The stock markets are going through a period of heavy turbulence, and a lot of retirees are worried about their investments. The federal government has however announced a measure that will give them a bit of oxygen, by reducing the minimum amount to withdraw from their RRIF.
Saw their savings decrease due to the fall in stock markets, many retirees are wondering if they will have enough money to live comfortably until the end of their days. In periods of high volatility, there are fortunately several strategies that can be put in place to reduce the impact on its investments.
In addition, the minister of Finance (Canada) announced that by 2020, the minimum annual withdrawal in the fund the registered retirement income (RRIF) would be reduced by 25 %.
What is it means for you ?
The RRIF is a kind of extension of the RRSP. The year in which you reach 71 years of age, you must stop contributing and begin to withdraw the money that you find. To defer the tax that you would have to pay, however we can convert his RRSP into a RRIF, but it is necessary to withdraw a minimum amount each year, which will be taxable.
The amount of the withdrawal is calculated on the basis of a certain percentage of assets. The more we advance in age and this amount increases. According to the rules that prevailed in 2019, it is necessary to e.g. remove 5,28 % of the RRIF at 71 years of age, of 5.40 % at the age of 72, and so on, up to a maximum of 20 % from 94 years and for the following years.
“With the new measure, this means that a person 80 years of age, which would have been to withdraw 6.82% of his RRIF in 2020, there will be more to pay than the 5.12 % at minimum, or 1.7 % less,” says Jean-Philippe Vézina, financial planner and tax specialist for the team of Jean-Maurice Vézina.
Take the example of a retired 80 years old, Louise, who has a RRIF of $ 250,000. She removes 1420 $ per month, or an annual amount of 17 050 $, which is the minimum for her age. But with its government annuities for retirement, it does not need any of this money to supplement his income.
Now, thanks to the reduction, it will not have to remove that 13 000 $ in a year, which is excellent news for her : Louise will leave more money to fructify in his RRIF, while suffering less losses and paying less tax on his withdrawals.
Remove as late as possible
It must be remembered that in a declining market, if one makes withdrawals from its investment, it is a bit like if they “take more” losses immediately. Therefore, Jean-Philippe Vézina advises strongly to the retiree to use its liquidity to defer its monthly withdrawals from a RRIF as late as possible. These can be made up to 31 December 2020.
“If Louise has an emergency fund, it may draw the amounts for the months where the market is very volatile. This way, if the Stock market goes up by the end of the year, the impact on its investments will be less “, recommends the tax advisor.
- The experts recommend as much as possible to stay invested in the stock market downside. Withdraw its investments is equivalent to suffer immediate losses.
- No one knows when the Exchange will resume its cruising speed, but remember that if you have withdrawn your investments, you will not be able to benefit from the rebound that she will know sooner or later.
- Before taking hasty decisions, under the panic, consult a financial planner who will help you develop a personalized plan. To find peace of mind, sometimes all it takes is to review your investor profile and opt for a more cautious.