Using Your Money Wisely During Retirement
It's important to understand the ins and outs of savings vehicles so you can make the best use of your funds in retirement.
Are You Retired? Make the Most of Your ...
Individual Registered Retirement Savings Plans (RRSPs)
- You must transfer the money from your
RRSP to obtain retirement income by the end of the year in which you turn 71 at the latest, otherwise the total amount accrued will be taxable. There is no minimum age for converting an
RRSP into retirement income.
- To convert your RRPS into retirement income, you can:
- choose a life annuity or fixed-term annuity (annuity certain);
- transfer the amounts accrued to an
RRIF;
- gradually withdraw the amounts accrued from your
RRSP.
- Be sure none of your investments exceed December 31 of the year you turn 71, unless your
RRSP contract lets you transfer them to the income vehicle of your choice.
- You can withdraw funds from your
RRSP at any time. However, your withdrawal will be added to your taxable income and taxed immediately.
- The amount of taxes withheld at source is based on the amount withdrawn and the total tax rates (for Québec and Canada) listed below:
- 19% for withdrawals of less than $5000
- 24% for withdrawals of $5001 to $15 000
- 29% for withdrawals of more than $15 001
When You Die...
- The value of your
RRSP on the day you die is generally added to your income for the year, and taxes on the
RRSP will be based on the total income. The beneficiary will receive any tax-exempt amounts from your
RRSP, but he or she will be responsible for the tax bill. This means that, when the estate will have to pay taxes, the beneficiary will have to pay taxes on the amounts received.
- If the surviving spouse is the beneficiary, some or all of the
RRSP's value on the date of death can be added to the spouse's income, at the decision of the liquidator or the liquidator's representative. The spouse can also transfer these funds to his or her own
RRSP to postpone the tax bill. This solution is not possible if the
RRSP is bequeathed to the spouse in the form of a trust fund.
- If the beneficiary is a child (or grandchild) who is dependent due to a physical or mental disability, the tax treatment is the same as if the beneficiary were the spouse. This is applicable even if the deceased left behind a surviving spouse.
- If the beneficiary is a dependent child (or grandchild) under the age of 18, the amount received can be declared as the child's income. Taxes can then be deferred by purchasing a fixed-term annuity that comes to term no later than the child's 18th birthday. This tax treatment applies even if the deceased left behind a surviving spouse, but not if the
RRSP is bequeathed to the child in the form of a trust fund.
Locked-in Registered Retirement Savings Plans (RRSPs)
- If you are subject to the
Supplemental Pension Plans Act under Québec law, you will be offered a
locked-in retirement account (LIRA) instead.
- Depending on the jurisdiction of your locked-in
RRSP, to receive income you will probably have to transfer some or all of the amounts accrued to an
LIF or use it to purchase a life annuity from an insurer.
- You must convert your locked-in
RRSP into retirement income no later than the end of the year you turn 71. There is generally no minimum age to convert it into retirement income.
- A locked-in
RRSP is similar to a regular
RRSP, with the following exceptions:
- You cannot contribute to it directly except by transferring funds from a supplemental pension plan.
- Restrictions apply to the amount you may withdraw from a locked-in
RRSP. As a general rule, funds cannot be withdrawn before retirement, but this rule varies depending on the jurisdiction of your locked-in
RRSP. Find out about the conditions that apply, especially if your balance is low or your life expectancy is short.
- Since May 2008, it has been possible to withdraw funds from a locked-in
RRSP under federal jurisdiction. Contact your financial advisor or your financial institution for details.
- All
RRSP-eligible investments are also eligible for locked-in RRSPs.
When You Die...
- The balance of your locked-in
RRSP is paid out to your spouse or heirs.
- Different payment terms may apply. In some jurisdictions the balance must remain locked in.
- The amounts paid are taxable, unless exempt under tax rules.
Locked-in Retirement Accounts (LIRAs)
-
LIRAs are only used for personal retirement savings. To draw an income, you will have to transfer the capital to an
LIF or use it to purchase a life annuity from an insurer.
- You can transfer the balance of your
LIRA to an
LIF at any time or age in order to draw a retirement income. The transfer may be delayed, however, if your investments haven't yet matured when you ask for the transfer.
- You must transfer the balance of your
LIRA to an
LIF or convert it into a life annuity by the end of the year you turn 71, regardless of when your investments mature.
- All
RRSP-eligible investments can also be used for an
LIRA.
