I Just Don’t Understand

It’s time to eliminate mandatory RRIF withdrawals!

We are all familiar with RRSPs (Registered Retirement Savings Plans) and many of us know they must be wound up by the end of the year in which you turn 71.  RRSPs are then converted to RRIFs (Registered Retirement Income Funds).  Our illustrious government requires us to begin to withdraw a minimum amount each year from our RRIFs and the percentage required to withdraw increases annually.

All withdrawals are taxable and when added to the regular income earned by the majority of Canadians who continue to work past 70, many find themselves quickly moved into a higher tax bracket.  Any savings realized from the past investments quickly disappear.

The solution is simple.  End mandatory withdrawals and allow individual to decide when its time to tap into their hard-earned retirement savings.  The government will still get their money, it just might be delayed a few years.

What’s so magical about age 71 anyway?  Nothing as far as I can see, so why are we forced to close our RRSPs at that age?  I have yet to hear a meaningful answer.  Making RRSPs more “open ended” could create an incentive to continue saving in later years, which could result in fewer people requiring government support in their later years.

The Canada Pension Plan and Old Age Security pay full benefits to eligible people at age 65.  In both cases, there’s an option to delay receiving these benefits until age 70.  The longer you delay, the bigger the payment.   Research and statistics suggest age 70 is still too young to force this decision.  And just like mandatory RRIF withdrawals, there is little incentive to keep working as CPP is taxed as ordinary income and OAS are subject to being clawed back.

Again, the solution is simple.  Extend the decision date to 80 or eliminate it entirely and create an environment that encourages wisdom workers to remain or re-enter the workforce.

 If there are any lobbyists reading this, I’d sure like to hear from you.