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Are You Withdrawing Income Payments from a RRIF Portfolio?
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Saving in Your Accumulation Years
The three scenarios shown below all have an assumed compound return of 7%. The examples below are for illustrative purposes only. Situations will vary according to specific circumstances.
If you start out with $100,000 and leave it invested, regardless of how the returns actually fall out through the years, everything else being equal, the resulting capital is the same.
|
Scenario |
Year |
Compound |
Balance |
|||||||||
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|||
|
1 |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
$196,715 |
|
2 |
9.9% |
14% |
13% |
23% |
-4% |
10% |
-1% |
21% |
-4% |
-7% |
7% |
$196,715 |
|
3 |
-7% |
-4% |
21% |
-1% |
10% |
-4% |
23% |
13% |
14% |
9.9% |
7% |
$196,715 |
RRIF Withdrawals at 7%
Now if you start a RRIF portfolio with $100,000 and withdrawals are being made, the order of investment returns has a significant impact on your assets. The table below assumes that we are withdrawing from our asset at a rate of $7000 per year. In theory, if we withdraw at a rate of 7% and earn a 7% rate of return, our capital will stay in-tact. This is true if the returns fall out evenly but not if we are using variable portfolios.
|
Scenario |
Year |
Return |
Balance |
|||||||||
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
|||
|
1 |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
7% |
$100,000 |
|
2 |
9.9% |
14% |
13% |
23% |
-4% |
10% |
-1% |
21% |
-4% |
-7% |
7% |
$112,528 |
|
3 |
-7% |
-4% |
21% |
-1% |
10% |
-4% |
23% |
13% |
14% |
9.9% |
7% |
$83,586 |
The difference between the second and third withdrawal scenario is $28,942 or 35% despite the fact that each investment scenario generates a 7% annualized return. What this tells us is that there is a great amount of care that needs to be taken in setting up the portfolio and determining how and from which investments the income will be withdrawn.
