Advisors sidestep RRIF pitfall

Advisors sidestep RRIF pitfall

Advisors sidestep RRIF pitfall The temptation to show off their investment prowess at the expense of elderly clients may have just arrived courtesy of changes to RRIF withdrawal requirements. 

“I would hope that the advisor’s risk assessment of their client would not change,” says Tim Laceby, a CPA and tax expert with Kreston GTA LLP.

Laceby was responding to the suggestion that advisors could further expose seniors to risk associated with RRIF accounts knowing that the investable assets available to them under the new rules will be available for a longer period of time.  The minimum withdrawal rate in 2015 and beyond has been reduced from 7.38 per cent to 5.28 per cent with the 20 per cent cap being extended one year to age 95.

Ottawa estimates a 90-year-old will have 50% more capital as a result of this change ensuring they don’t outlive their money.

Unfortunately, with the future value of RRIF accounts increasing in size due to the deceleration of withdrawal rates, it’s possible that some advisors will be tempted to further emphasize equities and other asset classes at the expense of fixed-income investments, the foundation of many retirement portfolios.

However, CPA Laceby believes advisors won’t do much tinkering when it comes to RRIF clients and their financial planning.

“If the client needed to withdraw the funds to support their lifestyle based on the old withdrawal rate, then not much will change as the client will likely keep taking out the money they need for day-to-day living,” says Laceby.
Whether five per cent or seven per cent, this expert doesn’t see advisors altering their asset allocation decisions, no matter how tempting. 
  • Niki 2015-04-24 3:02:47 PM
    There is a gap in which those who need to stick with the minimum at 7.38%, as they were planning, will then be charged the % tax on withdrawal above the new minimum, which is then collected by the government in advance. The other gap is with LIFs, and the minimum being the maximum when the return the year prior is less. Those expecting again the higher amount, may be dissapointed. The LIF, having the caviate of the maximum, has the cieling effect on amounts that can be withdrawn. Yes, more will be there if the client lives to 90 plus however most people do not make it that far. More in the LIFs and RRIFs latter in life will ensure the taxes could be higher in the final year, at the point of death, for the individual client with no living spouse or not married/common-law. So there are upsides however tere are downsides, which I am sure have been considered. A separate matter, is that more staying in the market may provide more stability in the market--although that is completely an indirect.
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