BIRD TALK

Dear Bird Talk,

I have been asked by several senior friends as an original CSA member to write to you of our concern regarding what is happening to our savings in this period of economic downturn, in particular as it applies to our RRIFs and the amounts we must withdraw. Seniors, those of us fortunately living longer and who faithfully contributed the maximum allowable to RRSPs, so they could have enough to live with dignity in their latter years, are now being hit the hardest.

Would you look at the following and give this message to Mr. Harper and Mr. Flaherty, on behalf of all those making RRIF withdrawals.

Our RRIF Problems and Some Ideas:

The month of October brought the worst destruction of capital in the global equity markets since 1919. Trillions of dollars were lost as the S&P/TSX dropped – 16.7% in the month and the S&P500 (CAD) fell by 6.0%. Retirees who rely on their investment portfolios to supplement their old age pension or company pensions are, in some cases, now faced with a significantly lower capital base to generate growth.

Worse still are those investors who rely on annual minimum withdrawals from their RRIF portfolios to subsidize their retirement years. The current RRIF legislation calls for minimum annual percentages, based on the investor’s age, to be applied to the previous year-end RRIF portfolio value. This minimum percentage amount can be taken out either monthly, quarterly or at the end of the current calendar year.

The financial crisis now impacting RRIF investors is that the same dollar amount that was calculated in December 2007 is now being applied to a significantly lower portfolio value on October 31, 2008.

For example:
John’s RRIF on December 31, 2007: $100,000
Minimum RRIF percentage: 11%
Minimum withdrawal for 2008: $11,000
John’s RRIF on October 31, 2008: $70,000
Minimum withdrawal for 2008: $11,000
Minimum RRIF percentage based on current value: 16%

RRIF investors who want to reduce their spending and keep funds tax-sheltered during these uncertain economic times are forced to take out a larger percentage of their retirement savings in 2008.

The federal government has been quick to provide assistance to the financial markets and we are asking that they move just as quickly to assist RRIF investors in maintaining their retirement savings.

Some suggestions for assistance:
Waive the withdrawal for the remainder of 2008. This will help RRIF investors who want to keep funds tax-sheltered and reduce their spending.
Reduce the minimum withdrawal percentage by the percentage drop in the equity markets. For example, RRIF investors scheduled to withdraw funds at 10% of last year’s balance would only have to withdraw 7% (10% x (1-0.30%)), due to the 30% drop in the North American equity markets in 2008.
For RRIF investors who have already taken out their minimum amounts (monthly or by June 30th) – provide them with the same, one-time benefit as above for 2009.

And another suggestion for going forward:
Apply the minimum percentage amount to an average of the previous year’s quarterly balances (Jan. 1st, Mar 31st, Jun 30th and Sep 30th). This will help smooth out the valuation and take into account volatility in the equity markets.
These are unprecedented times and we ask for your consideration of this very important matter impacting on Canada’s seniors.

Thank you,
Edward C. Tombs
Oakville, ON

Response:
Ed: A very thoughtful and intelligent analysis of some of our antiquated rules and regulations. We send every issue of CSANews to each federal member of Parliament. Your suggestions will be both read and heard.