The C.D. Howe Institute is the most recent organization to weigh in on mandatory Registered Retirement Income Fund (RRIF) withdrawal rules, saying these raise the risk of seniors outliving their savings.
“Longer lives and lower returns mean that current age thresholds and mandatory minimum withdrawals for RRIFs will leave too many seniors with negligible tax-deferred saving in their later years. The ages at which saving must stop and withdrawals must start should rise. Minimum withdrawals could disappear altogether. Failing that, they should shrink and/or cease when nest-eggs are approaching depletion,” say authors of the report Live Long and Prosper? Mandatory RRIF Drawdowns Raise the Risk of Outliving Tax-Deferred Saving.
The report continues by looking at the historical decisions made since 1978 regarding RRIF withdrawal rules. “Why force RRIF holders to draw down their savings at all? A key motivation for the government from the inception of this regime has been to accelerate the receipt of revenue by limiting the period of time over which people can defer taxes,” the report’s authors state. “Forcing people to take income that will push them into higher tax brackets and trigger clawbacks they might otherwise be able to avoid is inequitable.”
“Tax rules requiring RRIF withdrawals need revamping,” they add. “Government impatience for revenue should not force holders of RRIFs and similar tax-deferred vehicles to deplete their nest eggs prematurely. We need to ensure that minimum withdrawals and the ages at which saving must stop and withdrawals must start, reflect updated demographic and economic realities.”