A retirement deadline sounds pretty urgent when it appears to involve your entire investment account. Fortunately, turning a Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF) can be far less dramatic than it sounds. In many cases, your investments can move directly into an RRIF and keep growing.
If you turn 71 in 2027, your RRSP must mature by December 31, 2027. The common choice is an RRIF. You can also purchase a qualifying annuity or withdraw the money, with different tax and income consequences. You have time to choose how you want retirement income to arrive.
That time is useful. It lets you arrange the account around your spending, instead of selling investments in a December rush. The aim is to give your savings a new way to support you while preserving room for future growth.
The account changes the withdrawals
A direct RRSP-to-RRIF transfer generally doesn’t create an immediate tax bill. Investments continue growing tax-deferred inside the plan. Withdrawals are generally taxable, and minimum payments begin in the calendar year after the RRIF is established.
You don’t normally have to sell every holding during the conversion. If the receiving institution accepts the investments, they can often transfer directly. That’s especially helpful when you own businesses you still want to hold for several years.
The practical preparation is making sure enough cash will be available for the payments. Dividends can supply part of it. Maturing deposits and planned sales can cover the rest, giving you more flexibility when the stock market is having an unhelpful month.
A simple cash reserve can take some pressure off the portfolio. Setting aside the next several payments means a falling share price doesn’t immediately dictate what you sell. The rest of the account can stay invested for later years. Retirement changes the way you use the money, while leaving plenty of room to remain a patient business owner.
Keep growing
Sun Life Financial (TSX: SLF) is one company that can play that supporting role. It earns from insurance, benefits, and managing money, with operations in Canada and other markets. Its Asian business also gives shareholders exposure to customers building savings and buying protection as their finances grow.
The company reported underlying earnings of $2.02 a share in the second quarter. Its quarterly dividend is $0.96, using roughly 48% of that underlying profit. The calculation gives a straightforward reason to like the payment: Sun Life is distributing less than half of those earnings while retaining money for other needs.
At the October 26 price of $111.51, the annualized $3.84 dividend yields about 3.4%. A $10,000 budget buys 89 whole shares for $9,924.39 and would produce $341.76 annually at the current rate. The remaining $75.61 stays in cash before fees.
Make the whole portfolio work
That payment can contribute to an RRIF withdrawal, but the account’s required amount is based on the whole plan and applicable age factor. It doesn’t depend on how much your favourite stock happens to pay. Buying a higher yield simply to cover the minimum can introduce more risk than it solves.
I like Sun Life as one part of a diversified dividend portfolio, particularly when there is still a long investing horizon. A retiree can need income next year and growth for another two decades. A collection of durable businesses can help serve both goals.
Sun Life still faces insurance claims, market swings, and competition for investment clients. Those risks support keeping cash available for upcoming withdrawals, instead of making one insurer responsible for every payment. For Canadian stock investors, the company offers an income-and-growth role with a sensible starting yield.
Bottom line
Your deadline is December 31, 2027 if that’s the year you turn 71. Start with the withdrawals you expect, then arrange the account and holdings around them. An RRIF can let the businesses you already own keep earning for you while gradually turning those savings into the retirement income you built them to provide.