TORONTO, July 10 /CNW/ - Current tax policy forces seniors to make
minimum withdrawals from Registered Retirement Income Funds (RRIFs) whether or
not they make financial sense and these minimums should be reduced or
abolished, according to a study released today by the C.D. Howe Institute. In
"A Better Riff on Retirement: The Case for Lower Minimum Withdrawals from
Registered Retirement Income Funds," author William B.P. Robson notes that
since 1992, when changes to the Income Tax Act last adjusted minimum
withdrawals, life expectancy is up and real returns on investment are down. As
a result, RRIF holders now face dramatic erosion in the purchasing power of
tax-deferred savings in their later years.
Often at retirement, and no later than the end of the year they reach age
71, many savers must annuitize or put their retirement funds into a RRIF. The
Income Tax Act prescribes that RRIF holders withdraw a minimum of 4 percent of
the beginning-of-year balance at age 65, then an escalating minimum until,
from 94 onward, holders must withdraw 20 percent of their balances each year.
Robson argues that the present-value cost to governments of tax deferral
in RRIFs is not major, but for RRIF holders, being forced to run down RRIF
assets poses a threat. Running tax-deferred assets down rapidly can expose
withdrawals and any returns from reinvestment to income taxes and benefit
clawbacks, and holders may reach advanced age with tax-deferred assets badly
depleted. When the current rules were established in 1992, this threat was not
major, but life expectancy is up since then, and real returns on investments
are down. RRIF holders now face dramatic erosion in the purchasing power of
tax-deferred savings in their later years, says Robson, who concludes that the
minimum withdrawal rules should be liberalized, or abolished altogether.
The e-brief is available at http://www.cdhowe.org/pdf/ebrief_58.pdf.
For further information:
For further information: William B.P. Robson, President and CEO, C.D.
Howe Institute, (416) 865-1904, Email: email@example.com