- A person can request a refund of the balance of an
LIRA in one of the following situations:
- The person is aged 65 or over and the total of the locked-in amounts does not exceed 40% of the maximum pensionable earnings (MPE) of the year in which he or she applied for a refund, that is, $28 520 in
2025.
- The person has not lived in Canada for at least 2 years.
When You Die...
- The savings in your
LIRA are no longer locked in. The
LIRA becomes equivalent to an individual
RRSP, and the balance is paid out to your spouse if you have one. Otherwise, it's paid out to your designated beneficiary or heirs.
- The amounts paid are taxable, unless exempt under tax rules.
Registered Retirement Income Funds (RRIFs)
- With an
RRIF, you can receive a periodic income during retirement.
- RRIFs are
RRSP extensions (as registered tax shelters and investments that continue to grow) that let you progressively withdraw your registered savings.
- You must make a minimum annual withdrawal from your
RRIF. The amount depends on your age, your spouse's age, and the balance. In the calendar year after you open your
RRIF, your total withdrawals must be at least equal to this amount.
- You can withdraw more than the minimum from an
RRIF at any time, depending on how long you want the funds to last.
- When you die, the remaining funds are
taxable, unless exempt under tax rules.
Life Income Funds (LIFs)—If you are subject to Québec law
- Québec
LIFs are governed by the
Supplemental Pension Plans Act.
- On 1 January 2025, new rules came into force for
LIFs. These provisions offer greater flexibility for withdrawals and simplify administrative management.
- Withdrawals are taxable according to the marginal tax rate.
- The actual age at the time the request for life or temporary income is filed, applies.
-
If you are age 55 or over, there is no upper limit related to withdrawals. This means that you could make withdrawals from your
LIF worrying about a maximum. This measure offers more flexibility in planning your retirement and allows you to better manage your withdrawals based on your personal needs. For example, this measure could help you postpone payment of your government pensions so that their amounts are higher for life. Here are some things to consider:
- You receive an annual statement containing an estimate of the life income your
LIF could provide.
- You must always meet the minimum annual withdrawal requirement. The minimum amount is the same as for an
RRIF. Consult the section on the
RRIF for more information.
-
If you are under age 55, you can obtain two types of income from your
LIF: a life income or a temporary income. A life income is a retirement income you can draw from your
LIF every year until you die. You can also draw an additional income, called "temporary income." To obtain it, you must request it every year from your financial institution.
Temporary income:
- The maximum temporary income will be calculated each year as follows: 50% of the
MPE – 100% of other estimated incomes. In
2025, the maximum temporary income is $35 650, that is, 50% of the
MPE of $71 300. The maximum temporary income payable per month will be $2970.83.
- Here is an example of the calculation for the temporary income:
- maximum temporary income $35 650
- (-) Other income ($20 000)
- (=) Temporary income on a yearly basis $15 650
- (/12 =) Monthly temporary income $1304
- The list of other income to be recognized includes the following incomes before taxes:
- Salaries, interest, pensions, social assistance benefits, employment insurance benefits, indemnities from the Commission des normes, de l'équité, de la santé et de la sécurité du travail (CNESST), indemnities from the Société de l'assurance automobile du Québec (SAAQ) and grants.
- Net business or rental income from expenses. Please note that rental income must not include a deduction for amortization.
- Withdrawals from an
RRSP must be taken into account, but not withdrawals from a TFSA.
- Disability pensions, even if they are not taxable, must be taken into account.
- Exclusions include the following: income received for third parties, such as child support and support payments.
*** If the "other income" is higher than $35 650, the temporary income will be nil.
Life income:
- For the calculation of the upper limit of the life income, the prescribed rate for
2025 is 6%. The upper limit of the life income is equal to the result of the following equation: (Prescribed rate for 2025 of 6%) x (Balance of the
LIF as at 31 December or 1 January) – (Maximum temporary income of the year following the request for temporary income). The maximum temporary income will be used if the pensioner has requested a temporary income. Otherwise, it will be zero.
Temporary income and life income:
- For example, a life income and a temporary income requested in June for an
LIF with a value of $400 000, the calculation for
2025 would be the following:
(6% x $400 000) - (7 x $1304) = $14 872
- Therefore, for a request filed in June, the total amount that can be withdrawn from an
LIF would be $24 000, that is, a temporary income of $9128 (7 months x $1304) and a life income of $14 872.
- There is no minimum age to start drawing income from an LIF.
- No amount can be directly transferred from an
LIF to an
RRSP or RRIF.
- You can transfer your
LIF to another
LIF mid-year (for instance, if you change financial institutions). The transfer may be delayed if your investments have not yet matured when you apply.
