cover image: Drawing down our savings : Prospects for RRIF holders following the 2015 federal budget

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Drawing down our savings : Prospects for RRIF holders following the 2015 federal budget

2 Jul 2015

In this E-Brief, we compare the interaction of the drawdown rules with different returns on investment and life expectancy in three periods: (i) 1992, when the old rules were established; (ii) in 2014, when longer lifespans and lower returns had made the rules badly outdated; and (iii) after the changes in the 2015 federal budget. [...] The Impact of the Old Rules: 1992 The 2015 budget explains that the old rules were established in 1992 “on the basis of providing a regular stream of payments from age 71 to 100 assuming a seven per cent nominal rate of return on RRIF assets and indexing at one per cent annually” (Canada 2015, 446-47). [...] Essential Policy Intelligence 4 e-Brief adjusted for the inflation rates anticipated in the Bank of Canada’s inflation-reduction targets at the time, produced a prospective compound real rate of return of about 5.7 percent.3 A few simplifying assumptions allow a straightforward calculation of how drawing down the minimum mandatory annual amount after age 71 would affect the real value of a typical [...] With the benefit of hindsight, the assumption of persistent, high nominal yields despite successful inflation control in the 1990s might seem unrealistic, and the government did not use those values in calculating the old drawdown rules, but they were the actual yields available at the time. [...] The Impact of the 2015 Reforms Using the Budget Assumptions The 2015 federal budget changes help alleviate the pressure of mandatory withdrawals on tax-deferred saving by reducing the required amounts.
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Authors

Robson, William B. P, Laurin, Alexandre

Pages
11
Published in
Ottawa, Ontario

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