Live Long and Prosper? Mandatory RRIF Drawdowns Raise the Risk of Outliving Tax-Deferred Saving

William Robson and Alexandre Laurin
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William Robson: C.D. Howe Institute
Alexandre Laurin: C.D. Howe Institute

C.D. Howe Institute Commentary, 2023, issue 641

Abstract: Tax rules requiring RRIF withdrawals need revamping. Longer lives and lower returns increase the likelihood that mandatory minimum withdrawals will leave seniors with negligible income from their tax-deferred saving in their later years. Government impatience for revenue should not force holders of RRIFs and similar tax-deferred vehicles to deplete their nest eggs prematurely. We need to ensure that minimum withdrawals and the ages at which saving must stop and withdrawals must start reflect updated demographic and economic realities. The complexities of formula-based approaches and frequent updates suggest more far-reaching approaches, including abolishing age limits and minimum withdrawals altogether. Another withdrawal-reform option would eliminate the requirement to withdraw amounts below a certain threshold value – say $8,500 – to avoid premature depletion of nest eggs.

Keywords: Adequacy of Retirement Savings; Fairness (search for similar items in EconPapers)
JEL-codes: D9 J3 (search for similar items in EconPapers)
Date: 2023
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