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What are Retirement Income Options?

Retirement Income Options (RIOs) are plans that act as sources of income after you retire, using the money you saved during your working years. The most common type of RIO is a Retirement Income Fund (RIF).1 A RIF uses the savings from your Retirement Savings Plan (RSP) to provide you with a steady, dependable source of income. Other than a minimum annual amount set by the federal government, you have the freedom to choose the amount you want to receive each year and you only pay tax on the money withdrawn from your RIO.

A RIO is also available for your Locked-in RSP (LRSP), Locked-in Retirement Account (LIRA) or Restricted Locked-in Savings Plan (RLSP) in the form of a Life Income Fund (LIF), Locked-in Retirement Income Fund (LRIF), Restricted Life Income Fund (RLIF) or Prescribed Retirement Income Fund (PRIF) depending on the governing legislation of the original pension plan.

By keeping the majority of your funds in a RIO and withdrawing a predictable, manageable amount each year, you can continue to enjoy the benefits of tax-deferred growth and an additional source of income during retirement.

You have the option to convert your RSP into a form of retirement income at any time, but it must be done by the end of the calendar year in which you turn 71. At that time, you’ll have three choices:

  1. Convert your RSP to a RIF

  2. Convert your RSP to an annuity

  3. Withdraw the entire amount of your RSP in one lump sum

Government Regulations & Tax Considerations

Holders of RIFs must withdraw a minimum annual amount of retirement income from their RIFs. This amount is based on your age or your spouse's or common-law partner's age (as of January 1 of the current calendar year) and the value of the RIF at the previous year's end. If your spouse or common-law partner is younger, using their age will result in a lower minimum withdrawal, allowing more of your plan property to grow in a tax-deferred environment.

Any RIF income you receive will be taxed in the year that you receive it. In the year you open your plan, the minimum required withdrawal amount does not apply and all monies withdrawn will be subject to withholding tax. Every year after that, only the amount that exceeds your required minimum amount will be subject to withholding tax.

TD Canada Trust will send you a tax slip reflecting all RIF income from the previous year, which should be included as taxable income with your tax return.

  1. Take advantage of the federal age tax credit. If you’re 65+, you may qualify for an additional age deduction, depending on your income.

  2. The first $2,000 of eligible pension income qualifies for a 15% federal pension income tax credit and a provincial tax credit that varies from province to province (some exceptions may apply).

  3. Split CPP benefit payments with a lower-income spouse in order to tax the income at a lower rate. This may help you reduce or avoid the impact of the Old Age Security (OAS) clawback.

  4. Maximize spousal RSP contributions for the spouse with the lower taxable income at retirement. This will permit more retirement income to be taxed at the lower rates.

  5. Apply for the GST credit every year. You may qualify after you retire, even if you didn't before.

  6. Transfer unused age, pension, disability, tuition and education tax credits to the higher-income spouse, and combine spousal charitable donations on a single tax return to maximize the tax credit.

Note: Consult your tax advisor for further information on the above tips or other tax minimization strategies.

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1 RIF refers to Retirement Income Fund (RIF), Life Income Fund (LIF), Locked-in Retirement Income Fund (LRIF), Prescribed RIF (PRIF), and Restricted Life Income Fund (RLIF).