Seniors relying on RRIF withdrawals could outlive their money: Study

July 17, 2014 · Print This Article

Seniors who use their monthly mandated RRIF withdrawal amounts as a budget could find their savings depleted sooner rather than later, according to a new study by the C.D. Howe Institute.

The report, entitled “Outliving our Savings”, discusses how the withdrawal rates, set in 1992, need to be updated to account for longer life expectancy and lower growth rates in long-term equity investments, such as long-term Government of Canada savings bonds, which have seen their rate of return fall from around 8% to 3%.

The mandated withdrawal rates start at 7.38% of the account value and rise steadily on an annual basis. The report argues that seniors should not necessarily stick with the rising withdrawal rates as a budget since they could end up outliving their money if the investments in the fund do not perform well, or if they simply have a longer-than-average life expectancy.

Talk to a financial planner

The best way to determine your retirement budget is to speak with a financial planner. They will help you figure out what percentage to save from your mandated monthly withdrawals to ensure that your money doesn’t run out. It may be necessary to speak with them again once every five years to make sure that your strategy is still current. The plan that works for you at the beginning of your retirement may not be relevant fifteen years in.

Where reverse mortgages fit in

If you find you are running out of money in your retirement savings, or you and your financial planner predict a shortfall, talk to Horizon Equity about a reverse mortgage. We can help fill in the gaps with a home equity loan from the CHIP home income plan that can let you borrow up to 50% of the equity in your home. There is no need to repay anything until the home is sold.