Trade war puts focus on mandatory minimum RRIF withdrawal

RRIF minimum withdrawal amounts were reduced by 25% in other periods of economic crisis — in 2020, the year of the pandemic-induced stock market decline, and in 2008, in response to the global financial crisis.

RRSPs must be converted to RRIFs by the end of the year in which taxpayers turn 71 and mandatory minimum withdrawals begin the year after a RRIF is opened. Those minimums are calculated by multiplying the fair market value of the property held in a RRIF at the beginning of the year by a prescribed factor based on age. The prescribed factors were lowered by almost 30% in 2015; before that, minimums hadn’t been updated since 1992.

While the Liberals’ proposed temporary RRIF measure would help retirees preserve capital in a year of expected market volatility and provide flexibility to individual taxpayers, industry groups have been calling for permanent changes to the RRSP and RRIF framework. These include reducing the RRIF minimum payout formula, raising the age of RRSP conversion or eliminating minimum withdrawals completely.

Last week, the Securities and Investment Management Association (SIMA) urged the political parties to consider eliminating mandatory withdrawals for those with $200,000 or less in their RRIFs, which it said would provide flexibility to roughly 75% of all RRIF account holders. SIMA also said it supported the Conservative Party of Canada’s election proposal to raise the age at which a taxpayer must convert their RRSP to a RRIF to 73 from 71. Such reforms are needed to keep pace with demographic and economic realities, SIMA said.

In 2023, the Department of Finance produced a report on mandatory minimum withdrawal rates following a consultation in which some stakeholders said eliminating minimum withdrawals would provide retirees with flexibility, while others were concerned that reduced (or delayed or eliminated) RRIF withdrawals would disproportionately benefit high-income retirees.

The report affirmed a couple of the assumptions that underlie the minimum withdrawal rates — a 3% annual real return and 2% inflation — but also noted that life expectancies have increased steadily over the 30 years since the modern RRIF withdrawals were set.

When the report was released, the government said it would consider the findings. The government didn’t address RRIF minimums in the 2024 federal budget nor in the 2024 fall economic statement.

In a pre-budget (2025) consultation, industry organizations again called on the federal government to reduce or eliminate the RRIF mandatory minimum withdrawal requirements. In its 2025 shadow budget, the C.D. Howe Institute called for a one-percentage point reduction of the minimum RRIF withdrawals “to relieve pressure” to liquidate savings too early.

Finance’s 2023 report said RRSPs and RRIFs combined are one of the government’s largest tax expenditures, representing an estimated $25.8 billion in forgone federal revenues that year.

On Monday the Liberals also promised to increase the guaranteed income supplement by 5% for one year, providing up to $652 more to low-income seniors tax-free.