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Converting your nest egg into retirement income

You’ve spent a lifetime building a nest egg for your retirement. By the end of the year in which you turn 71, you have to collapse your Retirement Savings Plan (RSP) and convert it to a retirement income option, such as a Retirement Income Fund (RIF) or an annuity.

Your retirement income has to last the length of your retirement, which could be up to 30 years or more. Careful planning and financial advice can help you determine the best retirement income option for you, depending on your needs and objectives.

Planning ahead

Before you retire, allow for ample time to plan what you want to do with the money you’ve accumulated in your RSP, and keep your RSP for as long as possible to maintain the tax-deferred growth.

When it’s time to convert your RSP, your best options are a RIF or an annuity. But it doesn’t have to be an either/or situation: One approach you could take is to purchase an annuity to provide enough income for your basic living expenses, and then convert your remaining RSP holdings to a RIF.

Looking at your options

Here are some benefits, and what you need to know, about each option.

Retirement Income Funds (RIFs)

offer more flexibility and control over your savings and may give you a better return,
can hold the same investments as your RSP, and
have a minimum withdrawal amount, based on your age, that must be taken out each year.

Annuities

provide a guaranteed income that doesn’t require time or effort to manage,
are irrevocable once you’ve signed the annuity contract, and
are available in four types:
1. indexed annuities, designed to combat inflation by increasing the income amount each year by a set percentage;
2. term certain annuities, which pay income for a set number of years, or for the number of years until you reach age 90;
3. life annuities, which make payments for the rest of your life or for a guaranteed payment period; and
4. joint and last survivor annuities, which pay income for as long as either you or your spouse is alive. Income is less than for a life annuity.

With careful planning and good advice, you’ll be able to decide on the best fit for you.

Article Disclaimer

The statements contained herein are based on material believed to be reliable, but are not guaranteed to be accurate or complete. The articles do not provide individual financial, legal, tax, insurance or investment advice and are for information purposes only. Graphs and charts, if used, are for illustrative purposes only and do not reflect future values or future performance of any investment. Particular investment strategies should be evaluated relative to each individual's objectives and risk tolerance.

Each insurance policy or contract has different provisions on coverages, benefits, exclusions and limitations. Any policy should be carefully reviewed to determine the rights and obligations of the owner and insured persons. The insurance strategy described is not appropriate for all people. Particular insurance strategies should be evaluated relative to individual objectives and in consultation with a life licensed insurance advisor.

The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

Key Points

You have to convert your RSP into a retirement income option by the end of the year in which you turn 71.
Your primary choices are a RIF or an annuity.
Understand your options and get financial advice to make the best choice for you, depending on your unique needs and goals.

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Converting your nest egg into retirement income

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