. The remaining 70% transfers into our family’s main chequing account. Ideally, you’d do that at the same financial institution where the RRIF is held—it’s easier this way.

For example: if you take out $1,000 a month from your RRIF, $300 goes to the CRA and $700 goes to your........

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