It’s November, as hard as that is to believe. This is the time of year we should start to consider year-end financial planning. This note will be about helping your client’s transition their RRSPs/LIRAs to RRIFs/LIFs. Later in the month we’ll discuss some things you can do to help your clients reduce their 2016 income taxes.
As we’re all aware RRSPs/LIRAs must to be converted to RRIFs/LIFs or in some situations, annuities by the end of the year in which a person turns 71. My experience has been that very few people take the annuity, the vast majority of clients choose a RRIF/LIF solution.
We’re fortunate to being able to offer insurance based investments to our clients. The potential for guaranteed income from GMWBs and annuities are fitting solutions to people’s income needs.
Let’s get specific, the ideal situation is one where a client needs only the legislated minimum payment from their RRIF or LIF. This client has other sources of retirement income so the minimum payment will be appropriate. And, possibly, the most tax efficient.
In this situation, the use of a GMWB makes sense. As we know the GMWB will always payout the greater of the legislated minimum and the guaranteed income promised by the contract. Usually, in the early years the legislated minimum will be paid out and then as the market value decreases, the guaranteed income will kick-in and continue, regardless of market value, until the client’s death.
On another point, please recall that RRIFs/LIFs need to be established by the end of the year in which the client turns 71. But, the first income payment does not need to be taken until the following calendar year. This is good news on two counts. Firstly, if the RRSP or LIRA is transferred to a GMWB RRIF or LIF this year, and the first payment is next year, your client will receive one notional bonus on their deposit and therefore increase their guaranteed income. In this situation Empire Life and Desjardins should be considered because of their respective 5% and 5.5% notional bonuses. Secondly, by deferring the first payment to 2017, taxes on that payment will not be paid until 2018, when your client files their 2017 income tax return.
I encourage you to look at your client base and see who is turning age 71 this year. You can provide peace of mind in retirement for our clients with guaranteed income solutions. As always, I look forward to your comments.
Director of Wealth
Qualified Financial Services
416 786 4140