Counselling clients on their RRIFs is likely to become a larger part of virtually every financial advi-sor’s practice. Canadians are living longer in general, and with the front end of the baby boomers — typically, an affluent lot –— entering retirement over the next few years, there are likely to be many more people with lots of questions about their RRIFS.

Issues range from the types of assets to hold in RRIFs, how and when to receive payouts, how to minimize taxes on mandatory payouts and how to make RRIFs last over those ever-increasing lifespans.

Above all, the key consideration for advisors to keep in mind is that a RRIF portfolio has to be tailored to the individual client’s circumstances, says Lori Loewen, Bank of Montreal’s investment sales manager for central and interior British Columbia in Kelowna, B.C.

“How much money is in the RRIF?” she asks, by way of example. “Is this the only source of income? How much does the client need to live on? And, looking at family longevity, what is the client’s life expectancy? Does he or she anticipate heavy care expenses in the final years?”

Once you’ve ascertained your client’s needs, Loewen says, you’ll be able to determine the rate of return the client would like to achieve, within their particular risk profile. “And then you can determine the types of investments and the asset mix that will provide that rate of return,” she says.

In general, RRSPs can be converted into RRIFs at any age; but, once they are, annual withdrawals must be made. The formula for withdrawals for RRIF holders under the age of 72 is the amount of their RRIF on Jan. 1 of the given year, divided by 90, minus their age. At 72, the minimum withdrawal rate jumps to 7.38%, escalating to 20% at age 94 and onward. (Temporary relief was provided in 2008, when investments were hammered in the market downturn: however, that ended in April 2009 and will not be extended, the feds say.)

Cynthia Kett, a chartered accountant and certified financial planner with Stewart & Kett Financial Advisors Inc. , a Toronto-based advice-only investment firm, suggests that clients who need cash flow should have securities in their RRIFS that mature on or just before the date they make their RIFF withdrawals.

She notes that the RRIF holder doesn’t have to take cash. “In kind” transfers can be made from a RRIF, moving the investment into the client’s non-registered portfolio. “This strategy will benefit clients during market downturns,” she adds. “The investment doesn’t have to be sold when prices are low.”

Andrew Beer, manager of strategic investment planning at Investors Group Inc. in Winnipeg, stresses the importance of maintaining a degree of liquidity that clients can draw upon for living expenses in bad markets: “About 12 months’ worth of cash, money market instruments and GICs, either in the RRIF or elsewhere. Money is regularly being pulled out of RRIFs, so there’s no way to recoup market losses.”

Planning your client’s RRIF needs to be done well before he or she converts the RRSP. Allison Marshall, a financial advisory consultant with Royal Bank of Canada in Toronto, looks at the tax bracket the client will be in at age 72. “If his mandatory RRIF withdrawal claws back his old-age security benefit,” she says, “he’ll need to make RRSP withdrawals or do an RRSP meltdown using borrowing strategies to put money into a non-registered portfolio.”

(OAS clawbacks start when 2009 income exceeds $66,335.)

Kett generally favours holding fixed-income investments in a RRIF and having equities in a non-registered portfolio. “You’d rather have the tax-favoured investments that generate dividends or capital gains outside the RRIF,” she says. “Every dollar that comes out of the RRIF is taxed as income.”

Marilyn Trentos, vice president and associate portfolio manager with RBC Dominion Securities Inc. in Toronto, likes to hold conservative investments in RRIFs to protect this important nest egg.

“I really encourage clients not to be aggressive in any registered plan,” she says. “This retirement money has to be there when they need it. They can’t take risks with it.”

Trentos’ clients’ RRIFs are often 100% invested in fixed-income products. Most clients opt for annual instead of monthly payouts, so she puts “a good majority” of their assets into a series of provincial stripped bonds that are laddered to mature every year. “We may also go for a good-quality corporate bond,” she says, along with Government of Canada bonds and convertible debentures.

@page_break@Although Beer would suggest higher-yield corporate bonds, he supports the role equities play in RRIFs: “Bonds have traditionally been a staple of RRIFs, but they’re no longer providing enough income and rising interest rates will have a negative effect on them.” IE