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Click above to find out how Fiscal Agents can assist you in RRIF Investing.
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Click above to view a specialized glossary of RRSP and RRIF terms.


The Money Management Newsletter: Retirement Income Planning
RRIFs ladling into your RRSP water bucket

A Registered Retirement Income Fund (RRIF) is a withdrawal plan registered with Canada Customs and Revenue Agency (CCRA) in which RRSP proceeds are used to provide an annual income. Investment earnings still accumulate on a tax-sheltered basis, though withdrawals are taxed as income.

In a sense, a RRIF is the exact opposite of an RRSP. The analogy most often used is that of a water bucket being filled with RRSP dollars annually till age (now age 71, changed in 2007)). The RRIF is the ladle, taking minimum annual amounts out of the bucket after age 69. Existing RRSP holders are eligible to convert this investment into an RRIF at any time. When you turn 71, however, you must convert your RRSP into one of the following retirement income options: a RRIF, cash withdrawal, life annuity or fixed-term annuity. You may also choose any combination of these options to meet your needs.

One of the selling points of a RRIF is its flexibility. You cannot be too young, nor are you restricted in the number of RRIF products you may hold, with several financial institutions at once. You also maintain control of the investments.

The flexibility extends to frequency of payout - monthly, quarterly, semi-annually, or annually. Once the RRIF has been established, payments must be withdrawn at least annually and these payments must equal or exceed the annual minimum amount as defined under the Income Tax Act. For example, in the year you turn 71, the minimum percentage is 4.76%, in the year of age 70, it's 5%. The minimum payment requirement is nil in the year the RRIF is purchased. As with an RRSP, funds held within an RRIF are sheltered from tax and may be invested in the same wide range of investments. When money is withdrawn from an RRIF, it is treated as income and taxed accordingly. By transferring your RRSP to an RRIF, you can defer the payment of taxes to the year in which you want to withdraw income from your RRIF.

RRIFs are an excellent choice for anyone concerned about estate planning because assets in the plan are automatically passed on to your beneficiaries in the event of your death. If you name your spouse or a financially dependent child under 18 as beneficiary, assets are passed on tax-free to the beneficiary's RRIF or RRSP.

Don't wait until you're 71 to start planning what you are going to do with your RRSP - you'll need some time to investigate your options. In fact, for those retiring early, you can start a RRIF much earlier than age 69. Some people use a portion of their RRSP assets to fund retirement before they're eligible to receive either CPP (Canada Pension Plan) or OAS (Old Age Security).

What is a Prospectus and How do I Read it?

The prospectus is your legal blue print to the mutual funds offered by an investment company. They provide to you, in a fairly easy to read format, all the information you need to know about a particular fund.

Before we look at the prospectus, let's step back for a second. Remember, when you invest in a mutual fund, you're a shareholder of an investment company. And, like any other company that makes a product, an investment company sends out various reports to shareholders.

Here's some of the information you might expect to get from your mutual fund company:

  • A confirmation statement each time you make a trade;
  • A prospectus that details how the fund will be managed; and
  • Annual and semi-annual reports.

For many people, the numbers and words in these various reports can be confusing. But for knowledgeable investors, the information is the key for not only how things have been, but how things will be and if the fund stacks up well against its competitors.

For the prospectus, there are many areas, which may be of interest to the prospective investor. However, for now, let's zero in on three key areas to look at in the mutual fund prospectus:

  • Fees and Expenses
    Here you'll find a breakdown of the sales commissions, management fees and operating charges expressed as a percentage.

  • Fund Details
    Here you will get a snapshot of the fund itself (as at one point in time), including the Type of Fund; Startup Date; Securities offered; Registered Tax Plan Status; Annual Management Fee; and more. You can also find its year-by-year performance dating back 10 years.

    Look, too, at distributions and portfolio turnover. A turnover rate of 50% means the manager turned over half the portfolio that year. Look for consistency. If you see a turnover rate of 61% one year and 187% the next year, you should find out why. It may mean the manager's investment strategy has changed or that he or she has lost faith in that strategy.

  • Investment objective
    This tells you how the manager plans to make money. For example, "the fund invests substantially all, but at least 65% of its assets in common stocks of companies that do business outside the United States." You'll also see what else the fund can invest in and perhaps where it's invested: "The Fund currently intends to invest primarily in Europe, the Pacific Basin and emerging industrialized countries."

If the fund invests in bonds, you should find out whether it buys only investment grade bonds or whether it buys junk bonds that offer higher rates of return, but have a much higher risk of not paying off. In that case, the prospectus might say: "The fund may invest in lower-quality bonds."

This is just a snap shot of many details you can find about a fund in a prospectus. To find out all the details contained in a prospectus, contact your Fiscal Agents/Investment Planning Counsel representative at 905-844-7700 or the mutual fund company of your choice. They will be glad to send you a copy of their prospectus.

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© , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700


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