RRIF LIF LRIF SWP. How to Provide Retirement Income. and Gain Greater Control Over. Your Financial Future. Registered Retirement Income Fund

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1 How to Provide Retirement Income and Gain Greater Control Over Your Financial Future. RRIF LIF Life Income Fund LRIF Locked-in Retirement Income Fund SWP Registered Retirement Income Fund Systematic Withdrawal Plan

2 T oday, accessing your savings to provide retirement income requires a logical, comprehensive strategy. If you re retired or just about to retire, we believe this brochure will provide many of the answers you ve been looking for so you can make the right decisions and gain greater control over your financial future. OVERVIEW Providing retirement income from your RRSP and pension plan savings Registered Retirement Income Fund (RRIF) Life Income Fund (LIF) and Locked-in Retirement Income Fund (LRIF) Why a RRIF, LIF and LRIF are so advantageous Providing retirement income from your non-registered savings Systematic Withdrawal Plan (SWP) Gaining greater control over your financial future Your independent financial advisor Mackenzie: Respected investment management

3 PROVIDING RETIREMENT INCOME FROM YOUR RRSP AND PENSION PLAN SAVINGS THE RRIF The Registered Retirement Income Fund (RRIF) is the most popular option for accessing RRSP savings to provide income during retirement. A RRIF offers complete income flexibility while allowing your savings to remain tax-sheltered and under your personal control. A RRIF will: Let you determine the amount of your withdrawals, so you can provide the income that best meets your needs, Maximize the value of your retirement savings by keeping them tax-sheltered until withdrawn as income, Allow you to continue investing based on your individual needs, so you can soundly diversify your savings, and A RRIF ALLOWS YOU TO KEEP YOUR RRSP SAVINGS TAX-SHELTERED WHILE YOU MAKE WITHDRAWALS TO PROVIDE INCOME DURING YOUR RETIREMENT. Ensure that any remaining savings will go to your beneficiary or estate if you should die before you withdraw all of your savings. CONTINUED TAX-SHELTERING AND FLEXIBLE INCOME: HOW A RRIF WORKS You may establish a RRIF any time before the end of the year in which you turn 69 by transferring some or all of your savings directly from an RRSP, which can include funds from a company pension plan (provided they are not locked-in ) or a deferred profit sharing plan. No tax is payable as a result of transferring your RRSP or DPSP savings into a RRIF. All interest, dividends and capital gains generated by the savings in your RRIF continue to accumulate tax-free. Only your withdrawals are taxable. The ability to keep these savings tax-sheltered is a very valuable benefit because it maximizes the funds available for you to withdraw as income during your retirement years. You must withdraw at least the minimum amount applicable to your RRIF each year. For example, at age 65 the minimum is 4% of your RRIF s value. At age 94 and over, the minimum is 20%. There is no maximum, however, so you can take out as much as you need. 1

4 FINALLY, AN ALTERNATIVE TO THE LIFE ANNUITY Under current pension legislation, locked-in RRSPs, called Locked-in Retirement Accounts (LIRAs) in some provinces, and pension plan savings cannot be paid out to you in a lump-sum. Locked-in RRSPs and LIRAs contain vested pension benefits that were transferred in from a company pension plan upon termination of employment (These are not to be confused with RRSPs which may have deposit type investments such as GICs which may lock-in your savings for the term you selected). Until recently, these funds could only be used to purchase a life annuity upon retirement. Not only did this force retirees to give up control of their money, it also forced those who needed income immediately upon retirement to accept whatever annuity rates were available at the time. Happily, this situation is changing due to the introduction of the Life Income Fund, a special type of RRIF now available in most provinces, and a Locked-in Retirement Income Fund currently available in only some provinces. THE LIFE INCOME FUND AND THE LOCKED-IN RETIREMENT INCOME FUND WERE CREATED SPECIFICALLY TO ACCESS LOCKED-IN RRSP AND PENSION PLAN SAVINGS TO PROVIDE RETIREMENT INCOME. THE LIF AND LRIF The Life Income Fund (LIF) and the Locked-in Retirement Income Fund (LRIF) were created specifically for accessing locked-in RRSP, LIRA and pension plan savings to provide retirement income. A LIF and LRIF can also be used to delay the purchase of the life annuity in a low interest rate environment until rates improve. This will allow you to begin making withdrawals immediately while keeping control of your savings. A LIF and LRIF provide the same valuable tax-sheltering as a RRIF. To satisfy provincial pension regulations, however, additional rules regarding how income can be taken out apply: In addition to the minimum annual withdrawal, a LIF and LRIF also have maximum annual withdrawals. This ensures that for a LIF, funds will be available to purchase a life annuity by age 80, and for a LRIF, funds are available for life. For example, at age 65 the LIF maximum for 1997 is about 7% of the accounts value. At age 79, the maximum is about 11%. All assets in a LIF must be used to purchase a life annuity by the end of the year in which you turn 80. This does not apply to the LRIF. 2

