What should you do with your RRIF right now? With frequent talk of a recession and ongoing market volatility, many investors who manage their own registered retirement income fund (RRIF) may be wondering how to protect their portfolios while still meeting required annual withdrawals and personal spending needs.
For individuals who already have a portfolio aligned with their risk tolerance and long-term goals, the best approach is often to stay the course. Market downturns and periods of weak returns are normal. Frequent changes to an investment plan typically do more harm than good. That said, the current mix of higher interest rates, elevated inflation and unpredictable markets has some retirees feeling uneasy. If you’re anxious, it may be worth reassessing your RRIF allocations to improve income stability and reduce downside risk.
What is a RRIF?
A registered retirement income fund (RRIF) is an account designed to hold investments transferred from registered retirement savings plans (RRSPs) and certain other registered accounts. You may convert an RRSP to a RRIF as early as age 55 and must do so by the end of the year you turn 71. After a RRIF is established, you are required to begin minimum mandatory withdrawals the following year; the withdrawal percentage is based on age.
1. If you have cash, consider a high-interest savings ETF or short-term GICs
Cash sitting idle in a RRIF earns little or nothing. One practical step is to put that cash to work in a liquid, low-risk vehicle. High-interest savings ETFs offer an easy way to earn competitive interest on cash while keeping funds accessible. These ETFs trade on the market like any fund and typically provide yields comparable to online high-interest savings accounts, making them useful for covering the next year’s withdrawals.
If you prefer guaranteed returns, consider short-term guaranteed investment certificates (GICs) to hold expected RRIF withdrawals for one to five years. GICs guarantee your principal and the agreed-upon interest at maturity, which can provide peace of mind during volatile periods. For conservative investors, a laddered series of short-term GICs can ensure predictable cashflow to meet required withdrawals without having to sell other assets during market dips.
2. Increase cash flow from equities through income-focused ETFs
Many retirees prioritize steady income over pure capital growth. An income-oriented strategy can reduce the stress of seeing portfolio values fall, because dividend and interest payments continue to arrive even when markets decline. Dividend ETFs are a straightforward way to build a diversified portfolio of income-producing stocks.
Different dividend funds produce different yields. Broad dividend ETFs that include a wide range of companies may pay 2% to 4% annually, while funds focused on high-payout stocks can generate 5% or more. Be mindful of your RRIF minimum withdrawal requirement when choosing income levels. Some investors also use ETFs that implement covered-call strategies to enhance monthly distributions. Covered-call ETFs sell call options on holdings to collect premiums, which can increase income but may limit upside if stocks rise sharply.
As an example of this approach, some funds combine a portfolio of large dividend-paying companies with covered-call writing and modest leverage to raise monthly income. These strategies can produce higher short-term yields, though they introduce specific risks related to option trading and income variability.
3. Consider REITs for higher income from real estate exposure
Real estate investment trusts (REITs) typically offer higher monthly income than a broad dividend strategy. REITs own or finance income-producing properties such as apartment buildings, warehouses, retail centres and industrial space. Rental income from these properties is distributed to REIT holders, producing regular payouts.
The simplest way to gain diversified exposure is through a REIT-focused ETF. These ETFs provide access to many properties and managers, spreading risk. REIT yields vary, often falling in the 4% to 6% range, though some actively managed or covered-call REIT funds report higher yields. Keep in mind REITs carry risks, including sensitivity to interest rates, property market conditions and liquidity concerns. Research the underlying holdings and strategy before allocating a significant portion of your RRIF.
About your RRIF account
RRIF account holders have many investment options. Too many choices can cause second-guessing and frequent portfolio tinkering, which often undermines long-term results. Start by deciding the approach that fits your temperament and income needs. Conservative retirees may prioritize liquidity and safety for the next one to five years using high-interest savings ETFs and short-term GICs. Those seeking higher ongoing cashflow might allocate a portion of the portfolio to dividend ETFs, monthly income ETFs, covered-call funds and REITs.
Your goal should be a RRIF portfolio that reliably covers required withdrawals and planned spending, while preserving capital and providing growth potential where appropriate. Maintain a clear plan for which holdings are reserved for short-term withdrawals and which are intended for longer-term growth. This separation helps avoid forced selling during market turmoil and reduces anxiety about short-term price swings.
Further reading about retirement savings
- What high inflation means for retirement savings
- Two ways to boost retirement savings and income for longer lifespans
- How rising interest rates affect retirement savings
- What call options are and why retirees should understand them
This article is sponsored.
This is a paid post that provides informative guidance while featuring a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers.