MINIMUM RRIF WITHDRAWALS DECREASED

Registered Retirement Income fund (RRIF) rules were recently changed to take into account the changing financial outlook for retirees. The government does not allow taxpayers to keep investments in their Registered Retirement Savings Plan (RRSP) for their entire lifetime. By the end of the year in which a taxpayer turns 71, they must have rolled their RRSP into a RRIF, or report all of the money in their RRSP as taxable income on their personal income tax return for that
year.
Once the investments have been rolled into a RRIF, the government dictates the amounts that must be withdrawn from the RRIF on an annual basis.
Minimum annual withdrawal amounts, coupled with decreasing interest rates, were resulting in many retirees depleting their RRIF’s earlier than anticipated.
The original calculations used to determine the required withdrawal amounts from RRIF’s were based on assumptions that returns on investment would be 7%, and inflation would be 1%. This type of investment return is now unrealistic for most seniors with a conservative portfolio.
The new guidelines assume a 5% return on investments, as well as a 2% rate of inflation. Although a 5%  return may still be higher than most retirees receive on their investments, it has helped to reduce the minimum withdrawal rate. The new minimum withdrawal rate for people who turn 71 in the year will be 5.28% of the balance in the RRIF. The previous minimum withdrawal rate was 7.38%. Furthermore, between the ages of 71 and 94, all minimum withdrawal rates have been lowered. By the time a taxpayer is 94, the minimum withdrawal rate is 20%, which is the same percentage that has been used in the past. For somebody  who has withdrawn over 5.28% already from their RRIF, they will be allowed to repay their overpayment back into their RRIF. The excess must be recontributed
to the investment by February 29, 2016. One drawback of taking a smaller annual withdrawal is that the taxpayer may have a larger balance in their RRIF when  they pass away, resulting in a higher total tax bill on cumulative withdrawals. This should be considered when determining how much is going to be withdrawn on an annual basis.