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How do I choose a RRIF that is right for me?

Here are three tips to help you avoid the common mistakes that people make when they choose a Registered Retirement Income Fund (RRIF):

1. Don’t open a RRIF before you need to.
You don’t always have to move your Registered Retirement Savings Plan (RRSP) savings to a RRIF right away. You can wait as long as the end of the year you turn 71. The longer you wait, the longer you can put off paying tax on it.

2. Invest in a way that fits you and your goals.
Some people invest in ways that are very safe, but their money grows so slowly it doesn’t meet their cash needs. Others try to grow their money faster, but they take too much risk and lose money. Before you move your savings to a RRIF, take time to plan ahead. Consider:

  • Am I getting the best interest rate? If you buy investments that pay interest, shop around, just like you would for a mortgage. Also, do some homework on where interest rates are going. Then see if it makes more sense to take a one-year rate, or to choose a longer term.
  • Is this investment right for me? In most cases, if you want to grow your money faster, you will have more risk. If you’re looking at stocks and mutual funds, don’t be swayed by last month’s or last year’s top performer. Look for strong returns over a three-to five-year period or more. Study the outlook for each option carefully.
  • Can I change my investments later? For example, if you like mutual funds, choose a RRIF that offers a range of funds. That way, you can diversify your investments as your needs change.

3. Make a plan for how you’ll get cash out when you need it.
You have to withdraw money from your RRIF each year. That means you should have some investments that are easy to turn into cash. These include interest from bonds, money market funds, Canada Savings Bonds (CSBs), and well-timed Guaranteed Investment Certificates (GICs).

Tip: Be careful about putting all your money in stocks and mutual funds. You may have to sell at a loss sometimes to make a withdrawal.

Remember: A RRIF gives you lots of choices.

It’s up to you to make the best choices for you. If you’re not sure how to decide, talk to a financial adviser. They’ll walk you through the process step by step.