By Sheryl Smolkin
You’ve been saving for retirement for most of your working life. But as that date approaches, you focus more on how you will use your savings.
If you participate in an employer-sponsored defined benefit (DB) or defined contribution (DC) plan, your savings are locked in by law until retirement.
If you participate in a DB plan, you will be entitled to an annual retirement pension at retirement, based on the calculation formula applicable to the plan, your income at retirement, and your years of service. You can retire up to 10 years earlier than the average age established by the program (i.e., as early as age 55); however, your benefits will usually be reduced if you start receiving your retirement pension earlier.
Suppose you transferred retirement funds from a previous employer’s plan to a locked-in retirement account (LIRA) or locked-in RRSP. You must convert those funds to a retirement income option such as a life income fund ( LIF) or a locked-in retirement income fund (LRIF), no later than December 31 of the year in which you turn 71.
You must start making withdrawals from your LIF or LRIF within one year of establishing it. Withdrawals are subject to allowable annual minimums and maximums.
The Canada Revenue Agency sets the minimum amount to ensure that your tax-sheltered savings are converted into taxable income beginning in the year you turn 72. The maximum annual withdrawal limit is subject to pension standards to ensure that your savings last long enough to cover your needs throughout retirement.
What if I needed my retirement savings before I retired?
Depending on the provincial or federal laws governing your plan, all or part of your retirement funds may be released in certain circumstances:
For example, you become a non-resident of Canada.
A doctor certifies that your life expectancy is reduced.
You are experiencing financial difficulties.
Your funds are below the threshold set by law.
Saskatchewan is the only province that allows you to unlock your entire DB or DC account if you retire before the average retirement age and transfer the funds to a Registered Retirement Income Fund (RRIF).
Other provinces, such as Alberta, Ontario, Manitoba, and the federal pension regulator, allow up to 50% of the value of your pension plan benefits to be transferred to an RRIF.
