The FP Canada Research Foundation announced it has published new research assessing the value of withdrawing more than necessary from registered retirement income funds (RRIF), earlier than required, saying the benefits of the practice may be overstated.
“Put simply, some planners may be relying on rules of thumb, oversimplifying complex sets of circumstances. This may be a problem for clients, as the research shows that projections based on just one potential future scenario are unreliable and misleading,” the foundation states in its announcement about the release. “Accelerated RRIF withdrawal strategies aren’t always as valuable as expected.”
The research paper, Retirement Drawdown Choices, authored by Doug Chandler, an actuary specializing in retirement research and an associate fellow of the National Institute on Aging, says “despite media stories highlighting opportunities to take advantage of differences in tax brackets, this research found that demonstrating added value can be quite difficult.” The report adds that advantages disappear when investment returns are both above average and below average. “In the analysis in this report, some opportunities that improve the average outcome come with increased risk of financial distress,” the report states.
“At the outset, it was intended that this research would determine if a manageable set of guidelines for financial planners who are called upon to advise clients on drawdown strategies could be articulated and outline what those rules would be,” they write. “Once the full complexity of investment risks, longevity risk and Canada’s morass of taxes, credits and income tested benefits for seniors was taken into account, this research concluded that simple, single-scenario projections of the value of a drawdown strategy are unreliable and misleading.”
