Rethinking RRIF Withdrawals: New Rates and Methodologies for New Realities
18 Pages Posted: 16 Nov 2014
Date Written: September 1, 2014
Abstract
This paper employs a micro-economic framework to examine the Registered Retirement Income Fund (RRIF) required withdrawal schedule in the context of current interest rates and longevity projections. It argues that today’s demographic and economic realities require that the schedule be revised to remain justifiable and fair. The methodology employed in this paper differs from other policy-based (or probabilistic) arguments. Namely, the paper compares the legislated withdrawal schedule with an optimal withdrawal schedule in a consumption-smoothing lifecycle model (LCM) for a longevity risk-averse retiree. This paper argues that while the LCM might be able to justify the RRIF withdrawal rates in place during the late 1980s - which was a period with higher interest rates and lower longevity - a quarter of a century later the schedule has become outdated.
Keywords: Registered Retirement Income Fund (RRIF), Life Cycle Model, Retirement
JEL Classification: D91, J26
Suggested Citation: Suggested Citation