A registered retirement savings plan (RRSP) has been the most common investment vehicle that Canadians have used for retirement savings. For investors under age 72, it can allow tax-deferred compound interest and help accumulate savings to achieve long-term retirement goals. It also allows for a variety of products ranging from conservative to aggressive investment mandates.

RRSPs are only available for a single account holder and the maximum contribution allowed is 18% of that persons income. In addition, if they have not maximized their RRSP contribution from previous years then the cumulative amount from all those years can still be invested. Each year, Canadians receive a Notice of Assessment from the Canada Revenue Agency (CRA) which clearly defines the amount of RRSP contribution room still available.

Working together, we can examine RRSP investment options in order to build a customized portfolio that takes into consideration your financial goals, tolerance to risk and investment timeline. Contact me today to find out more.

 

Locked-In Retirement Account (LIRA)

A Locked-In Retirement Account (LIRA) is an account specifically designed to hold locked-in pension funds. It is similar to an RRSP except that, where an RRSP can be cashed in at any time, a LIRA is locked-in until retirement or a specified age based on the pension legislation. Any investment growth inside a LIRA is also considered locked-in.

Account holder pension funds are transferred into an LIRA under the following scenarios:

  • termination from a company pension plan precedes retirement
  • plan member passes away before retirement (whereby the funds become property of the surviving spouse)
  • a break-up of marriage or common-law relationship

Of note, LIRA's are used for funds legislated in most Canadian provinces. Funds regulated by a Federal pension plan convert to what is called a Locked-In Retirement Savings Plan (LRSP) which is essentially identical in structure.

 

Registered Retirement Income Fund (RRIF)

A Registered Retirement Income Fund (RRIF) is used to generate an income from the savings that an individual has in their RRSP. An RRSP can be converted anytime to a RRIF but must be done by the end of the year that a person turns 71. The money inside a RRIF can be fully cashed-out at anytime, however, all withdrawals are fully taxable. More commonly, investors will start a Systematic Withdrawal Plan (SWP) from their RRIF account which will provide regular monthly or quarterly income for their retirement needs.

Here are some key benefits of a RRIF:

  • Investments compound tax-free as long as they remain in the plan
  • You can choose your holdings from a wide range of options, likely continuing with similar investments from the RRSP
  • You decide how much you want to withdraw each year (above a set annual minimum), which gives you the ability to control how much tax you pay
  • Use your age to calculate the withdrawal or if you don't need the minimum withdrawal amount, use your spouse's age if they are younger
  • You can split your RRIF income with you spouse if you are at least 65 years of age

Of note, LIRA accounts get converted into a Life Income Fund (LIF) and the account holder chooses when between the ages of 56-69.  A LIF is similar to a RRIF with one major difference being that in addition to minimum withdrawal amounts there are also maximum withdrawal limits.