There are always risks when you invest, but there are some added risks if you are investing through a Registered Retirement Income Fund (RRIF). Here are the top seven dangers:
1. Not having enough saved in your RRIF
If you don’t have enough money, there is a risk you will run out of money before you die. Or, you may feel you have to invest more aggressively than you would like.
2. Not keeping up with inflation
If your money does not grow as fast as prices rise, you will eventually run out of money before you die. Again, you may have to invest more aggressively to close the gap.
3. Losing money
Not all investments are guaranteed. If you lose money investing, it can be harder to make up those losses if you are no longer working and saving. The more money you lose, the fewer years your money will last.
4. Not being able to get cash easily when you need it
Be careful not to lock up all your savings in investments that are hard to turn into cash. Also, don’t forget that with a RRIF, you have to make a minimum withdrawal each year. You want to be able to get all the money you need for that withdrawal easily.
5. Paying higher fees
When you review your account statements, don’t just look at how much your RRIF investments are going up in value. Look at your investment costs, too. Be sure that fees aren’t eating away a lot of what you make.
6. Protecting your money
When you choose somewhere to invest your retirement savings, you want to be sure the company you pick will be around at least as long as you will. Of course, even if your bank, brokerage firm, or insurance company goes out of business, some of your savings will be insured against loss.
7. Keeping your money if you go bankrupt
With a few exceptions, RRIF money invested in segregated funds are generally safe from creditors but beyond that, your RRIF could be a target for creditors if you declare bankruptcy.
Good news could be on the way in the form of Bill C-55, which contains proposed amendments to the Bankruptcy and Insolvency Act (BIA). If passed, this legislation will protect all RRSPs and RRIFs from being liquidated on behalf of creditors in the event of bankruptcy.
Remember: With a RRIF, your whole future depends on your investment choices.
To get enough growth, with lower risk, you will need a good mix of investments. Be sure to review your strategy at least once a year. Adjust your strategy as your needs change, and as the market shifts.