Over the past several months, I have been asked, what is the best way to take income from hard-earned savings within RRIF’s? What prompted the question was a presentation from another advisor that was promoting investments that did not pay regular income, either in the form of dividends, rents, or interest income.
I prefer to use funds that pay regular monthly distributions. One of my favorite funds is currently paying a yield of 6%. This means that if you invested $100,000, you would receive $6,000 in distributions. This distribution is funded by the underlying assets and consists of interest, rent payments, and stock dividends.
The 6% annual distribution makes this fund an ideal solution for a RRIF. For someone who is “RRIFing” for the first time at age 71, they must take at least 5.28% of their RRIF as a minimum payment. This means that the 6% distribution covers the 5.28% for the first year and for the next couple of years as well. It is not until the minimum requirements are more than 6% that a redemption of units or capital is required.
There are many other investments that do not pay regular income, therefore any redemptions reduce the number of units held. This can cause problems to your wealth if there is a significant or severe market drop that reduces the value of each unit. Remember what happened in 2008 – 2009?
In conclusion, it is my opinion to find an investment that provides a steady stream of income, while preserving capital. I have many senior clients that have invested in this manner over the 25 years that I have helped them with their retirement income. It is very gratifying to show them that much of their wealth is intact well into their 80’s and 90’s!
If you have questions about RRIF’s, I can help.