Include the best RRIF investments, like top high-quality stocks and ETFs, in your diversified portfolio to ensure a prosperous retirement
A RRIF is a Registered Retirement Income Fund, a tax-deferred retirement plan for your Registered Retirement Saving Plan (RRSP). RRIFs are used by those who don’t plan to cash out their RRSP as a lump sum when they retire, and prefer to extend their investment and take smaller withdrawals by converting to a RRIF.
Registered Retirement Income Funds offer more flexibility and tax savings than annuities or a lump-sum withdrawal.
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Like an RRSP, a Registered Retirement Income Fund can hold a range of investments. Here’s a look at some recommendations for the best RRIF investments—but first, some tips on setting up your RRIF:.
Here are four retirement investing tactics for making the most of your tax savings as you convert your RRSP to a RRIF:
Use a younger spouse’s age to set a lower minimum withdrawal: For example, if your spouse is 65 when you turn 71, then the minimum withdrawal set by Revenue Canada is 4.00%, rather than 5.28%. The rate increases yearly until it reaches 5.28% when your spouse turns 71. It then follows the normal schedule, reaching 6.82% when your spouse reaches 80, and levelling off at 20% at age 95.
Stick with late-in-the-year payments: You start making withdrawals from your RRIF in the year following the year in which the RRIF is established. For example, if you open a RRIF in 2021, you have to make your first withdrawal by December 31, 2022.
Withdraw shares instead of cash: Keep in mind that you don’t need to make your minimum withdrawal in cash. Instead, you may make an “in-kind” withdrawal of shares instead of cash.
Name a RRIF beneficiary: Assets in a RRIF automatically pass on to your beneficiaries in the event of your death. If you name your spouse or a financially dependent child under 18 as beneficiary, assets are passed on tax-free to their RRIF or RRSP.
You can receive RRIF payments on any schedule, though most investors choose to receive them either monthly or yearly. Unless you need monthly payments to live on, it’s best to request only one payment per year, near year-end, to prolong your tax deferral. For practical purposes, however, set a date such as December 15 to allow for delays. Just contact the broker or institution that holds your RRIF to set up your yearly payment. If you are a portfolio management client of Successful Investor Wealth Management, we can arrange this for you.
High-quality stocks can be some of the best RRIF investments
There are a variety of reasons why you should add some of the best stocks to a Successful Investor-style portfolio. Most important, the stocks to buy and hold in your portfolio all have one thing in common: They give you reason to believe they might be worth holding on to indefinitely.
We feel most investors should hold a substantial portion of their investment portfolios in securities from blue chip companies. The best of these stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above-average growth prospects, compared to alternative investments.
ETFs can be a part of the best RRIF investments for your portfolio
We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks, but ETFs can also play a role in a portfolio.
There are three main reasons to use ETFs in your retirement investing.
ETFs diversify a portfolio. Using ETFs, you could build a diversified portfolio of conservative, mostly dividend-paying stocks spread out across most if not all of the five main economic sectors (Manufacturing & Industry, Resources, Finance, Utilities and Consumer). But you’ll need to look carefully at an ETF’s holdings to see if it follows this investment strategy.
Conservative ETFs are fairly low risk. Holding higher-risk stocks in your RRIF is a poor investment strategy because they come with a greater risk of loss. If you lose money in a RRIF, you lose both the money and the tax-deduction value of the loss. Conservative ETFs can be a good alternative.
ETFs are flexible. If funds are limited, you may need to choose between TFSA and RRSP contributions (leading up to your RRIF conversion), but ETFs—perhaps purchased with small monthly contributions—can be used for either.
Use our three-part Successful Investor approach to find the best RRIF investments
Invest mainly in high-quality investments;
Spread out your holdings across most if not all of the 5 main economic sectors (Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance and Utilities);
Stay out of stocks in the broker/media limelight.
What plans do you have for your RRSP when you hit 71?
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If I convert to RRIF in year I turn 71; take yearly payment on December 15th, and transfer-in kind.
How do I choose which investments to transfer-in-kind 1st into my open account? The big dividend payers? The ones with the greatest capital gains. The most/least volatile holdings? My REIT? Should I chose one of your 5 recommended sectors?