Getting ready to retire: Maturity options for your retirement savings plans

After spending years building your nest egg, there are some important steps to take as you prepare to draw on the savings as retirement income. Here we look at some key considerations when you are converting your retirement savings into an income stream.

Registered Retirement Savings Plans (RRSPs)

You can contribute to an individual, spousal or group RRSP until the end of the year you turn 71. At that point, you must begin to withdraw your savings for retirement income. There are three options for receiving that income:

• Convert the plan to a Registered Retirement Income Fund (RRIF), which provides retirement income annually, semiannually or quarterly (depending on the frequency you choose). Just like an RRSP, you can hold the same qualified investments in your RRIF, and any investment gains are tax-deferred. Once you convert to a RRIF, you can no longer contribute funds, your spouse can no longer contribute to your spousal RRSP, and you must withdraw a minimum amount every year that is part of your taxable income.
• An annuity (not available through RBC Direct Investing) is a contract where you pay a lump sum to an insurance company in exchange for steady, guaranteed income for a fixed period of time. Payments are predictable and taxed as regular income. Depending on the type of annuity and any guarantee option selected, your survivor or beneficiary may continue to receive income or a payout if you die prematurely. However, once you purchase an annuity, the funds are no longer available to you.
• You can “cash out” your RRSP and take the full value of the plan as a lump sum, which is taxable as income in the year you receive the payment.

If you have a Spousal RRSP, you can convert it to a Spousal RRIF. Like regular RRIFs, Spousal RRIFs also require a minimum withdrawal every year and do not permit contributions. However, you should take note of the income attribution rules: even after conversion, if the contributor spouse has contributed to any spousal RRSP in the year or in the prior two years, income may be attributed to the contributor spouse for RRIF withdrawals that exceed the minimum withdrawal for the year.

Registered Pension Plans, Locked-in RRSPs and Locked-in Retirement Accounts¹

If you are a member of a Registered Pension Plan (RPP), refer to your plan documentation or speak to the plan administrator to understand your options when you retire or leave your employer. Pension plans must generally follow both tax rules and the federal or provincial regulations that govern the plan.

For Defined Benefit plans and some Defined Contribution plans, you may be able to receive retirement income from the plan directly. You may also be able to transfer the value of your plan into a LIF, described in the table below, or use it to purchase an annuity.

Your plan may also permit you to receive a lump-sum payment of the commuted value from the pension that you can transfer to an annuity or a Locked-in Retirement Account (LIRA)/Locked-in Retirement Savings Plan (LRSP), described in the table below.¹ For a LIRA, the transferred amount is locked-in – it isn’t taxable until you start receiving income, you cannot contribute to it, and generally can’t withdraw from it.

By the end of the year you turn 71, you need to choose a maturity option for your LRSP/LIRA. Your options generally depend on the governing legislation for your locked-in funds and where you worked and earned the pension benefits.

The table below summarizes the different types of maturity options for your federal or provincial plan. Before taking action, be sure to consult a financial planning professional who is familiar with the plan legislation of your account and how your plan may be taxed.

Note that there is currently no pension legislation in Prince Edward Island that addresses locked-in accounts, so locked-in plans do not exist in the province. You should consult your pension plan documentation or plan administrator for guidance on your maturity options.

Plan type	What it is	Where it's available	Considerations
RRIF Registered Retirement Income Fund	An income fund to which you can transfer your RRSP savings to draw on as retirement income	Across Canada	Contributions cannot be made You must withdraw a minimum amount every year after the year the plan was opened
LIRA/LRSP1 Locked-in Retirement Account/ Locked-in Retirement Savings Plan	A locked-in savings account where an employer may transfer pension plan funds after you leave the plan	Across Canada2 – both plans are virtually the same, but federal plans use the term LRSP and other provinces use LIRA Can be converted to a LIF in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Quebec	Contributions cannot be made, and funds generally can’t be withdrawn3 until retirement
LIF Life Income Fund	An income fund to which you can transfer savings from a pension plan, LIRA or LRSP	For federal plans, and in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Quebec	You must withdraw a minimum amount every year, but there is a maximum annual withdrawal (unlike RRIFs)
New Ontario LIF (“New LIF”)	An income fund introduced in Ontario in 2008. Those with an Ontario LIF were permitted to unlock a certain percentage of the income if assets were transferred to a New Ontario LIF.	Ontario only	You can unlock up to 50% of the funds within 60 days of transferring to a New Ontario LIF; once transferred, assets must be unlocked within 60 days The previous Ontario LIF was discontinued effective January 28, 2008
RLIF Restricted Life Income Fund	An income fund to which you can transfer savings from a pension plan or LRSP/LIRA	Across Canada, for federally regulated plans	Has the same minimum and maximum withdrawal limits and restrictions as a federal LIF, but you can unlock up to 50% of the funds within 60 days of transferring to an RLIF2 Contributions cannot be made, and funds generally can’t be withdrawn until retirement
LRIF Locked-in Retirement Income Fund	Similar to a LIF, with the same minimum withdrawal requirements, but a different calculation for maximum payments	Newfoundland and Labrador only	Not required to be converted to a life annuity in Newfoundland and Labrador
PRIF Prescribed Registered Retirement Income Fund	A retirement income fund with no maximum withdrawal requirements	Manitoba and Saskatchewan	Funds in a PRIF cannot be transferred or converted to a RRIF
Life Annuity	A contract where you pay a lump sum to an insurance company in exchange for steady, guaranteed income for a fixed period of time	Across Canada	Income is predictable and guaranteed Payments are taxable as regular income In the event of premature death, your beneficiary(ies) still receive the income Once purchased, the funds can no longer be used or accessed

Next steps: How to convert your plan

You can open a self-directed individual or spousal RRIF, LIF, PRIF, LRIF or RLIF online. Select Open a New Account from the My Portfolio menu and follow the steps to complete your application. You can also visit an RBC Royal Bank branch in person to have your RRSP or locked-in account converted.

The information provided in this article is for general purposes only and does not constitute personal financial or tax advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.

¹ Locked-in RRSPs (LRSPs) and Locked-in Retirement Accounts (LIRAs) have almost all of the same attributes, but federal plans use the term “LRSP” and Alberta, British Columbia, Manitoba, Ontario, Quebec, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Quebec use “LIRA.”

² If you are earning retirement income in the Northwest Territories or Iqualuit, your plan is subject to federal jurisdiction.

³ Depending on the legislation, unlocking of various types, i.e. 50% unlocking, financial hardship, shortened life expectancy, or small balance in your plan, can be unlocked from either your LIRA/LRSP, LIF or RLIF. If criteria are met to unlock the funds, they are fully taxable unless they can be transferred to an RRSP or RRIF that is not locked-in.