RRIFs Let You Stretch Out RRSP Benefits

Article Excerpt

If you’re turning 69, you’ll need to wind up your RRSPs. There are three main options: You can cash in the RRSPs and withdraw the funds in a lump sum (although you’ll be taxed on the entire amount in that year as ordinary income). You can purchase an annuity. Or, you can convert your RRSPs into RRIFs. Years ago, many investors chose annuities — contracts that give you a fixed sum every year until you die. However, returns on annuities are closely linked to the level of interest rates, and interest rates are still near historic lows. In addition, annuities have no liquidity. If interest rates and inflation were to move up, your annuity payments would remain fixed and you would lose purchasing power, but you’d have no way to re-arrange your portfolio. So our advice is to resist any urge you may feel to buy an annuity. Many investors find they are able to generate returns that beat current annuity rates…

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