- If you no longer want to draw an income from your
LIF, you can transfer the balance to an
LIRA at any time up to the end of the year you turn 71. The transfer may be delayed if your investments have not yet matured when you apply.
When You Die...
- Your
LIF balance is no longer locked in. The
LIF becomes similar to an individual
RRSP and is paid out to your spouse if you have one. Otherwise, it's paid out to your designated beneficiary or heirs.
- The amounts paid out are taxable, unless exempt under tax rules.
Life Income Funds (LIFs)—If you are subject to federal law
Federal
LIFs are governed by Canada's
Pension Benefits Standards Act of 1985.
The main differences from an
LIF under Québec law are the following:
- The temporary income option is not available.
- When you die, the balance of your
LIF remains locked in. It must be transferred to a locked-in savings or income vehicle in the name of your spouse, other designated beneficiary, or heirs.
- Since May 2008, the rules for withdrawing funds from
LIFs under federal jurisdiction are more flexible:
- If you are 55 or over, you can make a one-time withdrawal or transfer to an
RRSP of up to 50% of the balance of your
LIF.
- You can unlock funds at any age if you are facing financial hardship or have less than the minimum amount of funds locked in for retirement ($35 650 in 2025).
Life Income Funds (LIFs)—If you are subject to a law other than Québec or federal law
Different features and restrictions may apply. Ask your financial advisor or institution.
Purchasing an Annuity from an Insurer or Financial Institution
- When you purchase an annuity, your pension varies depending on your sex, your age, the features of the annuity (e.g., guarantee period, indexing, etc.), the interest rates in effect at the time of purchase, and administration fees. Your annual retirement income will be lower, for example, if you purchase the annuity when interest rates are low.
- If there's no guarantee period on the annuity, you run the risk of forfeiting capital if you die early in your retirement, since there is no amount payable when you die. If the annuity does have a guarantee period, your payments will be lower than if it had a shorter guarantee or none at all. Annuity payments are taxable.
- Life annuities and fixed-term annuities (annuities certain) are available from insurance companies. Fixed-term annuities are also available from financial institutions.
Life Annuities
- It provides a guaranteed income for life.
- If purchased from savings in an
SPP, locked-in
RRSP,
LIRA, or
LIF, there may be some restrictions on the features of the annuity.
Fixed-Term Annuities (annuities certain)
- Fixed term annuities provide a preset number of payments.
- The number of payments is set out in the contract. The term directly affects the amount of each payment.
- If the funds come from an
RRSP that is not locked-in, a fixed-term annuity must be purchased. You will receive 90 payments, minus your age in whole years when you begin receiving your pension. If you die before you turn 90, your beneficiary will receive the remaining payments. You can also calculate the number of payments on your spouse's age, if younger.
- If the annuity is purchased from a deferred profit-sharing plan (DPSP), the maximum payment period is 10 years.
- An annuity certain cannot be purchased from an
SPP, locked-in
RRSP,
LIRA, or
LIF.
- The advantage is that the fixed guarantee period makes your monthly payments higher than they would be under a life annuity.
- The disadvantage is that payments stop when your contract comes to term, even if you are still alive.
Worth knowing about...
RRIFs vs. Annuities
- RRIFs give you better control over the way your money is invested and are more flexible in terms of withdrawals. But they also require more work on your part. If you purchase an annuity, you will not have any more investment decisions or worries about returns.
- You can convert your
RRIF balance into a life annuity or fixed-term annuity (annuity certain) at any time. The reverse does not hold true. Once you've purchased an annuity, you have to keep it—the decision is irreversible.
- The main disadvantage of RRIFs is that they can run out before you die, which is not possible with a life annuity. When you manage your
RRIF, try to strike a balance between return on investment and withdrawals.
- With either an
RRIF or annuity, you are eligible for a federal tax credit for pension income when you turn 65 (with an
SPP, you are eligible at any age). An annuity, like any fixed-income product, offers less protection against inflation.
-
RRSP and
RRIF savings are insured by either the Autorité des marchés financiers or the Canadian Deposit Insurance Corporation (CDIC), depending on whether the financial institution is provincially or federally chartered. Coverage is $100 000 per person, per institution.
- When you choose a savings or income vehicle, ask about any fees and make sure the company is stable and offers first-rate services.
- Never choose a savings or income vehicle without considering your needs and financial situation. Your choice should be based on your age, financial objectives, total savings, and financial needs.
Tax-Free Savings Accounts (TFSAs)