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Turning 71 in 2010?

If you were born in 1939, you need to make decisions about your RRSPs before the end of the year. But don't wait till the last moment. Some decisions are irreversible so you'll want to take time to weigh your options with the counsel of our team.

You have three options for your RRSPs: cash, annuity and RRIF (locked-in plans holding pension funds have slightly different options). As cash would be fully taxed at your marginal rate, it's best to minimize and postpone this option. But remember, any funds left in an RRSP as the New Year is rung in will be severely taxed, so you do need to close the plan.

Next is an annuity. When you buy an annuity, you lock in a guaranteed income for a set period or for your life and possibly the life of your spouse. This guaranteed income amount will never change unless you include an indexing option at time of purchase to allow for cost of living increases. While you don't have to worry about outliving a life annuity, it will expire on your death- possibly leaving nothing for loved ones (unless you have added a specific # of years guarantee to the contract).

RRIFs offer tax-deferred growth, inflation protection and greater flexibility. On your death, funds still in the plan can generally be rolled over, tax free, to a spouse or left, after tax, to other beneficiaries.

One-time opportunity if spouse is younger

With RRIFs, you must take out a minimum percentage each year, which rises with your age. If you have a younger spouse, you have the one-time opportunity when setting up the RRIF to base this minimum on the younger age. The potential benefit of a smaller minimum is the flexibility to keep more money growing tax-sheltered within the RRIF.

In our practice, we've found that a combination of maturity options is appropriate for many clients. The portions will depend on many factors - including your other income sources, lifestyle, health, life expectancy, estate goals and comfort with risk. In today's low interest rate environment, some retirees are starting with more money in a RRIF, hoping to lock-in an annuity later when interest rates may be higher.

Before you do anything with your RRSPs, please call us for an appointment. Based on a careful analysis of your situation, we can help you create the income strategy that's right for you.

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