By the end of the year in which you turn 71, you will have to decide what to do with your RRSP. A straight withdrawal will rarely be the best option. So how to decide between RRIFs and annuities? The following may help you decide.
| Key Feature | RRIFs | Annuities |
|---|---|---|
| Control | The investor retains control over the investment decisions. | The annuitant surrenders control to the insurer or trust company. |
| Income Flexibility | The investor decides how much to withdraw every year subject to a minimum income required by law. Income is not guaranteed but continues as long as there is a balance in the account. | The annuitant receives a fixed sum on a regular basis for a specified period of time. Payments are guaranteed for life. |
| Risks & Rewards | The entire return on the investments belongs to the investor, whether return is positive or negative. | Funds invested in an annuity may earn returns in excess of the annuity income but remain with the insurer and are not passed along. |
| Inflation Protection | The investor may change the investment profile to reflect changing economic conditions. Eg. hold equity mutual funds which generally perform better over long term than interest-bearing investments. Income payments may also be adjusted for inflation. | Annuities may be arranged to provide an income that is indexed to a fixed inflation factor. But once the contract is established this factor cannot be adjusted further. |
| Transfers | The investor can transfer his or her RRIF from one financial institution to another profile and change its profile. | Once established, the contract is "locked-in" for the period and cannot be moved to another insurer. |
Asset management can consume a considerable amount of time and energy. Today's complex financial marketplace and changing tax laws can make it even more difficult to keep up with the changes and how they affect you.
Because of these implications, it is highly advisable to seek a qualified professional to help you understand all the complexities involved.
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