The article “Should RRIF withdrawals be based on the younger spouse’s age?” was originally published in MoneySense on November 8, 2022. Photo by Rodnae Productions from Pexels.

Is there an advantage to using a younger spouse’s age to calculate minimum RRIF withdrawals? Find out.

“I am wondering about the minimum RRIF withdrawal calculation. We are wondering if it would be beneficial to use the younger spouse’s age to result in a lower annual combined income. Can you explain the reasoning behind this?”  Bernie

When can you convert an RRSP to a RRIF?

Registered retirement savings plans (RRSPs) are tax-deferred accounts meant primarily to fund retirement with withdrawals taken at that time. You can, though, take an RRSP withdrawal at any time. There are no restrictions on withdrawals, except if you have a locked-in retirement account (LIRA) that came from a pension plan transfer. The only drawback of RRSP withdrawals is that they are considered fully taxable income, with the exception of eligible withdrawals for a home purchase or post-secondary education.

You can contribute to an RRSP until the end of the year you turn 71. By no later than December 31 of the same year, you must cash in your entire account (not advisable), buy an annuity from an insurance company (not common) or convert your RRSP to a registered retirement income fund or RRIF (most common).

You can convert an RRSP to a RRIF before age 71, and this is common for retirees in their 60s. As you obviously know, Bernie, you can base your withdrawals on either your age or your spouse’s age. A spouse can be a legally married spouse or a common-law spouse.

What are the minimum RRIF withdrawals?

The minimum RRIF withdrawals are a set percentage of your account’s value on December 31 of the previous year. The withdrawals rise each year.

For example, at age 65, the minimum withdrawal is 4% of your account value. At age 71, it is 5.28%. By age 80, the minimum is 6.82%, and it is 11.92% by age 90. The result is that the account value generally starts to decline over retirement. The government also gets to tax the tax-deductible contributions and growth that accumulated over the years.

If your spouse is younger than you and you base your withdrawals on their age, Bernie, the minimum withdrawals are lower. You make this election when you convert your RRSP to a RRIF, along with deciding how frequently you want to take withdrawals (monthly, quarterly, annually) and whether you want any additional withholding tax to be taken by the financial institution. There is no tax required on minimum withdrawals, but you may owe tax when you file your tax return.

It bears mentioning that the RRSP-to-RRIF conversion deadline (December 31 of the year you turn 71) is based on your age, even if your spouse is younger. Only the withdrawals can be based on a younger spouse’s age, not the conversion deadline.

Interestingly, if you have a younger spouse who has a spousal RRSP, you can contribute to their RRSP as long as you have RRSP room, even if you are 72 or older. However, you can no longer contribute to your own RRSP.

Should you defer RRIF withdrawals until age 72?

You could defer your RRIF withdrawals, but consider how this decision will impact your future tax payable, clawback of government benefits and tax on death. Basing your RRIF withdrawals on a younger spouse’s age will result in lower withdrawals and less tax payable—at least, for the year at hand, Bernie. This may be advantageous if you are in a high tax bracket and do not need the withdrawals to cover your living expenses.

However, minimizing your tax this year at all costs is sometimes a short-sighted tax strategy. In other words, if you defer your RRSP/RRIF withdrawals to age 72, your RRIF balance will be much larger in your 70s and 80s, and your taxable income and tax rate could be much higher as well. This spike in income could also result in a reduction in government benefits like Old Age Security (OAS).

Although it may seem enticing to live on cash, non-registered investments and tax-free savings accounts (TFSAs) while deferring RRIF withdrawals to age 72, it can lead to more lifetime tax and a smaller estate for your beneficiaries. You may also draw down your TFSA more quickly, while earlier RRIF withdrawals may allow you to maintain or even maximize your TFSA.

So, while basing your RRIF withdrawals on a lower spouse’s age, as well as deferring RRIF withdrawals to age 72, may seem advantageous, a different approach may be better. In other words, starting RRSP/RRIF withdrawals earlier in retirement, or taking more than the minimum (whether basing withdrawals on your age or your spouse’s) should be considered.

Should you base your RRIF withdrawals on a younger spouse’s age?

Sure, Bernie. At least you will have the lowest required withdrawals and the most flexibility. But it may also make sense to take larger withdrawals for retirement income planning and estate planning purposes. You may be able to spend more in retirement or leave a larger estate if you do so.

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