Some People Use the 90-Age Formula

While not commonly recognized in the US, in Canada retirees use the 90-age formula to determine how much money they have to withdraw from their RRIFs each year. An RRIF is a Registered Retirement Income Fund. This is a tax-advantages retirement account similar to those used by retirees in other countries. A caveat of an RRIF plan is that retirees have a required minimum withdrawal each year.

There are 2 ways that Canadian retirees can calculate the amount that they must withdraw from their savings each year: the 90-percent schedule is the other method. The 90-age formula is based upon the assumption that the individual will live to the ripe old age of 90.

The formula is displayed as such: 1 / (90 – plan holder’s age). Therefore, a 65 year old will get 4% withdrawal and 4.17% at 66.

The spouse’s age can be substituted for the plan holder’s age. The determined withdrawal divides the book value of the RRIF at the beginning of each calendar year. By using this calculation the retiree can use the RRIF as a lifetime annuity and is taxed at a marginal tax rate. Each year the minimal withdrawal increases as a percentage, beginning at 4% at age 65.

Among the cited advantages of such a fund is that it enables you to continue to invest in GICs and other funds while it provides you with an income. The duration of the fund will depend upon the investments chosen and whether you withdraw more than the minimum and how much more that is.

Percentages differ a bit if you opened your RRIF before 1993, and should be ascertained independent of this information.

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