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Understanding RRIF Payment Calculations in Key Consideration


Question: The Key Consideration talks about the “average” amount of Registered Retirement Income Fund (RRIF) taken over the entirety of the projection, but the actual annual RRIF withdrawn each year will vary from this number. The Key Consideration is just providing you with an idea of the annual average amount.

When we review the RRIF payments from ages 72-93, the RRIF payments total $16,780 and the balance is $0 at age 95. I am having a hard time explaining (he is an engineer) how the $1,139 “average” is obtained.

$16,780/20 = $839?

The average is being calculated as one would expect by summing up all the payments and then dividing by the number of payments. The confusion is coming from the fact that the average in the Key Consideration is calculated using the Future Value of these payments; whereas, the web interface and the report ledgers only show the Present Value of the payments.

Answer: In order to reconcile the report ledgers with the average in the Key Consideration, you would need to do the following calculations:

Let i represent the inflation rate for the plan, a represent the client's current age, y1 represent the age of the first payment, y2 represent the age of the last payment, and p(x) represent the Present Value payment that occurred at age x (i.e., what would be shown in the ledger for the RRIF Payment at age x).

Then the average RRIF payment shown in the Key Consideration is calculated as: Average RRIF Payment=∑𝑥=𝑦1𝑦2𝑝(𝑥)⋅(1+𝑖)(𝑥−𝑎)(𝑦2−𝑦1+1)Average RRIF Payment=(y2−y1+1)∑x=y1y2​p(x)⋅(1+i)(xa)​

Using the case details provided (y1 = 72, y2 = 93), this turns into: ∑𝑥=7293𝑝(𝑥)⋅(1+𝑖)(𝑥−𝑎)2222∑x=7293​p(x)⋅(1+i)(xa)​

We're still missing the inflation rate i, current age a, and the list of Present Value RRIF payments in each year from the ledger p(x). If he's still having trouble reconciling, I could easily put together a spreadsheet that does this if he provides those missing details plus a screenshot of the Key Consideration.

See how far he wants to get into it, and let me know if there's anything else I can do to help wrap his head around it. A spreadsheet for this is not hard to create if he wants to provide all the plan details. At the end of the day, changing this Key Consideration calculation and adding the Present Value/Future Value in the new version fixed the confusion here.

Keywords: RRIF Payment Calculation, Key Consideration, Future Value


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