In these uncertain economic times, I think it is worthwhile to remind seniors that they are not forced to liquidate their Registered Retirement Income Fund (RRIF) assets.

Many seniors are understandably worried about their retirement portfolio considering the recent volatility in the stock market. Some seniors are concerned about losing money if, to satisfy their RRIF minimum withdrawal, they are required to liquidate their RRIF assets.

This is just a reminder that tax rules do not require individuals to sell assets in order to meet the RRIF minimum withdrawal requirements. Such assets may be withdrawn from a RRIF without being sold. In other words, a senior who doesn’t want to liquidate stocks that have decreased in value in recent weeks can withdraw them in their existing form, rather than converting them to cash before making the withdrawal.

For example, if a senior’s required minimum withdrawal from a RRIF is $1,000, you may withdraw 100 shares (worth $10 each) held within that RRIF. If you don’t want to sell those shares because their current value is lower than when you bought them, the tax rules do not require you to do so. Instead, the shares can be withdrawn directly, and can be held outside of the RRIF.

Tax rules do not require the shares to be converted to cash at a loss. RRIF withdrawals are taxable since a tax deduction was provided when the money was contributed to a registered retirement savings vehicle. Therefore, the senior would still be required to pay tax on the $1,000 withdrawal from the RRIF.

Remember too, that Budget 2007 increased the age limit from 69 to 71 for converting registered retirement savings plans (RRSP). This means that RRIF minimum withdrawals are not required to begin until an individual turns 72 years of age.

Starting in 2009, seniors will also be able to transfer RRIF withdrawals into the new Tax Free Savings Account as outlined in Budget 2008. The Tax Free Savings Account is a perfect savings vehicle for this purpose because it allows you to deposit up to $5,000 into the account with all investment income – including capital gains – growing tax free, including upon withdrawal. Any unused contribution room will be carried forward to future years and if a withdrawal is made, the amount will be added to the contribution room of the following year. Many financial institutions are already allowing clients to make early contributions to an account which will be converted to a Tax Free Savings Account on January 1, 2009.

Finance Minister Jim Flaherty has obviously been listening to the needs and concerns of senior citizens for some time, and these measures show that he wants nothing but the best for Canadians in their golden years.

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The audio version of Garry's November 10, 2008 op-ed column can be heard by clicking here