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Canadians are living longer, and as an industry we play an important role in helping them prosper. Providing more flexibility in the way older Canadians draw from their savings would give seniors who are living and working longer more time to build their savings. A shift in policy has the strong potential to enhance financial security for seniors well into their retirement years.

As it stands, Canadians must transfer funds from their RRSPs to RRIFs in the year they turn 71. Starting the following year, seniors must start making minimum withdrawals based on a formula set out by the federal government, which is based on the value of the RRIF and the age of the individual. Over the last several years, a number of corporations, associations and think tanks have lobbied for structural changes to RRSPs and RRIFs without substantive success.

So, why lift the lid on this once again? In today’s uncertain economic climate, there is a growing need to offer flexibility. With rampant inflation over the last several years, our dollar isn’t stretching as far as it once did. The threat of tariffs has the potential for far-reaching negative effects. And health care costs continue to rise for seniors.

These conditions ultimately disadvantage those who need it the most. We saw this play out in 2008 in the aftermath of the financial crisis, and again in 2020 with the economic impact of the global pandemic. In both instances, the government made changes to RRIF withdrawal rules, as temporary relief measures.

A permanent measure would avoid the need for ad hoc adjustments. Without forced withdrawals, retirees can better manage market risk and protect their nest egg to meet longer-term needs. Forced withdrawals during market downturns disadvantage seniors who do not have the runway to make up the impact.

The Investment Fund Institute of Canada’s (IFIC) Conference Board of Canada report “Funding the Future: The Economic Impact of Canada’s Investment Funds Industry” reveals that for Canadians aged 65 and older, reliance on private retirement income has significantly increased, from 18% in 1990 to 33% in 2022.

Meanwhile, the share of income from government programs like Old Age Security, the Guaranteed Income Supplement, Canada Pension Plan and Quebec Pension Plan has decreased from 46% to 33%. As fewer workers are covered by employee-sponsored pension plans, personal savings have become increasingly important for Canadians’ financial security in retirement.

Now that I’ve outlined the strong case for why older Canadians require more flexibility with their retirement income, what can we do about it?

One school of thought has been to provide Canadians with combined holdings of $200,000 or less in their RRIFs full withdrawal flexibility. It’s an idea that was introduced by Amin Mawani in the Canadian Tax Journal. Such a policy would exempt approximately 75% of Canadians with RRIFs from having to make minimum withdrawals, which would also reduce administrative burden for both savers and financial institutions. It would enable those in this range to draw from other sources relatively early on (e.g., windfalls like an inheritance), such that their tax-sheltered savings are safeguarded for when they really need them. It would help reduce the risk of financial vulnerability in later years.

Given Canada’s shifting demographics and the economic challenges we continue to face as a nation, it’s essential for economic policies to adapt accordingly. Providing opportunities to ease the tax burden on older Canadians could significantly enhance their financial stability and improve the chances of a worry-free retirement.

Investment success relies on making flexible and informed choices. Working with an advisor ensures investors can adapt their strategies to meet their changing needs.