RETIREMENT INCOME INFO

Why must an RRSP be converted into a retirement product?


An RRSP is a financial instrument designed specifically to save for retirement and you can contribute into the plan until age 71.


What you should know
You must absolutely roll your RRSP into a retirement income vehicle before December 31 of the year in which you turn 71; otherwise, you must cash it in and pay taxes on the total amount.

You have a number of choices when converting your RRSP into retirement income. You can set up your annuity with funds from one of the following retirement vehicles:

REGISTERED RETIREMENT INCOME FUND (RRIF)
 
What is a RRIF?
A registered retirement income fund (RRIF) is a registered plan into which you can transfer your RRSP. It allows you to use some or all of the accumulated capital to provide retirement income.

What you should know about a RRIF
A RRIF can be set up at any time but no later than December 31 of the year in which you turn 71.

The minimum amount that can be withdrawn is based on your age or your spouse’s age. It may be advantageous to choose the younger age as the basis for calculation because this will reduce the minimum annual amount you must withdraw.

You determine your annual income (subject to a minimum provided for by law).

As long as your capital remains in the RRIF, it is sheltered from tax. The annual minimum payments required by law are not taxable at source but must be declared on your income tax returns. .

Any amount withdrawn in excess of the minimum annual payment is subject to a tax withholding at source.
  • You choose the type of investments in which you place your RRIF funds.
  • Should your personal situation change, you can reconvert your RRIF into an RRSP if you have not yet turned 71.


LOCKED-IN RETIREMENT ACCOUNT (LIRA)

What is a LIRA?

A locked-in retirement account (LIRA) is in fact a locked-in RRSP. If you stop participating in a Québec registered retirement plan, you can transfer the funds from this plan to a LIRA to shelter it from tax until your retirement.

What you should know about a LIRA
  • You cannot personally contribute to this account because it can only receive funds from a supplemental pension plan, i.e., a pension plan offered by an employer.
  • You can access your LIRA at any age regardless of the amount accumulated in your supplemental pension plan.
  • The capital and income are sheltered from tax.
  • The amount invested and income interest are exempt from seizure, meaning they are protected in case of financial difficulty.
  • You can invest your capital in various investment instruments.
  • LIRA funds can be converted into a life annuity or a life income fund (LIF) to provide you with retirement income.
  • Just like an RRSP, a LIRA must be converted into a retirement product before December 31 of the year in which you turn 71.


LIFE INCOME FUND (LIF)

What is an LIF?

A life income fund (LIF) consists of funds from a supplemental pension plan, i.e., a pension plan offered by an employer, or a locked-in retirement account (LIRA). Your capital will be sheltered from tax. With this type of product, you determine the amount of periodic income you receive and you can also make lump-sum withdrawals as long as you respect the maximum provided for by law.

What you should know about an LIF
  • You cannot personally contribute to this account because it can only receive funds from a supplemental pension plan or a LIRA.
  • The LIF must be set up before December 31 of the year in which you turn 71.
  • There is a minimum and maximum amount you can withdraw annually.
  • The principal and interest are sheltered from tax. Only the amounts withdrawn are taxable.
  • LIF funds can be invested in various investment instruments.
  • You can choose savings products with a fixed interest rate for terms of one to five years, providing you with guaranteed high-interest income.


LIFE ANNUITY

What is a life annuity?
 
A life annuity provides you with constant income and eliminates the need to manage your investments. If it is guaranteed, in the event of your death, the life annuity will be paid to your beneficiary until the guaranteed period expires. If it is reversible, in the event of death, payments will be made to your spouse for his or her lifetime.

What you should know about a life annuity
  • A life annuity is paid for the rest of your life.
  • The payments are consecutive and equal for the term of the annuity.
  • You may add a guaranteed payment period of 5, 10 or 15 years to ensure regular payments during the selected period in the event of your death.
  • The payment amounts depend on the principal, current interest rates, your age and sex and the age and sex of the co-annuitant if applicable, as well as the options selected at the time the annuity was purchased.
  • You can set up your annuity with funds from your RRSP, LIRA, RRIF, LIF and other retirement plans. The income is taxable at the time it is paid.
  • By purchasing life insurance along with your annuity, you can benefit from the principal during your retirement while protecting your assets and maximizing the amount you leave your heirs. The death benefits are not taxable.
  • You can always set up another source of retirement income by adding a RRIF to your annuity. A RRIF or an LIF provides you with greater flexibility in terms of income and investment vehicles while an annuity provides you with guaranteed income, a combination that offers the best of both worlds!


FIXED-TERM ANNUITY
 
What is a fixed-term annuity?

A fixed-term annuity is also called a term-certain annuity. It guarantees regular payments until the end of a specified period. In the event of death, the payments will be made to your beneficiary until the end of the specified period.

What you should know about a fixed-term annuity
  • Payments are consecutive and equal for the term of the annuity.
  • The amount of the payments depends on the principal, current interest rates, term selected, your age and your spouse’s age.
  • In the event of death, the payments will continue to be made to your spouse or beneficiaries and to the end of the guaranteed period.
  • You can set up your annuity with the principal from your RRSP and RRIF. The income is taxable at the time it is paid.
  • By purchasing life insurance along with the annuity, you can enjoy your principal during retirement while at the same protecting your assets and maximizing the principal left to your heirs. The death benefits are not taxable.
  • You can always set up another source of retirement income by adding a RRIF to your annuity. A RRIF or an LIF provides you with greater flexibility in terms of income and investment vehicles while an annuity provides you with guaranteed income, a combination that offers the best of both worlds!


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