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Based on the pre-2015 budget rules, some of you may already have withdrawn the full 2015 lump-sum from your RRIF.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

The Gordon Head Recreation Centre stands in as the Quimper Regional Hospital on Feb. 23 for filming Maid, a 10-part Netflix series. (Greg Sutton/District of Saanich)
Netflix transforms Saanich recreation centre into hospital for filming

Facility was closed to public Feb. 23 for filming of Maid

Greg Chow is the 2021 Local Hero of the Year. (Don Denton/Black Press Media)
Fighting fire a family affair for Colwood Assistant Chief Greg Chow

With 38 years of service, Greg Chow is the 2021 Hero of the Year

This rendering shows plans for the new “flyover”overpass connecting northbound traffic on Highway 17 heading west on Keating Cross Road. Plans currently seeking public input propose two options for the median along Keating Cross Road. Option 1 will prevent left turns onto Tamany Drive and Buena Vista Road. Option 2 (seen here)will allow for left turns onto Tamany Drive and Bujena Vista Road. (Screencap/Ministry of Transportation and Infrastructure)
Public asked for comment on proposed overpass for Pat Bay in Central Saanich

New flyover overpass proposed for Highway 17 and Keating Cross Road

Various Victoria locations were hit with a slew of anti-bylaw graffiti Wednesday. This image has been altered to cover up profane language. (Submitted photo)
UPDATED: Slew of anti-bylaw graffiti an ‘unacceptable’ form of communication says Victoria mayor, police

Downtown businesses, bylaw office and Ministry of Finance vandalized Wednesday morning

Dr. Bonnie Henry talk about the next steps in B.C.'s COVID-19 Immunization Plan during a press conference at Legislature in Victoria, B.C., on Friday, January 22, 2021. THE CANADIAN PRESS/Chad Hipolito
456 new COVID-19 cases in B.C., 2 deaths

Since January 2020, 78,278 have tested positive for the novel coronavirus in B.C.

Anyone with information on any of these individuals is asked to call 1-800-222-TIPS (8477) or visit the website victoriacrimestoppers.ca for more information.
Greater Victoria Crime Stoppers wanted list for the week of Feb. 23

Greater Victoria Crime Stoppers is seeking the public’s help in locating the… Continue reading

(Black Press Media File Photo)
POLL: Are you struggling with Greater Victoria’s cost of housing?

While Victoria remains one of the most expensive cities in the country… Continue reading

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a UHN COVID-19 vaccine clinic in Toronto on Thursday, January 7, 2021. (THE CANADIAN PRESS/Nathan Denette)
Vaccinating essential workers before seniors in B.C. could save lives: experts

A new study says the switch could also save up to $230 million in provincial health-care costs

Photograph By @KAYLAXANDERSON
VIDEO: Lynx grabs lunch in Kamloops

A lynx surprises a group of ducks and picks one off for lunch

Two women were arrested in Nanaimo for refusing to wear masks and causing disturbance on a BC Ferries vessel. (File photo)
B.C. ferry passengers arrested and fined for disturbance, refusing to wear masks

Police said woman threatened their pensions in Feb. 21 incident aboard Nanaimo-bound boat

A Nanaimo RCMP vehicle in the Woodgrove Centre parking lot. (News Bulletin file photo)
Woman groped by stranger in mall parking lot in Nanaimo

Incident happened near bus loop Saturday, Feb. 20, at about 4:45 p.m.

A 19-year-old man is in police custody following a recent violent robbery and assault in Comox . (File photo)
Arrest made in violent robbery and assault of Comox gas station employee

19-year-old man in police custody after incident where woman was putting things in her car

The late Michael Gregory, 57, is accused of sexually exploiting six junior high students between 1999 and 2005. (Pixabay)
Former Alberta teacher accused of sexually assaulting students found dead in B.C.

Mounties say Michael Gregory’s death has been deemed ‘non-suspicious’

Most Read