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Identifying your sources of retirement income

When you want to begin spending the money you’ve saved, you typically have to “convert” that money into an income account or stream of some kind.

In fact, you must convert your registered savings plans by December 31st of the year you turn 71, although you don’t need to start drawing an income until the following year. Non-registered savings plans, employee profit-sharing plans and tax-free savings accounts are not subject to any age or withdrawal limits, and may be kept invested or converted to cash and/or annuities.

If you’re a member of an employer-sponsored Defined Benefit Pension Plan (DBPP)1, you’ll need to make a request to start receiving your pension. Your HR department will be able to tell you when you are eligible to make the request, and what your retirement timing options and DBPP payment options are.

Each type of savings plan gives you different options for turning it into income. We’ve listed the different savings plans and their corresponding income options below.

What are the different retirement income options available to you?

The “Money in” boxes on the left of the following table represent your retirement savings. Each type of savings plan has a corresponding retirement income product (the middle boxes). Your savings are transferred into these products at retirement.2 On the right, the “Money out” boxes explain how you are able to receive income from these products throughout your retirement.

Retirement income options

Money in

 Registered Retirement Income Fund (RRIF) Money out
  • From an RRSP
  • From a deferred profit-sharing Plan (DPSP)
  • Assets held in an account much like an RRSP
  • Tax deferred
  • You make all investment decisions
  • You must withdraw a minimum % amount annually based on your age or your spouse’s age
  • No maximum withdrawal limit
  • Withdrawals are taxable as income
Money in Life Income Fund (LIF)2 Money out
  • From a locked-in RRSP
  • From a locked-in retirement account (LIRA)
  • From a registered pension plan (RPP)

 
  • Assets held in an account much like an RRSP
  • Tax deferred
  • You make all investment decisions
  • Not available in all jurisdictions; in some cases other income options may be available. In most pension jurisdictions, a LIF may be held for life; in Newfoundland and Labrador, it must be converted to an annuity at age 80
  • Like a RRIF, you must withdraw a minimum % amount annually based on your age and, in most cases, your spouse’s age
  • There is a maximum withdrawal limit, which changes each year based on your age and a formula prescribed by the applicable pension legislation
  • Withdrawals are taxable as income
Money in Annuities Money out

From any source, both

registered (for example:

registered pension plan, RRSP, DPSP) and non-registered (for example: employee profit-sharing plan [EPSP], tax-free

savings account [TFSA],

non-registered savings plan [NREG/personal savings])
  • Purchased from a life insurance company for a lump-sum amount
  • Provides guaranteed payments for life, or for a defined period, depending on the source of the funds used to purchase the annuity and the type of annuity purchased
  • For a cost, you can add enhancements such as inflation protection, guaranteed number of years of payment and payments to a spouse after your death
  • Investment decisions are made by the life insurance company
  • Payments are typically paid monthly and are generally guaranteed for life
  • If annuity is purchased with registered savings (except from a TFSA), then payments are fully taxable as income
  • If annuity is purchased with non-registered savings, then only a portion of annuity payments are taxable
Money in Defined Benefit Pension Plan (DBPP) Money out
From regular contributions made by your employer and/or yourself
  • Provides payments for life, based on a pre-determined formula that may take into account your age, salary and/or years of service
  • Tax deferred
  • Investment decisions are made by the plan sponsor
  • Regular pension payments from the plan, generally guaranteed for life, taxable as income
  • Commuted value3 as cash (less any applicable income taxes): if you leave your employer before age 55, if the amount in the plan is not significant, or if certain other conditions for unlocking are met
  • Commuted value3 as a transfer to another registered plan

Advantages and disadvantages of registered income solutions and annuities

For registered savings, your retirement income decision generally comes down to a choice between a registered income solution, an annuity or some combination of these 2 options. The appropriate combination for you will be based on the proportion of variable versus guaranteed income you wish to have.

To help you make your decision, here’s a snapshot of the advantages and disadvantages of the 2 main retirement income options. It is your responsibility to take advantage of the information and tools made available to you to help you make your investment or income decisions.

  Registered income solutions Annuities
Advantages
  • Extremely flexible – you can take income as needed (subject to minimum and maximum withdrawal limits for LIFs, LRIFs and RLIFs)
  • Potential for investment growth through a diversified investment strategy
  • Payments can continue to your spouse in the event of your death
  • Can convert to an annuity at any time if you desire greater security later in life
  • Savings and investment income remain tax deferred until withdrawn
  • Potential to leave capital to your estate or beneficiary to leave a legacy
  • Consistent, stable income for life guaranteed by insurer (you assume no market risk)
  • A joint annuity is a convenient way to guarantee financial security and lifetime income of spouse
  • No investment management decisions
  • Savings are not taxed at time of annuity purchase, but annuity payments from registered assets are taxed as you receive them
  • Payments can be indexed for inflation (if you select this option)
Disadvantages
  • Need time and knowledge or help to manage your investments
  • You assume all market risk; poor returns could mean less retirement income
  • Cannot guarantee income for life, cannot mitigate inflation risk; you assume longevity and inflation risk
  • May leave nothing for your estate, as most annuity payments end upon death with no residual value (unless you die during the guarantee period, if applicable)
  • No flexibility in varying income from year to year
  • The purchase of an annuity is irreversible

RRIF = Registered Retirement Income Fund

LIF = Life Income Fund

LRIF = Locked-in Retirement Income Fund

PRIF = Prescribed Retirement Income Fund

RLIF = Restricted Life Income Fund

Consider delaying conversion of registered savings until age 71

Just because you’re retiring, that doesn’t mean you have to convert your registered savings into retirement income right away. You have until the end of the year in which you reach age 71 to convert your registered savings into a registered income solution, purchase an annuity or make a cash withdrawal.4

Because you can make withdrawals4 from RRSPs at any time – without any minimum or maximum restrictions – keeping your savings in an RRSP until age 71 can provide you with optimum retirement income flexibility while continuing to maintain the benefits of tax-sheltered savings.

