Retirement income alternatives

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If you’re confused about retirement income alternatives, you’re not alone. How do you choose which product is right for you? That depends on the type of savings you have.

 

Canada Revenue Agency requires that you buy a retirement income product with your registered retirement savings by December 31 in the year you turn 69. If you have registered non locked-in savings, you can choose from a Registered Retirement Income Fund (RRIF), a life or term annuity or cash. If you have registered locked-in savings, you can buy a life annuity, a Life Income Fund (LIF) or a Locked-In Retirement Income Fund (LRIF), where available.

 

Here’s an overview of your different retirement income options.

 

For non locked-in savings


A RRIF is a retirement income product for all registered funds not subject to locking-in  restrictions. The government requires that a minimum level of income be withdrawn from a RRIF. Each year, the minimum income is determined using your balance on January 1st, and a percentage determined by your age or the age of your spouse on January 1st.

 

When a RRIF is purchased with non locked-in funds, only the amount withdrawn each year is taxable. The remainder of your capital continues to grow tax-free. With a RRIF, you can increase your income or withdraw extra money to cover emergencies, because there’s no restriction on the amount you withdraw. This option may however, exhaust RRIF funds at a faster rate. At the time of death, the value of the RRIF can be:

  • paid as a lump sum cash payment to the beneficiary
  • used to provide an income to your surviving spouse
  • transferred by your surviving spouse tax-free to a personal RRSP or RRIF of his/her own, or
  • converted to an annuity.

Payout annuity


If your savings are non locked-in, a life or a term annuity can also be purchased. It provides you with a series of payments for either a specified number of years after retirement, or for your lifetime, or the lifetime of you and your spouse.

 

Annuities provide stability and security through guaranteed payments. The amount of your payments depend on your age, the amount of money you invest in your annuity and the type of annuity you select.


The three main types of annuities are:

  • Life annuity - provides you with payments for as long as you live
  • Joint life annuity - provides you with payments for as long as you and your spouse live
  • Term certain annuity - provides you with a specified number of payments.

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Locked-in savings


If you have locked-in savings, you can buy a LIF or LRIF. The minimum required amount must be withdrawn each year, provided the maximum withdrawal limit is not exceeded.  Similar to a RRIF, only the amount withdrawn each year is taxable.  The balance continues to grow tax-free.


At the time of death, the value of a LIF or LRIF can be:

  • converted to an annuity
  • transferred by your surviving spouse tax-free to another registered product, subject to pension legislation, or
  • subject to pension legislation, paid as a lump sum cash payment to the beneficiary.

Based on current legislation, LIFs are available in every pension jurisdiction except Prince Edward Island. LRIFs on the other hand, are only available under Alberta, Manitoba, Ontario and Saskatchewan pension legislation. 
 
You can also purchase a life annuity with your locked-in savings. This retirement income alternative offers a guaranteed income during your lifetime and your spouse’s lifetime, provided the annuity has been set up on a joint and last survivor basis.

 

Final tips


When it comes to choosing a retirement investment income, it depends on your financial situation and lifestyle needs. You’ll need to consider certain factors, such as the risk of inflation or the need to withdraw additional funds to cover any emergencies. Because income tax is payable on the money withdrawn, why not take only the money you need each month, subject to government restrictions? This way, your savings can accumulate tax-free for as long as possible. 

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If you have a general question or suggestion about this newsletter, please send an e-mail to can_pencontrol@sunlife.com or write to At a Glance Newsletter,  Group Retirement Services Marketing, Sun Life Financial, 225 King Street West, 14th floor, Toronto, ON M5V 3C5. This bulletin has been created exclusively for you. It addresses issues to help you with your financial planning and investments.

Group Retirement Services are provided by Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies. 

Last Update: April 2005