5 WHY A RRIF, LIF AND LRIF ARE SO ADVANTAGEOUS A RRIF gives you full control over your savings from income flexibility to investment selection and estate planning. Much of that same control has also been built into the LIF and LRIF. The main advantages that make the RRIF and now the LIF and LRIF a better choice than a life annuity for many retirees are summarized in the following table. CONTROL: A CLOSER LOOK RRIF LIF/LRIF LIFE ANNUITY INCOME FLEXIBILITY Provides maximum income flexibility. You can tailor an income stream to suit your requirements and make adjustments at any time, including lump sum withdrawals for emergencies or special purchases. Provides significant income flexibility. You can tailor an income stream to suit your requirements and make adjustments at any time subject to the maximum limit. No income flexibility. Annuity income is fixed, except for indexed annuities, which are not widely used. Lump sum withdrawals are not permitted. Annuity issuers rarely allow you to break an annuity contract and take out a lump sum or transfer to a RRIF or LIF. You may annuitize your RRIF, or LIF and LRIF in whole or in part at any time. INVESTMENT SELECTION You decide how to invest your RRIF and LIF and LRIF savings. You may invest in the same wide range of investments as an RRSP. ESTATE PLANNING A RRIF may be transferred to your spouse tax-free upon death without any delay or loss of income flexibility or control. In most provinces, a LIF and LRIF must be transferred to your spouse. If you do not have a spouse, any remaining RRIF or LIF and LRIF assets may be paid to your estate or designated beneficiaries. You lose all control your savings belong to the issuer of the annuity, who decides how to invest your savings while paying you a fixed income. Annuity payments continue to your spouse only if you select a joint and last survivor option. If you do not have a spouse, any remaining cash value is paid to your estate only if a minimum guaranteed period is selected and death occurs in that period. The extra cost of these options reduces your income. 3

6 PROVIDING RETIREMENT INCOME FROM YOUR NON-REGISTERED SAVINGS THE SYSTEMATIC WITHDRAWAL PLAN A Systematic Withdrawal Plan (SWP) is a special service offered by mutual funds that allows you to receive the retirement income that best meets your needs from your non-registered savings. It is a proven income generating strategy in which withdrawals are made at regular intervals (usually monthly or quarterly) by redeeming mutual fund units while the remainder of your savings continues to be invested into well managed equity, balanced or bond mutual funds. Historically, the higher long-term returns and more favourable tax treatment provided by such mutual funds have allowed retirees to minimize the depletion of their savings. It has also allowed them to redeem enough units to provide an income that is indexed to inflation for a significantly longer period of time than if they had invested only in guaranteed deposit-type investments provided the income taken was in reasonable proportion to the size of the original investment. THE SWP IS A PROVEN STRATEGY WHICH ALLOWS YOU TO MEET YOUR INCOME NEEDS WHILE YOUR NON- REGISTERED SAVINGS ARE SOUNDLY DIVERSIFIED. MORE FAVOURABLE TAX TREATMENT AND FULL CONTROL Typically, under a Systematic Withdrawal Plan in a mutual fund, only the capital gains portion of each withdrawal is taxable. The rest of the withdrawal is a return of your original capital and, therefore, not taxable. Initially, Systematic Withdrawal Plan withdrawals are primarily return of capital, so any taxes should be minimal. Over time, a greater portion of your withdrawals are likely to be in the form of capital gains. Unlike interest income, which is fully taxable, only 3/4 of any capital gain is taxable. In the key areas of income flexibility, investment selection and estate planning, a Systematic Withdrawal Plan gives you full control over your savings, resulting in the same advantages over a life annuity as described for the RRIF in the table at left. 4

7 GAINING GREATER CONTROL OVER YOUR FINANCIAL FUTURE YOUR INDEPENDENT FINANCIAL ADVISOR Although a RRIF, LIF, LRIF and Systematic Withdrawal Plan all offer valuable benefits, how well they meet your individual needs will be determined in large part by the quality of advice you receive both at the time of set-up and on an ongoing basis. With so much riding on your decisions, it s imperative to get sound advice on all aspects of the management of your retirement savings whenever you need it. For hundreds of thousands of Canadians, the source of that advice is an independent mutual fund dealer, investment brokerage firm, or financial planning firm. Working closely with a qualified independent financial advisor who is committed to providing superior service will ensure that both your registered and non-registered savings are arranged to satisfy your retirement income needs as best as possible. A knowledgeable advisor can provide a full range of personalized services that will allow you to: Customize the best RRIF/LIF/LRIF/SWP income stream for you based on a thorough review of your overall financial situation and objectives. Logically select suitable investments to ensure your retirement savings are soundly diversified and monitor them on an ongoing basis. Ensure that all the paperwork necessary to set up (or transfer) your RRIF/LIF/ LRIF/SWP is completed quickly and accurately. Make adjustments to your retirement income program in response to changes to RRIF/ LIF/LRIF rules, tax laws, your lifestyle and spending habits or changing economic conditions. Above all, these professionals are known for taking the responsibility of educating their clients about investments. To ensure investors have easy access to their valuable services, Mackenzie offers its mutual funds through independent financial advisors. 5

