Last year’s federal budget introduced lower registered retirement income fund (RRIF) minimum withdrawal factors for those aged 71 to 94. For example, the minimum withdrawal factor at age 71 went from 7.38% to 5.28%. For clients, this means the amount they’re now required to withdraw from their RRIF is lower.
Have you discussed with your clients how these changes affect them?
Visit the Canada Revenue Agency’s website for more information and a table comparing the old and new RRIF factors.
Changes were retroactive to January 1, 2015. However, in 2015 most RRIF holders continued to receive payments that followed the old RRIF factors. This means they now have the option to re-contribute the difference between the old and new minimum income payments for 2015. Even if they withdrew more than the old minimum amount, they can still re-contribute the difference between the old and new minimum withdrawal amounts.
If you have clients who want to re-contribute, keep in mind the following:
- The deadline to re-contribute is February 29, 2016, but some financial institutions may have an earlier administrative deadline.
- Re-contributions will be eligible for an income tax deduction for 2015.
- Re-contributions can be made into any RRIF contract/account available with any institution.
- Clients can’t re-contribute money from a spousal RRIF they own to their personal RRIF, and vice versa. They can’t re-contribute money from a RRIF they own to one their spouse owns, and vice versa.
- Clients can also re-contribute eligible excess amounts from life income funds (LIFs) and locked-in retirement income funds (LRIFs). However, some financial institutions won’t allow a re-contribution to a LIF or LRIF but will allow this money to be re-contributed to a RRIF.
- Clients can ask their financial institution for a letter providing confirmation of the old RRIF minimum factors, the new RRIF minimum factors and re-contribution eligibility.
Now is the time to discuss your clients’ retirement income
With the deadline for re-contribution fast approaching, now is a good time to meet with impacted clients to discuss if re-contributing makes sense for them and what their re-investment options are.
With the new lower withdrawal minimums, it’s also important to have a conversation with your clients about their retirement plans and their sources of income. RRIF holders who receive a fixed income above the RRIF minimum won’t see any changes to that income as long as it’s above the minimum withdrawal amount that’s required. For clients who take only the minimum required amount, their income payments will now be lower. This change will allow more of their money to remain in their RRIF, helping to reduce the risk of running out of money in retirement. Canadians are living longer, so they’ll need their money to last longer.
According to the Sun Life Canadian Unretirement Index, 41% of Canadians surveyed feel they lack sufficient knowledge about how much retirement income they need.1 Now is a good time to speak with your clients about their changing needs in retirement. Do the new lower withdrawal amounts continue to meet their needs? Do they have other sources of income? Do they want to leave a financial legacy to their loved ones? These are just some of the important questions to discuss with your clients. The recent changes are the perfect opportunity to start a conversation with them about their income needs.
For more information, contact a member of Sun Life Financial’s Wealth Sales team.
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1 2015 Sun Life Canadian Unretirement Index.