Bank of Montreal : BMO's Financial Tip of the Week: Use a Registered Retirement Income Fund to Generate Income During Retirement

TORONTO, ONTARIO--(Marketwire - Jan. 25, 2012) - As part of BMO Financial Group's ongoing commitment to financial literacy and 'Making Money Make Sense' for Canadians, BMO is releasing a financial tip every week in 2012.

BMO's Tip of the Week:

Once you retire, consider converting your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF) to manage your retirement income effectively.

A Registered Retirement Income Fund (RRIF) acts as an RRSP in reverse. A RRIF withdraws income from your retirement savings and allows the untouched portion to grow tax-free. Withdrawals from a RRIF account are taxed as income and there is no maximum yearly withdrawal amount.

When should I open a RRIF?

You can convert your RRSP savings into a RRIF at any time; however once you do you can no longer contribute to your RRIF. Your RRSP expires in the month of December in the year you turn 71, so the majority of retirees convert their RRSP savings to a RRIF during this year. Once a RRIF account is opened, it will remain active until all the funds have been withdrawn or upon death where all remaining funds are transferred to the estate.

What types of RRIFs are available?

There are a variety of RRIF options that are available. Unlike an RRSP, an individual can hold multiple RRIF accounts.

RRIF Guaranteed Investment Certificates (RRIF GICs) - Much like a regular GIC, this option is best for longer-term investing and guarantees that your initial investment is secure.

RRIF Mutual Funds - Similar to mutual funds held within an RRSP, you can invest in mutual funds in a RRIF. This investment option includes the potential for higher returns; however it does not guarantee your initial investment.

Self-Directed RRIF - To hold a portfolio that encompasses a wide range of investments, a self-directed RRIF can include individual stocks, bonds, mutual funds and more. This plan is similar to a self-directed RRSP and generally allows you to have the most flexibility and maximum investment.

Other Alternatives

There are a variety of alternatives available outside of a RRIF that can help fund your retirement. Some of these options include annuities, segregated funds, cashing out, home equity, pension plans and other savings and investments. For more information on what works best for you, speak with a financial professional and visit: .

For more information on Registered Retirement Income Funds please visit: .

BMO's Financial Tips of the Week:

: Consider investing in a Registered Retirement Savings Plan (RRSP) and take advantage of tax incentives when saving for retirement.

: Secure your retirement by opening a Registered Retirement Savings Plan (RRSP) as early as possible and contribute to it on a regular basis (regardless of the amount).

Choosing a mortgage with a 25 year amortization instead of a 30 year amortization can save thousands in interest costs over the life of a mortgage.

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Laurie Grant, Vancouver
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