How 90-age Formula Works

Retirees can withdraw a minimum amount from the Registered Retirement Income Funds (RRIF) plan per year. You can calculate the amount minimum withdrawable amount using one of two formulas: the 90-percentage schedule or the 90-age Formula. With the 90-age Formula, calculations assume that the retiree will live up to 90 years of age. It calculates the yearly withdrawal sum by dividing the book worth of the RRIF at the start of the calendar year by (1- (90- spouse's or plan holder's age)). The morbidity calculation enables the RRIF to function as a lifetime annuity. The amount withdrawn from the RRIF is taxable at the retiree's marginal tax rate (MTR).

You may start making withdrawals from your RRIF the following year after you open it. Most importantly, the federal government sets the least amount you must withdraw from your RRIF yearly. The government calculates the fixed amount based on a percentage of your Registered Retirement Income Fund's value. The least amount gets higher as you get older. If you are older than your spouse, you can use their age instead of yours to calculate the minimum amount.

The lower the age used, the lower the minimum amount withdrawable and the less income tax you have to pay on the withdrawals. You can opt for regular annual, semi-annual, quarterly, or monthly withdrawals. All withdrawals from your RRIFs are fully taxable. The 2015 federal budget provided a new minimum for RRIF withdrawals. These changes let seniors keep more of their money to build their RRIF accounts tax-deferred and reflect increasing life spans.

Example of 90-age Formula

You calculate the new minimum withdrawable amount per age using the 90-age Formula. Thus, if you are 65 years old, using the 90-age Formula, your minimum withdrawable amount is calculated like this:

1/(90 – 65) = 4.00%.

Similarly, if you were 82 years old, your minimum withdrawable amount is calculated by:

1/(90 – 82) = 9.27%.

The minimum withdrawal amount is always calculated based on your RRIF value on 31st December of the previous year. Example: On 1st January 2016, you were 82, and the worth of your RRIF on 31st December 2015 was exactly $200,000. Using the calculated 9.27% minimum withdrawal amount above, you would have to withdraw a minimum of $18,540.

Under the latest rules for 2015, when you get to 95 years, the minimum amount stays at 20% until your RRIF is exhausted. While you can withdraw as much as you need yearly from your RRIF, there are some tax considerations. This means that there is no max withdrawal limit, but all withdrawals and entirely taxable. If you decide to withdraw more than the least amount, you'll have to pay withholding tax on the extra amount. Your bank or financial institution will withhold an amount, using the withholding tax rates, and transfer it to the government for you.