The amount you must withdraw from a Registered Retirement Income Fund (RRIF) each year is not a fixed dollar amount but rather a minimum percentage of your RRIF's value. This percentage is primarily determined by your age or the age of your spouse or common-law partner.
Understanding RRIF Minimum Withdrawals
A RRIF is designed to provide you with a regular income stream in retirement by converting your Registered Retirement Savings Plan (RRSP) savings into income. To ensure these funds are gradually drawn down, the government mandates a minimum withdrawal each year.
The key factor influencing this minimum withdrawal is age. Generally, the older you are, the higher the percentage that needs to be withdrawn from your RRIF. This rule ensures that a significant portion of your retirement savings is withdrawn and taxed over your lifetime. You have the flexibility to base your minimum withdrawals on your own age or, if your spouse or common-law partner is younger, you can use their age to potentially lower your annual minimum withdrawal amount, allowing your RRIF to grow longer.
How the Minimum is Calculated
The minimum withdrawal amount is calculated by multiplying your RRIF's value at the beginning of the year (specifically, January 1) by a prescribed percentage. These percentages are set by legislation and vary based on the age chosen for the calculation.
For instance, if your RRIF is valued at $1,000,000 and you are 75 years old, you would need to make a minimum withdrawal of $58,200. This is calculated as 5.82% of the $1,000,000 RRIF value. The specific percentages increase progressively with age.
Key Considerations for RRIF Withdrawals
- Flexibility Beyond the Minimum: While there's a minimum amount you must withdraw, you always have the option to withdraw more than this minimum. However, any amount withdrawn above the minimum will also be taxable income.
- Tax Implications: All withdrawals from a RRIF, including the minimum required amount, are considered taxable income in the year they are received. The financial institution administering your RRIF will typically withhold taxes at the source, similar to employment income, though the final tax liability will depend on your total income for the year.
- Impact on Your Funds: Each withdrawal reduces the principal balance of your RRIF, which can affect the future growth potential of your remaining funds. It's important to plan your withdrawals strategically to balance your income needs with the longevity of your retirement savings.
In summary, there is no single "exact" amount that everyone must withdraw from a RRIF each year. Instead, it is a minimum percentage that depends on your age (or your younger spouse's/partner's age) and the total value of your RRIF at the start of the year, with older ages requiring higher withdrawal percentages.
