Personal savings

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It is generally more tax-effective to generate retirement income from your personal or non-registered savings and investments first, allowing your RRSP savings to remain tax-sheltered for as long as possible.  Personal savings is also divided into 5 main categories: 

  1. RRIFs
  2. LIFs
  3. TFSAs
  4. Non-registered personal savings (bank accounts, etc.).
  5. Life Annuities

Registered Retirement Income Fund (RRIF)

All funds within an RRSP must be converted into a RRIF, Life Annuity, or withdrawn as a lump sum (cash) in the year you turn 71.  The income from the RRIF or annuity does not need to start until the year you turn 72.  A RRIF is almost exactly the same as an RRSP with the exception that, with a RRIF, you are required by law to withdraw a set minimum percentage of the RRIF account each year.

RRIFs are designed to provide an income for both the annuitant and his or her spouse.  With this in mind, the minimum withdrawal percentage can be based upon the younger spouse’s age to reduce the required minimum withdrawal percentage.

The following table illustrates the minimum percentage of your RRIF account which must be withdrawn as income each year. (Note: you may also start a RRIF prior to age 71). 

Life Income Fund (LIF)

Many Canadians have funds that have been transferred from a pension plan into a locked-in RRSP (often referred to as a LIRA or locked-in retirement account).  These funds must be converted into a Life Income Fund (LIF) or life annuity in the year you turn 71.

Locked-in retirement funds can be quite complicated.  The rules governing these types of funds are based upon the jurisdiction in which they were earned.  For example, if you worked in Saskatchewan and then moved to British Columbia and transferred your pension to a locked-in RRSP, these funds are still governed by Saskatchewan pension legislation.

A LIF is similar to a RRIF; there is a required minimum percentage that must be withdrawn every year.  However, unlike a RRIF, there is also a maximum annual withdrawal limit.  The government is trying to ensure that you do not spend all your money early in your retirement years.

For both the RRIF and LIF, you have full investment control of your portfolio.  The funds can be invested in a wide range of investment products such as stocks, bonds, mutual funds and GICs.  Both the RRIF and, to some extent the LIF, allow you to tailor your income to match your current lifestyle expenses.  If you want to spend more funds early in retirement to travel, for example, both the RRIF and LIF plans allow you to do this.

RRIF/LIF Minimum Chart




































Tax Free Savings Accounts

Portfolio efficiencies such as investing in Tax Free Savings Accounts (TFSA) are available and can help build retirement savings.  A TFSA is a new registered account that allows Canadians over the age of 18 to set money aside in eligible savings vehicles and earn investment income tax-free inside the account throughout their lifetimes.  While TFSA contributions are not deductible, growth is tax-free, as are any withdrawals.

You could contribute an amount up to your contribution room for the year, which is made up of 3 amounts:

  1. Each year, you would be allocated and allowed to contribute at least $5,000 (annual amount will be indexed to inflation and rounded to the nearest $500 on a yearly basis).
  2. Any withdrawals made in the previous year would be added to the contribution room for the year.
  3. Any unused contribution room from the previous year would be added to the contribution room for the year.


Non-Registered Funds

It is generally more tax effective to generate retirement income from your personal or non-RRSP savings and investments first, allowing your RRSP savings to remain tax sheltered for as long as possible.

Life Annuities

A RRIF cannot guarantee a level income for your lifetime. The life annuity, which can be purchased with both registered and non-registered funds, is the only retirement income vehicle capable of providing a guaranteed level or increasing income for your entire life, no matter how long you may live. At a time when Canadians are healthier and more active in retirement and are living longer than ever before, it is important that their incomes are every bit as healthy as they are – and last just as long. The life annuity is the only vehicle where income will not eventually decrease.  Life annuities can only be issued by a life insurance company.

With a life annuity, you give up control of your capital in exchange for a guaranteed income (usually paid monthly).  The risk of outliving your money is shifted to the insurance company.  If you die prematurely, however, your estate may not receive any funds from the annuity.  In addition, once the annuity is purchased, you lose control of the funds forever – you cannot change your mind.

There are many different types of life annuities.  When you retire, you can buy an annuity that is based solely on your age or one that is based upon the ages of both yourself and your spouse (joint-life annuity).  A joint-life annuity means the income will last for the remainder of both of your lifetimes.

In addition, you have the option of adding a guarantee period to the annuity to protect your estate.  It is very common for a couple to choose a joint life annuity with a 10-year guarantee when they retire.  This means that the income will last the longer of either spouse’s lifetime or 10 years.  The estate is protected because there will be at least 10 years worth of payments under any circumstances.

There are many other features that can be added to an annuity to make it more attractive.  For example, you can purchase an annuity that is indexed either at a set percentage or to inflation.  All things being equal, the more features you add to an annuity, the lower the monthly income.


"In large measure because of my advisor, within two years, I was able to reach my goal of early retirement , confident that, with her advice, my assets would continue to work for me in a more effective way than i could have ever imagined."

Nancy G.