Required minimum withdrawals from registered income solutions

The minimum amount you must withdraw from RRIFs, LIFs, LRIFs, PRIFs and RLIFs depends on your age and is expressed as a percentage of the value of your plan assets at the beginning of each year.

Remember: While the minimum amount is the same for all 5 plans, LIFs, LRIFs and RLIFs also have maximum withdrawal requirements that are calculated using different formulas.

Contact one of our Retirement Consultants for more information.

More about…government retirement income programs

There are 3 key government retirement income programs you’ll want to familiarize yourself with:

  • Canada Pension Plan (CPP)/Quebec Pension Plan (QPP)
  • Old Age Security (OAS)
  • Guaranteed Income Supplement (GIS)

Here are some key facts on government retirement income programs. While we make every effort to keep this information current, the government does occasionally change certain provisions. It’s always best to confirm facts with government publications and/or websites.

  CPP/QPP OAS GIS
What is it? A monthly payment to retirees who contributed to CPP/QPP in their working years. It is taxable income. A monthly payment to eligible Canadians aged 65 or older. It is taxable income. A supplement to OAS for lower-income seniors. It is not subject to income tax
Who qualifies? You must have worked, made at least one valid contribution, and be at least 60 years old. You must be 65 years or older and have lived in Canada for a specified number of years to qualify. Benefits are income tested; some or all of your monthly payment may be subject to a clawback if your annual taxable income is above a specified threshold. Lower-income seniors, 65 years and older, may apply. An income threshold applies.
When do payments start? You must apply to receive payments. Normal retirement age is 65, but you can start receiving your CPP/QPP earlier or later than that age. Deferring the start of CPP/QPP payments can provide you with a higher monthly payment. Please visit servicecanada.gc.ca or rrq.gouv.gc.ca to find out how your benefit payments are affected by your age and other factors. You must apply to receive OAS payments. Based on your income, you may also qualify for GIS. Payments begin 1 month after the normal retirement age of 65. (Note: If you were born on or after April 1, 1958, you may have to wait until age 67 to start receiving OAS/GIS.) You can defer starting OAS for up to 5 years after you become eligible, providing you with a higher monthly payment.
How do you apply? You should apply at least 6 months before you would like CPP/QPP payments to start. You can print CPP forms online at servicecanada.gc.ca and QPP forms at rrq.gouv.qc.ca. You should apply at least 6 months before you would like payments to start. You can print forms at servicecanada.gc.ca. You can apply online at servicecanada.gc.ca, and you can re-apply through annual income tax returns.
How much are the benefits? Benefit payments vary, depending on how long you’ve worked, your income while you were working, your age when you apply for benefits and the adjustment for inflation from year to year.

Benefit payments vary, depending on how long you have lived in Canada and upon your annual taxable income.

For example:

  • You may qualify for full OAS if you have lived in Canada for 40 years since you were age 18.
  • If you have lived in Canada for 10 years, you may qualify for 25% of the maximum OAS payment. There is a minimum of 10 years’ residency (after turning 18) to be eligible for OAS.
  • Depending on your annual taxable income, there may be a government clawback of all or some of the OAS payment. Consult the Old Age Security (OAS) clawback calculator for an estimate of your monthly OAS payment. Access the calculator by signing into sunlife.ca/choices and going to my financial centre > my money tools.
 Benefit payments vary based on income levels.
Is the benefit payment taxable? Yes Yes No

About pensions and taxable income

If you have a TFSA or non-registered savings, you may be able to withdraw a combination of taxable and non-taxable income to minimize your taxes and maximize your income-tested government benefits like OAS. A Sun Life Financial Retirement Consultant or Advisor can explain how your total income from all sources may impact your income-tested benefits, so you can determine what makes sense for your personal situation. For personalized, holistic tax planning, you may wish to consult an accountant or tax specialist.

Important resource

Refer to the Retirement savings calculator to help you list your income sources and the amounts from each and calculate your potential retirement income.

Footnotes

Learn & plan

1 A DBPP pays a set pension based on a formula that generally considers age and length of service.

2 There are unlocking provisions in certain pension jurisdictions, so you may have different income options in certain situations. For details, contact a Retirement Consultant.

3 The commuted value is the lump-sum payout of the existing value of your DBPP and is based on several factors (including long-term interest rates and mortality rates). If you have contributed to your DBPP for a short period, or if the amount that’s been put in your plan is not significant, you may want to consider transferring the commuted value. If you would like to consider this option, a Retirement Consultant can explain what’s involved and answer your questions about transferring DBPP assets.

4 Cash withdrawals from a locked-in RRSP are generally not permitted due to pension legislation.