Why this message to you today? The Canadian Federal Government has launched an initiative for those who are receiving RRIF and LIF payments. For payment amounts not yet received this year (2020), these remaining amounts can be reduced by 25%. The purpose of this is to help reduce the potential negative impact of withdrawing income from these accounts while these accounts may have declined in value, due to the volatility in the stock market today.
More specifically, how might this impact you?
- Lump sum payments yet to be received: if you have yet to receive a lump sum payment amount, this amount could be reduced by 25%.
- Monthly amounts yet to be received: These amounts can be reduced by 25%.
- Amounts received so far in 2020: if you have received any RRIF or LIF payment amounts in January, February or March, these amounts will not be reduced by the 25%. You can not deposit the equivalent 25% amount back into your RRIF or LIF plan.
If your financial advisor has been in touch with you about this option, we recommend that you respond quickly to their inquiry so that this change can be made as quickly as possible.
With our clients with Nelson Portfolio Management Corp., we were able to authorize this change on behalf of all clients all at once.
This brings us to the next important question: what if you make this change today, but may need more income in the months ahead? This is not a problem. In the months ahead you could:
- choose to change your monthly payment amount back to a specified withdrawal level,
- make a lump sum withdrawal of the amount you desire (however, be aware that an additional lump sum withdrawal will likely not qualify for the income splitting provisions),
- top up your income from your cash reserves or from your non-registered investments.
The bottom line: Due to the fact that you are “social distancing” and “staying home” you are likely spending less than what you would have otherwise. Therefore, we would encourage most people to definitely take advantage of this 25% reduction in the forced minimum withdrawal amount. As the year progresses, you can then assess where you stand financially and then make further decisions at that time if you need additional income.
Road To Mastery Principle: It doesn’t matter what you have, it only matters what you keep, after-taxes, fees and inflation. By reducing your RRIF withdrawal amount by 25% you may be able to preserve some of your savings from market volatility while also reducing your taxes. Market volatility and taxes are two of the 5 Great Killers of Wealth.
For more information you can go to the Government of Canada Economic Response Plan: https://www.canada.ca/en/department-finance/economic-response-plan.html