With seniors concerned about the health of their retirement savings as stock markets head south, Finance Minister Jim Flaherty is offering one consoling reminder: investments withdrawn from registered retirement income funds need not be sold right away.

In an open letter to all federally-regulated financial institutions on Nov. 20, Flaherty reminded the institutions that under income tax rules, minimum withdrawal requirements on RRIFs can be achieved by transferring assets from the funds to non-registered accounts, without selling them.

“A common misconception is that seniors must sell assets to satisfy RRIF withdrawal requirements, something many may not want to do at this time given the recent decline in value of many assets,” Flaherty wrote.

Instead, seniors can make in-kind transfers of assets such as stocks or mutual funds to other accounts, and wait to sell them at a time when — ideally — they’ve grown in value. The assets transferred are fully taxable in the same way as RRIF cash withdrawals; they are taxable at their fair market value at the time of the transfer. Following the transfer, the investments are no longer tax-sheltered.

A growing number of seniors are considering this option in the wake of the recent market downturn, according to Cynthia Kett, a principal at Toronto-based Stewart & Kett Financial Advisors Inc. “Because some clients don’t want to sell some of their securities in a down market, people are thinking about it as an alternative now,” Kett says. She adds that in about 20 years as a financial planner, this is the first year she has had clients inquire about it.

But because in-kind transfers have been uncommon in the past, not all financial institutions are able to accommodate them.

“Some advisors don’t use it because their systems may not be set up to take advantage of that,” says Warren Baldwin, a registered financial planner with Toronto-based T.E. Financial Consultants Ltd.

For instance, the option may not be available to investors who don’t have non-registered accounts at the same financial institutions as their RRIFs, as their advisors must be able to transfer the assets to another accessible account.

According to Flaherty, such barriers need to come down. “I am expecting all financial institutions to accommodate in-kind transfers — at no cost to clients — or offer another solution that achieves the same result,” he wrote.

Other financial institutions have simply not been raising enough awareness of the option, another area where Flaherty urges action: “I would ask that you ensure that all clients with RRIFs be made aware that this option exists.”

One reason that in-kind transfers have lacked popularity in the past is that many seniors do not have other forms of income in retirement, and can’t afford to postpone their RRIF cash withdrawals. For such retirees today, the option offers little consolation.

One alternative way for cash-strapped retirees to avoid immediately selling low-valued equities is to draw from the fixed-income side of their RRIF portfolio. “Most balanced portfolios would have as much as 40% in bonds and obviously that’s going to take care of payments for at least a couple of years, until markets hopefully recover,” says Baldwin.

Retirees whose RRIFs are comprised of balanced mutual funds, however, are unable to withdraw cash from a particular asset class. In this case, if they have enough extra cash handy, Baldwin recommends swap transactions. Similar to in-kind transfers, swap transactions allow RRIF holders to replace a chunk of invested assets in their RRIFs with an equal amount of cash, with no tax implications. As a result, when it comes to making withdrawals, the retirees can draw from the cash portion of the account and leave their balanced fund investments untouched outside of their registered account.

“Then they can just wait for the markets to be priced a little better, and hopefully they’re not losing as much by cashing out,” Baldwin says. IE