By December 31 in the year you turn 71, you must collapse your RRSP either into a Registered Retirement Income Fund (RRIF) or purchase an annuity. If you do not, your entire RRSP will become taxable. If you convert your RRSP to a RRIF, you will be subject to minimum withdrawals from that RRIF for the remainder of your life based on a table provided by CRA. As you get older, the amount you must take out of your RRIF increases as a percentage of the assets. You may use your spouse’s age if your spouse is younger than you, to determine the required amount to withdraw. A RRIF gives you control over the investment decisions in your plan. You may invest in something as conservative as GIC’s or as risky as equities. You always have the option to withdraw more than the minimum amount out of your RRIF if your cash flow needs require.
An alternative to a RRIF is an annuity. An annuity is a contract with a life insurance company. In return for giving the company a lump sum of cash, they promise to provide you with a steady stream of income. The time period can be set at a specific number of years, until your death, until the last death of you and your spouse or a combination thereof.
You will report both a withdrawal from a RRIF or annuity as income for tax purposes. You will be eligible for the $2,000 pension income credit similar to members of a pension plan. If your spouse is younger than 71, you may continue to make contributions to a spousal RRSP until they reach the age of 71. Please consult CRA's guide to retirement plans.
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