The article “How To Decide When To Convert RRSPs To RIFFs” was originally published in MoneySense on October 9, 2018.

Bart has three RRSP accounts and wants to know how his RRIF withdrawals are calculated

Q: I have several (three) RRSPs, partially resulting from multiple employers over the years, partially due to a desire to use at least two institutions, plus the Saskatchewan Pension Fund that I discovered too late.

I am planning to build up the SPP as much as I can by transferring money, which I can do even when I need to convert to a RRIF. I am 65 years old, but still working full-time, and have no need to withdraw funds yet, nor am I drawing CPP or OAS.

When I am forced to draw money from my RRIF when I turn 71, do I need to withdraw proportionally from each RRIF? Or can I withdraw just the required sum total from one RRIF (5% at 70) so I can maintain the fund with the best rate of return?


A: As you likely know, Bart, you must make an election with your Registered Retirement Savings Plan (RRSP) accounts by the end of the year you turn 71. One option you can choose is to convert your RRSP to an annuity with an insurance company, receiving a calculated monthly pension for life in exchange for handing over your RRSP account balance.

Most retirees opt instead for a Registered Retirement Income Fund (RRIF), which is very much like an RRSP. The main difference is that you must take minimum withdrawals from a RRIF account that start at 5.28% in the year you turn 72 and rise each year thereafter.

If your spouse is younger, you can base your withdrawals on their age, meaning lower required withdrawals and less tax to pay. A “spouse” for purposes of your RRIF withdrawals can include a common-law spouse.

You can choose to convert an RRSP to a RRIF at any time prior to the end of the year you turn 71. Some people convert their RRSPs in their 60s or even their 50s if they retire young and their incomes are low, or if they need the cash flow.

If you have multiple accounts, you can choose to convert an RRSP to a RRIF and don’t have to convert all your accounts, Bart, if you are under 72. Or if you have one account, and are under 72, you can convert part of the RRSP to a RRIF — you don’t have to convert the whole account.

Your Saskatchewan Pension Plan (SPP) account is quite unique. For those who don’t know, anyone between age 18 and 71 can open an SPP account. You can contribute up to $6,000 annually based on your existing RRSP room. You can also transfer up to $10,000 annually from other registered accounts like RRSPs.

A real benefit to the SPP is the opportunity to get professional management at low fees. The balanced fund investment option at SPP, for example, has a management expense ratio (MER) of 0.83%. This is very competitive.

Just like with an RRSP, you can only have an SPP until December 31 of the year you turn 71. You can choose to purchase an annuity with your SPP balance or transfer it to a RRIF account at another financial institution.

As far as your desire to maintain the fund with the best return by withdrawing from the other account(s) instead, you can certainly do this prior to the year you turn 72. But with your RRSPs and SPP, you will have to take withdrawals eventually. And I’m afraid you can’t withdraw extra from one and nothing from another once you’re 72 or older. Each account would be subject to the minimum required RRIF withdrawal rates, Bart.

I’ll caution you, however, with a common investment industry warning that past results are not a guarantee of future performance. So, withdrawing from the account with the lower return may not be a recipe for success. In fact, if one of your accounts is invested more aggressively than another account in a period where stocks are rising, that account may appear to be performing better. The outperformance may not be because it’s better than the conservative account, just invested more aggressively during a period of growth.

The same logic also applies to a conservative account during a down market. It may outperform your more aggressive account if stocks are down, not because it’s better, just because it’s different.

It’s an important lesson when comparing performance. You can’t compare apples to oranges or you may not get a proper assessment.

And while it may seem counterintuitive to some investors, it can sometimes be a better investment strategy to sell an account or investment that is up and buy an account or investment that is down.

For example, Bart, if one of your accounts is invested primarily in Canadian stocks and another primarily in U.S. stocks, the U.S. stock account would have performed better in recent years. That doesn’t necessarily mean you should sell your Canadian stocks. Quite to the contrary, in a properly balanced and diversified portfolio, it may be better to rebalance and sell U.S. stocks instead. Buy low and sell high, as they say.

Anyway, investment strategy and asset allocation are a discussion for another day, but the point is you should be careful about using short-term, recent performance to decide which RRSP / SPP account to convert to a RRIF and begin your withdrawals.

It may not be a bad idea to use long-term performance as one of the criteria to choose one place to consolidate your three retirement accounts, though. As you move into retirement and into your 70s, it may be that much more beneficial to simplify your finances and have everything in one place. It’s something for you to consider as you go from accumulation to decumulation, Bart.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.