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Ready to Retire and Collapse Your RRSP? What to do With the Money

By: Trisha MacLennan CFP

You look around the office to make sure there are no mementos left behind. You shake hands with your colleagues and turn off your computer one last time. You leave the office behind and a feeling of euphoria overtakes you, but only for a moment. You realize that, while you are forever f from the decisions of the office, you now must undertake equally challenging decisions regarding your retirement. Near or at the top of your list: what to do with the RRSP money?

Your first task should be to seek out the services of a fully qualified financial planner who specializes in retirement issues. Your age at retirement, marital status, whether you own or rent, whether you have retired with debt or not; all can be issues that can impact your financial decisions. A retirement specialist can help guide you and answer all of your questions.

Your choices of what to do with your RRSP funds include the following:

• Do nothing. This is an option if you are under age 71 and don't need the additional income. You may leave your RRSP accounts untouched until the end of the year in which you turn 71. You should, however, consider your retirement as a major life event, and review your investment choices and risk tolerance with your financial advisor. This is a time when an investor often shifts priorities from growth to capital preservation. A frank discussion with your advisor, and a possible rebalance of your accounts, will give you the peace of mind to enjoy your retirement without stressing over market movements or unforeseen cash flow emergencies.



• Redeem some or all of the RRSP. This option should only be undertaken after a discussion with a retirement specialist. Any funds redeemed from your RRSP are taxed as income in the year received. A partial draw down of the RRSP, usually by converting a small amount to a Registered Retirement Income Fund (RRIF) or the purchase of an annuity, will allow the retiree to benefit from the Pension Tax Credit, providing they have no other qualifying pension income. Be aware that if taxable net income exceeds $63,511 (2007 figure), a repayment of a portion of OAS benefits will result.



• Move some or all of the funds into a RRIF. A RRIF acts as an income vehicle while the remaining funds continue to be invested. You receive at least a required minimum amount annually based upon your age, and can take out more if needed. You may continue to hold the same investments as your RRSP but you should ensure there are monies available to fund your annual payments. You would not want to have all your investments tied up in non-redeemable term deposits or stock holdings that are illiquid. Work closely with your financial advisor to ensure a suitable mix of investments.



• Buy an annuity with all or part of the funds. An annuity is like a pension and will provide the purchaser with payments for either a specific term or for life. Annuities can be purchased with extra features such as indexing and survivor benefits, but these added benefits will reduce the amount of each payment. Life annuities provide you with a stream of income for as long as you live and relieve you of the need to make further investment decisions. However, once you buy an annuity and choose your options, the decision is irreversible, you are locked into the prevailing rate of interest at the time you bought the annuity, and, if you have bought a life annuity, there will be no funds left over to form part of your estate.

Retirement is no longer seen as the "end" of your life's work, but as an evolution towards new opportunities and personal growth. Start thinking about how you wish to utilize your retirement savings well before you need to and rely upon the expertise and guidance of your financial planner. Here's to a long and successful retirement!