Ensuring Sufficient Funds for Your RRIF Withdrawals

After decades of using registered retirement savings plans (RRSPs) to lower taxable income, it can be jarring to realize the tables will turn. By the end of the year you turn 71, you must either cash out your RRSP (not advised), annuitize it, or convert it into a registered retirement income fund (RRIF).

What should you do with your RRIF?

Most people opt to convert their RRSP into a RRIF. In a recent TSI Wealth Network blog, investment analyst Patrick McKeough said he prefers RRIFs over annuities or cashing out. Converting to a RRIF preserves flexibility and can be more tax-efficient than taking a lump sum or buying an annuity. Like an RRSP, a RRIF can hold a wide range of investments, and you generally don’t need to sell your RRSP holdings when you convert—just transfer them into the RRIF.

Since I opened my own RRIF this January, I’ve felt the trade-off firsthand: the decades of RRSP tax deductions are balanced by taxable withdrawals from the RRIF. I manage the account myself through a major bank’s discount brokerage and handle distributions and investments, many of which were transferred from my RRSP.

Selling from a RRIF requires a different mindset than accumulating in an RRSP

Accumulating in an RRSP centered on making contributions and reinvesting earnings. A RRIF, however, shifts the focus to producing taxable cash flow for current expenses. Under RRIF rules, you must withdraw a minimum percentage each year—about 5.28% in the first year, rising to 5.4% at age 72 and increasing progressively thereafter.

If you choose monthly payments, you must ensure 1/12th of that annual minimum is available each month. I schedule my RRIF distribution mid-month because other pensions arrive near month-end. You also choose the percentage of tax withheld at source; I selected 30% so that amount is remitted automatically to the Canada Revenue Agency (CRA), while the remaining 70% transfers into our family chequing account. Holding the RRIF and chequing account at the same institution simplifies transfers.

For example, a $1,000 monthly withdrawal could result in $300 sent to the CRA and $700 deposited to your bank. After that, you must ensure another $1,000 of liquid funds will be ready the next month—typically by selling investments inside the RRIF.

Even with a GIC ladder, it’s unlikely most retirees will have every monthly amount maturing exactly when needed. GIC ladders require careful planning and staggered maturities. More often, retirees sell bond ETFs, asset-allocation ETFs, individual stocks or bonds to raise cash for monthly distributions.

Try to maintain your preferred asset allocation in the RRIF

When you begin decumulation, asset allocation in the RRIF matters, says Matthew Ardrey, senior financial planner at TriDelta Private Wealth. A balanced allocation gives you more sources to draw from during market volatility without holding excessive cash for future payments.

For example, if your target is a 50/50 split between equities and fixed income and you need $1,000 a month, you might aim to sell $500 worth of equities and $500 of fixed income or other securities each month. I’ve been selling some gold holdings in my early RRIF months because they have performed strongly, and it’s psychologically easier to trim winners than to sell positions that are down.

If you hold large unrealized gains in tech stocks or other winners, using those gains to fund withdrawals can preserve dividend-paying or long-term holdings you prefer to keep. For me, that means selling non-dividend-paying or Canadian stocks I also hold in taxable accounts, while maintaining U.S. dividend payers that continue to produce income—especially helpful when the Canadian dollar is weak.

Given current global market volatility, I aim to keep the next three months’ required cash in liquid form. You could also hold the short-term portion in a bond ETF to earn some interest rather than leaving it as zero-yield cash.

Allan Small, senior investment advisor with the Allan Small Financial Group, takes a different approach. He focuses on investing as much as possible to benefit from market gains instead of keeping large cash cushions. He liquidates investments only as needed to meet RRIF payments and designs portfolios to produce dividends and interest that support regular withdrawals.

Ardrey also recommends setting up systematic withdrawal plans (SWPs) where possible. An SWP automatically withdrawals a set amount from an investment on a schedule—helpful for retirees who prefer a hands-off approach—though you should periodically review asset allocation if withdrawals consistently come from a single asset class.

Should you “de-risk” RRIFs under political uncertainty?

Many retirees consider trimming riskier holdings while preserving high-quality dividend stocks and fixed income. John De Goey, portfolio manager at Designed Wealth Management, recently suggested conservative retirees might want to “de-risk” their portfolios amid political uncertainty, arguing that traditional financial assets, particularly stocks, face increased threats.

De Goey favors alternatives such as real estate, metals, resources, infrastructure and other cash-flowing assets. Small, by contrast, is not radically changing client portfolios; he’s buying selectively where he finds discounted opportunities, believing the market can rise despite tariff-related volatility.

Main RRIF concerns: falling markets and liquidity for withdrawals

Anita Bruinsma, investment coach at Clarity Personal Finance, highlights two primary concerns for RRIF withdrawals: declining equity markets and ensuring sufficient liquidity to meet mandatory, taxable withdrawals.

Because many retirees in their 70s can still have long time horizons, she doesn’t recommend abandoning stocks entirely. However, if markets experience extended declines, it helps to maintain a cash wedge—one to two years’ worth of withdrawals held in low-risk, liquid vehicles such as money-market funds, high-interest savings accounts (HISAs) or investment savings accounts. Dividends can also help blunt market risk.

Liquidity needs also depend on withdrawal frequency. Annual withdrawals can be easier to manage; for example, a GIC ladder with maturities timed to fund yearly withdrawals avoids selling equities in a down year. A three-year ladder that covers each year’s withdrawals can reduce or eliminate the need for a separate cash wedge.

Asset allocation ETFs can simplify RRIF management

Monthly withdrawals are convenient for budgeting but can be more work to manage. All-in-one asset allocation ETFs can simplify things because a single trade can supply the funds needed for annual, quarterly or monthly withdrawals, and such ETFs maintain a built-in balance across asset classes so you don’t have to decide which holdings to sell.

Finally, potential policy changes could affect RRSPs, RRIFs and tax-free savings accounts (TFSAs). Bruinsma notes proposals that have surfaced, including increasing the RRSP-to-RRIF conversion age from 71 to 73, allowing employed seniors to earn more tax-free, or even adding a TFSA top-up earmarked for Canadian securities. Such measures, if adopted, would shift planning choices for retirees.

Where RRIF distributions exceed immediate spending needs, directing funds into a TFSA can build future tax-free income for advanced age—an attractive complement to taxable RRIF withdrawals.

Read more about RRIFs:

• When and how should I start drawing on my retirement savings?
• What is a RRIF?
• How RRIF withdrawals work when you have multiple registered accounts
• Downloadable RRIF withdrawal rates chart