Rethinking RRIF Withdrawals: New Rates and Methodologies for New Realities

18 Pages Posted: 16 Nov 2014

See all articles by Moshe A. Milevsky

Moshe A. Milevsky

York University - Schulich School of Business

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was a period with higher interest rates and lower longevity - a quarter of a century later the schedule has become outdated.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

Milevsky, Moshe Arye, Rethinking RRIF Withdrawals: New Rates and Methodologies for New Realities (September 1, 2014). Canadian Tax Journal/Revue Fiscale Canadienne, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2524548

Moshe Arye Milevsky (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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