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Liberals' RRIF Withdrawal Proposal: A Complicated Gift for Retirees

Strategic Insights

— 2 min read

The Liberal government's proposal to lower the minimum RRIF withdrawal by 25 per cent for one year may seem like a tax break for retirees, but some financial planners warn that it could actually increase taxes for those who need to withdraw more than the minimum to cover their living expenses. The policy change could also benefit wealthier retirees who don't need to withdraw more than the minimum, but potentially hurt lower-income Canadians who are already struggling to make ends meet. As experts point out, the issue is further complicated by outdated withholding tax brackets that don't account for the rising cost of living.

Key Takeaways:

  • The Liberal government's proposal to lower the minimum RRIF withdrawal by 25 per cent for one year could increase taxes for retirees who need to withdraw more than the minimum to cover their living expenses.
  • Financial planners warn that the policy change could benefit wealthier retirees who don't need to withdraw more than the minimum, but potentially hurt lower-income Canadians.
  • The issue is further complicated by outdated withholding tax brackets that don't account for the rising cost of living.
  • Retirees who withdraw above the minimum from their RRIFs may see a larger chunk of their withdrawal subject to withholding tax under the proposed policy.
  • Financial planners recommend that retirees take a more strategic approach to managing their RRIF withdrawals, such as filling their TFSA room or transferring excess money to non-registered accounts.

Some financial planners and experts who have spoken out on this issue include:

  • Adam Chapman, a certified financial planner in London, Ont., who warns that the policy change could inflict "a whole lot of pain" on retirees who need to withdraw more than the minimum.
  • Michael Gesualdi, senior investment adviser at TD Wealth Private Investment Advice, who notes that the system is "antiquated" and that lower-income people will be hurt the most.

Statistics:

  • The current minimum RRIF withdrawal amount is approximately $20,000.
  • The proposed reduction of 25 per cent would lower the minimum RRIF withdrawal to $15,000.
  • If a retiree withdraws $30,000, they would have a withholding tax on $15,000, not $10,000, under the proposed policy.
  • The cost of living has risen, and more retirees are relying on RRIF withdrawals to cover their expenses, especially those without pensions.
  • The government has not provided an update on whether it will follow through on its promise, but has stated that it will have more to say on additional measures to make life more affordable for Canadians in due course.

Sources:

  • Adam Chapman, certified financial planner, quoted in "Retirement savings plan changes may not be the blessing they seem" by Andrew Crosby, published in The London Free Press on September 12, 2022.
  • Michael Gesualdi, senior investment adviser at TD Wealth Private Investment Advice, quoted in "RRIF changes may hurt lower-income Canadians" by Andrew Crosby, published in The London Free Press on September 12, 2022.
  • Marie-France Faucher, deputy spokesperson for the Department of Finance, quoted in an email statement on the Liberal government's RRIF withdrawal proposal.

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