And RRSP (Registered Retirement Savings Plan) is an investment you make for your future. The idea is that you contribute to the savings during your working years as it grows in value and gains interest, so that when you’re ready to retire you have money to live on.
With good planning, the money will last you through retirement. While, you don’t ever want to run out of money, many people are trained to save, save, save and not spend.
Taking out your RRSP
For working people, we are deterred from withdrawing from our RRSPs because it becomes taxable income. We know it’s bad to take it out before retirement.
Most people retire around the age of 65, more or less. The thing about RRSPs is that they need to be converted into an RRIF (Registered Retirement Income Fund) by the end of your 71st year. RRIFs come with annual mandatory withdrawals.
The idea of the annual withdrawals is to ensure you’re using your retirement savings during your retirement. The trouble is, many retirees take out the minimum, opting to leave the bulk of the funds in the account to gain interest.
While being financially responsible is a virtue, it might not be the best strategy in the end.
Aim to use your savings up
Any RRSP or RRIF money left not withdrawn after your death will be taxed when your executor starts the process of dividing up your estate as per your wishes.
In a previous blog we wrote about the final tax return. Your estate will owe a lot of tax if large sums of money in your retirement savings accounts are withdrawn. This is why it’s best to use those funds during your retirement. If you want to save some money for your children or grandchildren, it’s best to use regular savings that won’t be heavily taxed.
Another reason to use your retirement savings is to enjoy life. When you start doing estate planning and such, you need to make sure you have enough money to have a good quality of life. Don’t overdo it though. Use the money you earned and saved. It’s your retirement and you should enjoy it.
While what happens to your money after you die isn’t really your problem, if you want your loved ones to get more and be taxed less, withdraw those funds!
If a loved one has passed away and you need information on how to deal with their finances, the team at Chapel Ridge Funeral Home and Cremation Centre can point you in the right direction.