Understanding RRIF Payment Calculations in Key Consideration
Updated: Sep 8
Question:
The Key Consideration shows an “average” RRIF withdrawal amount, but when I add up the RRIF withdrawals shown in the report and divide by the number of years, I get a different average. Why?
For example, the RRIF withdrawals shown from ages 72 to 93 total $16,780, but the Key Consideration shows an average annual RRIF withdrawal of $1,139.
Answer:
The difference is caused by how the amounts are displayed and calculated.
The RRIF withdrawals shown in the report are presented in today’s dollars, which helps you understand the future income in terms of its purchasing power today.
The average RRIF withdrawal shown in the Key Consideration is calculated using the projected value of those withdrawals in the year they are actually received. This takes inflation into account.
Because of this, simply adding the RRIF withdrawals shown in the report and dividing by the number of years will not produce the same average shown in the Key Consideration.
The $1,139 figure is intended to provide a helpful estimate of the average annual RRIF withdrawal over the projection, rather than represent the exact amount that will be withdrawn each year. Actual RRIF withdrawals will vary throughout the retirement plan.
Technical Note: How the Average Is Calculated
For those who would like to reconcile the average RRIF withdrawal shown in the Key Consideration with the report ledger, the calculation is as follows.
Let:
i = inflation rate used in the plan
a = client’s current age
y₁ = age of the first RRIF withdrawal
y₂ = age of the last RRIF withdrawal
p(x) = RRIF withdrawal shown in the ledger at age x, in present-value dollars
Each RRIF withdrawal is first adjusted from present value to its future value:
Future Value of RRIF withdrawal at age x = p(x) × (1 + i)^(x − a)
The average is then calculated as:
Average RRIF Withdrawal = [Σ p(x) × (1 + i)^(x − a)] ÷ (y₂ − y₁ + 1)
For the example where RRIF withdrawals occur from age 72 through age 93:
Average RRIF Withdrawal = [Σ from x = 72 to 93 of p(x) × (1 + i)^(x − a)] ÷ 22
This calculation converts each annual RRIF withdrawal shown in the ledger into its future value and then calculates the average across the 22-year period.
Important: Simply calculating $16,780 ÷ 22 = $762.73 will not produce the $1,139 average shown in the Key Consideration because the $16,780 total is based on the present-value amounts displayed in the ledger. The Key Consideration uses the future, inflation-adjusted value of each annual withdrawal.
Keywords: RRIF Payment Calculation, Key Consideration, Future Value
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