PETER DOLEZAL: Federal budget offers more than just an election boost

Finally, after years of public lobbying, and much debate, the government has announced long-overdue, but very welcome changes.

Over the past several decades since the federal government last established the withdrawal minimums on RRIFS (Registered Retirement Income Funds), the longevity of retirees has increased substantially.

The result? High mandatory minimum withdrawal rates have caused anxiety among many retirees, worried that their savings could be prematurely exhausted.

Finally, after years of public lobbying, and much debate, the government has announced long-overdue, but very welcome changes.

The recent federal budget established new RRIF rules, which become effective immediately.

The minimum draw requirement at age 71 has been reduced from the previous 7.38% of the RRIF value, to 5.28% — a dramatic change for the better. Although the withdrawal percentage continues to increase with age, it now takes an additional 11 years, before the previous 7.38% minimum withdrawal level is reached — at age 82.

Draws from an RRIF may, as before, commence any time after age 55. Nor is there a change in the requirement that conversion to an RRIF must occur no later than age 71, and that draws must commence no later than the calendar year in which the RRIF holder reaches age 72.

However, the new minimum draw, now mandated at age 72, has been reduced to 5.4% of RRIF value, from the previous 7.48%.

For those planning to convert their RRSP to a RRIF before age 71, the minimum-draw percentages remain at their previous levels, which were always much more reasonable.

Based on the pre-2015 budget rules, some of you may already have withdrawn the full 2015 lump-sum from your RRIF. If you wish to take advantage of the new lower withdrawal rate, you may re-contribute the 2015 excess you withdrew — as long as you do so by February 29, 2016.

These major RRIF changes have two main benefits for the retiree.

First, he/she is no longer forced to withdraw more from the RRIF than is required to maintain a desired standard of living — thereby allowing greater savings to grow and compound, tax-free, for future years.

Second, for those retirees fortunate enough to have achieved a considerable taxable income, the previous, higher withdrawal percentages often triggered a partial claw-back of OAS benefits.

This claw-back begins at taxable incomes of approximately $72,000 annually. Now, by reducing RRIF draws to the new minimums, taxable income decreases; as a result, at least some of the OAS claw-back should be reduced.

There is no question that the federal budget’s new RRIF rules, and the simultaneous enhancement of TFSA eligibility to $10,000 annually are both of great benefit, not only to retirees but to all Canadians.

Although this may have been designed as a voter-friendly budget in an election year, it is also a balanced one, which makes these welcome changes affordable.

Most of us will benefit, either immediately, or in the future. We should be very pleased.

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his most recent, The Smart Canadian Wealth-Builder.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Point-guard lobs no-look, three-pointer for Oak Bay High video

Trick-shot only took three times, says Oak Bay teen

Phase-by-phase look at how Greater Victoria Public Libraries will reopen

GVPL to quarantine returned material for a minimum of 72 hours before lending again

Saanich residents sound alarm after second owl dies of rat poison

Great Horned Owl found in Kings Park killed by three rodenticides

Langford pitches Westhills as Canadian Premier League soccer hub

Langford could host all eight teams for August matches

Cancelled cruise ships costs Victoria more than $130 million

Transport Canada bans ships until end of October in response to COVID-19

VIDEO: Victoria dental staff dance to *NSYNC to promote reopening

Urban Smiles staff ‘want you back’ after closure in response to pandemic

Feds looking at ways to reunite families amid COVID-19 border restrictions with U.S.

Some families with members of dual-citizenship have become separated due to the pandemic

B.C. aquaculture farm’s employees sweat it out to raise funds for food banks

For every five minutes of exercise recorded, Cermaq Canada is donating a dollar to local food banks in communities they operate

Condition in kids with possible COVID-19 link being studied in Canada

This month, the U.S. Centers for Disease Control and Prevention issued an alert to doctors about MIS-C

‘I knew what he wanted’: Kootenay man spends hours in tree as black bear patrols below

Francis Levasseur is no stranger to the outdoors, but a recent run-in with a bear caused quite a scare

VIDEO: Humpback whales put on quite a show

The ‘playful’ pod lingered by a Campbell River tour operator’s boat for quite some time

POLL: Do you agree with the provincial government’s decision to increase the minimum wage?

B.C.’s lowest-paid workers will be getting a few more dollars to try… Continue reading

Trudeau acknowledges racial unrest in U.S.; ‘We also have work to do in Canada’

‘Anti-black racism, racism, is real; it’s in the United States, but it’s also in Canada,’ Trudeau says

Large cruise ships barred from Canadian waters until end of October: Garneau

Last year 140 cruise ships brought more than two million visitors to Canadian ports

Most Read