So, what is it exactly?
RRIF stands for Registered Retirement Income Fund. It’s essentially a basket of investments—you can choose from GICs, mutual funds, ETFs, or stocks and bonds—that earns money during your retirement. Conceptually, an RRIF is very similar to an RRSP, except that an RRSP is used to save money for retirement and an RRIF is to provide income during retirement. You must convert your RRSP to either an RRIF or an annuity by the end of the year you turn 71.
RRIFs also have very specific rules when it comes to taking your money out. Once you reach 71, you’re required to take out a minimum every year. The amount you withdraw is determined by your age: If you’re 75, you take 5.82% out each year; if you’re, say, 90, the rate shoots up to 11.92%. Nothing like government actuaries estimating how much time you’ve got left to spend your money!
What are the pros?
Since you’re required to close your RRSP at 71, converting to a RRIF means that you won’t have to cash out the entire account and pay a huge tax bill that year. Meanwhile you keep growing your investments tax-free in an RRIF. And because you can withdraw more than the minimum, it’s a great way to indulge in something (a European vacation? a motorcycle? depends what type of retiree you’re planning to be) you’ve always wanted.
Is there anything to be careful about?
You guessed it: taxes! The money you withdraw counts as income, so you’ll have to pay income tax on it.
Then there’s always the chance you’ll end up living longer than the actuaries predict, and you’ll outlive the money that’s doled out in yearly minimums. But that seems like a better problem to have than the alternative.