Making a RRIF last for life – Case Study
managed by CI Investments Inc.
issued by Sun Life Assurance Company of Canada
Making a RRIF last for life – Case Study
Tom: The situation
Tom, age 71, has just retired. He has saved $200,000 in his Registered Retirement Income Fund and must
start withdrawing income next year. He realizes that his retirement savings are not large, but they will have
to provide for both him and his wife, Joan, also age 71.*
While Tom has other money, he still needs his RRIF to provide him with a predictable income during retirement.
He is uncertain about how to get the most income from his RRIF. Currently, he is invested in low-yielding
GICs, but is not happy because the interest they pay barely keeps up with inflation. He is worried about
depleting his assets too quickly, which could happen if he stays in GICs and interest rates remain low. He is
also concerned about being dependent on fluctuating interest rates for his retirement income.
The challenge
RRIF Minimum Annual Payment Schedule (MAP)
To find an investment solution for Tom’s RRIF that will
appeal to his conservative nature, but still provide him
with a predictable, sustainable income that is guaranteed
for his life and Joan’s.
As required by the federal government, this is the
minimum amount that must be withdrawn at each age.
The withdrawal is based on the market value of assets on
January 1 each year.
Tom needs an income solution that can:
y g uarantee him a predictable, sustainable income
for life and provide for his wife upon his death
y meet the legal requirements of a RRIF
y h
ave the potential for income growth to help
keep pace with inflation.
Age
below 70
71
72
73
74
75
76
77
78
79
80
81
%
<5%
7.38%
7.48%
7.59%
7.71%
7.85%
7.99%
8.15%
8.33%
8.53%
8.75%
8.99%
Age
82
83
84
85
86
87
88
89
90
91
92
93
%
9.27%
9.58%
9.93%
10.33%
10.79%
11.33%
11.96%
12.71%
13.62%
14.73%
16.12%
17.92%
Source: Canada Revenue Agency
The strategy
Tom places his $200,000 RRIF in SunWise Essential Series Income Class. He selects the Two-Life Income Stream option,
which will provide him with a guaranteed annual income for life and ensure that if he dies first, Joan will continue to receive
the same annual income. Tom also has to be concerned about the RRIF minimum annual payment, or MAP. When an
RRSP is converted to a RRIF, the government requires that a minimum amount be withdrawn every year (starting the
calendar year after the year of purchase), based on the market value of the account. Income Class offers Tom the flexibility
to withdraw the RRIF minimum annual payment, without affecting his future guaranteed income. With Income Class, he
will always receive the higher amount. In years when his MAP is above the guaranteed income, he receives MAP; in years
when MAP is below, he receives the guaranteed income.
Tom is comfortable investing in equities, instead of GICs, because his income is insulated from market risk. He invests in an
asset mix of 70% equities and 30% income. This allows him to take advantage of the growth potential of equities and makes
it more likely he will benefit from automatic market resets. Resets can lock in investment gains and increase his guaranteed
income, helping him keep ahead of inflation.
* If you hold units in your contract in addition to Income Class only, a prorated portion of the RRIF MAP can be taken from the Income Class
units (the LWA RRIF MAP) without adversely affecting your future income stream.
The result
The two-life option has several benefits, including:
In the first year, Tom receives the annual guaranteed
income of $9,975 plus a top-up to MAP of $6,597
increasing his total income to $16,572.
y the ability to continue to shelter the assets in a RRIF,
instead of taking them as income in Tom’s final
tax year
After more than a decade of enjoying his retirement, Tom
dies at age 86. His guaranteed income for life is transferred
to Joan. Income Class continues to pay Joan the same
annual income with top-ups to MAP.
y a higher guaranteed income for life for Joan, because
the guaranteed income for life is not recalculated after
Tom’s death.
If Tom had chosen the one-life option, Joan’s guaranteed
income would be recalculated at market value and set
at $5,930 annually.
SunWise Essential Series Income Class helped Tom find
a guaranteed income solution for his RRIF that paid him
more than traditional income sources. It also provided an
income for life for Joan after his death. It protected them
from longevity and market risk and helped to keep them
ahead of inflation.
Tom can count on a dependable income
Income for Life
LWA = LWA =
$9,975 $11,017
LWA =
$12,285
LWA =
$15,861
72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Minimum Annual Payment (MAP)
Lifetime Withdrawal Amount (LWA)
Top-up to MAP
Resets
And not worry about his investments
Income for Life
LWA Base = $245,696
LWA Base = $231,932 LWA rate at 5% = $12,285
LWA rate at 4.75% = $11,017
LWA Base = $288,388
LWA rate at 5.5% = $15,861
LWA Base = $210,000
LWA rate at 4.75% = $9,975
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100
LWA Base
5% Bonus
Market Value (Income Class)
Resets
Illustration assumes 70% equity/30% fixed-income asset mix (Equity is one-third each S&P/TSX Composite Index, S&P 500 Index, and MSCI World Index,
income is DEX Universe Bond Total Return) based on historical rates of return over the 1980-2009 period with strong early performance, gaining on average
6.9% per year. It is not intended to predict or project investment results. Annual withdrawals are assumed to be 4.75% of the LWA Base at age 71, 5% at age
77 and 5.5% at age 80. Subject to legislated minimums and maximums and certain conditions. Exceeding the LWA withdrawal rate will have a negative
impact on future payments. For One-Life Income Stream, a guaranteed income for life or Guaranteed Life Withdrawal Benefit (GWLB of 5.0% (LWA Rate)
is available at January 1 of the year the Annuitant turns 65. For Two-Life Income Stream, a GLWB of 4.5% (LWA Rate) is available at January 1 of the year
the younger spouse turns 65. Payments can continue until the death of the Annuitant (or the Annuitant and Second Life for Two-Life Income Stream) or
termination of the contract.
For more information about the innovative features
and benefits of SunWise Essential Series,
please visit www.sunwiseessentialseries.com.
All charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results. To
the extent of any inconsistencies between this guide and the September 2010 SunWise Essential Series Information Folder and Individual
Variable Annuity Contract, the terms of the Information Folder and Contract prevail. For full product details and disclosure, refer to the
Information Folder and Contract.
Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies, is the sole issuer of the individual
variable annuity contract ­providing for investment in SunWise Essential Series segregated funds. A description of the key features of
the applicable individual variable annuity contract is contained in the Information Folder. ANY AMOUNT THAT IS ALLOCATED TO A
SEGREGATED FUND IS INVESTED AT THE RISK OF THE CONTRACT HOLDER AND MAY INCREASE OR DECREASE IN VALUE.
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Sun Life Assurance Company of Canada
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Waterloo, Ontario N2J 4C5
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