8 MACKENZIE: RESPECTED INVESTMENT MANAGEMENT AN IDEAL RANGE OF PROVEN INVESTMENTS FOR BUILDING FINANCIAL INDEPENDENCE AND PRESERVING WEALTH Mackenzie mutual funds are an ideal way to access the different investment classes necessary to soundly diversify your retirement savings beyond the deposit-type investments upon which many individuals have become overly-dependent. Whatever your personal investment requirements, there is a Mackenzie fund or combination of funds that will allow you to diversify your RRIF, LIF, LRIF and SWP account in a prudent manner. A WORLDWIDE NETWORK Mackenzie and its worldwide network of sub-advisors together manage more than $50 billion in assets and provide access to a complete world of investing for Canadians. Garmaise Investment Technologies Toronto Bluewater Investment Management Toronto Mackenzie Investment Management Inc. Boca Raton, Florida Henderson Investors London Singapore Tokyo Cundill Investment Research Vancouver Bermuda London Mackenzie Financial Corporation Toronto Cursitor-Eaton Asset Management Paris London Thornton Investment Advisors Ltd. Hong Kong San Francisco Sydney Taipei Tokyo 6

9 ONE TRUSTED NAME. FOUR FUND FAMILIES. PLUS STRATEGIC ASSET ALLOCATION. Mackenzie s respected investment management is available through four mutual fund families offering diversification by asset class and mix, by geographic region and by management style with full interchangeability among families and funds. The strategic asset allocation programs scientifically selects the most efficient mix of designated mutual funds to achieve optimal diversification. Mackenzie Financial Corporation is one of Canada s largest investment managers and has achieved an excellent record of long-term investment performance. Hundreds of thousands of individual investors, and numerous employee pension funds and other organizations representing many thousands more, have currently entrusted Mackenzie with over $30 billion to invest in stock, bond and money markets in Canada, the United States and internationally. This has been our core business since Industrial: North American investing from a top-down perspective, focusing on economic cycles, industry selection and interest rate anticipation. Ivy: Ownership in select companies, patiently acquired. A predominantly bottom-up approach to Canada and beyond, focusing on buying individual companies. Universal: A world of foreign, Canadian and specialty funds using proven external portfolio advisors located around the world. Cundill: Searching the globe for value opportunities; adding a unique global perspective to Mackenzie. THE BIGGEST INVESTMENT DECISION YOU CAN MAKE. MADE BETTER. Studies indicate that the single most important question confronting today s investor is the selection of the right combination of assets in which to invest. STAR and KEYSTONE strategic asset allocation programs are designed to provide the answer. 7

10 Combining the specialized services of an independent Financial Advisor with the respected investment management and comprehensive, industry-leading administrative services of Mackenzie is a proven partnership approach that allows both firms to concentrate on their own areas of expertise. We believe this is the strategic advantage that will allow our two firms to better meet your needs and contribute to your long-term investment success. At this point, consulting with a qualified, independent Financial Advisor is essential if you want to ensure the best possible decisions when saving and investing for the education your children will need. There is simply no substitute for specific advice based on a thorough review of your personal situation and all applicable rules and factors. 8

11 Important information about the mutual funds and strategic asset allocation programs offered by Mackenzie, including all fund and investor expenses, is contained in the Funds simplified prospectus. Please obtain a copy from your independent Financial Advisor and read it carefully before investing. When purchasing mutual funds, investors should be aware that mutual fund investments are not guaranteed and unit values and investment returns will fluctuate over time. Since the time this brochure was printed, changes may have occurred to the rules regarding RRIFs, LIFs and LRIFs or the information about Mackenzie. Always consult with a qualified, independent Financial Advisor before taking any action to confirm if there have been any changes that may affect the strategies described in this brochure.

12 ONE TRUSTED NAME FOUR FUND FAMILIES plus Strategic Asset Allocation The respected investment management of Mackenzie is available through four mutual fund families offering an ideal range of proven investments for building financial independence and preserving wealth. The strategic asset allocation programs efficiently integrates them all so you can diversify your savings in a sound, prudent manner Bloor Street West Toronto Ontario M5S 3B5 RP5039 6/99