1.1 How can I plan for my retirement income? Your retirement income needs Converting your RSP... 1

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1 R e t i r e m e n t I n c o m e F u n d s I n f o r m a t i o n B o o k l e t.

2 This booklet is intended to address questions commonly asked about Retirement Income Funds (RIFs). The booklet is not intended to give you advice on how to invest or the terms of Phillips, Hager & North Retirement Income Funds. Complete details of RIF Plan terms are contained in the official Plan documentation. In the event of any inconsistency between this booklet and the Plan documentation, the Plan documentation will govern. The booklet is not intended to give you tax advice on RIFs. The tax laws regarding RIFs are complex and you should consult your tax advisor for specific information. This booklet has been solely prepared by Phillips, Hager & North Investment Management *.The Royal Trust Company (the Trustee) will not be liable for loss or damage suffered or incurred by the Plan, you or any beneficiary arising from statements contained herein. If you have any questions about RIFs in general, or your situation in particular, please contact our Investment Funds Centre at Additional information is provided in the RIF section of our website at * Phillips, Hager & North Investment Management is a division of RBC Global Asset Management Inc., an indirect wholly-owned subsidiary of the Royal Bank of Canada.

3 Table of Contents 1. PLANNING FOR RETIREMENT INCOME How can I plan for my retirement income? Your retirement income needs Converting your RSP What options are open to me when my RSP matures? May I still contribute to a spousal RSP after I set up a RIF? When must I start receiving my RIF income? How will my RIF income be taxed? How is the RIF income payment calculated? How long will my RIF income last? What happens to my RIF when I die? How do I open a RIF account? HOW PHILLIPS, HAGER & NORTH CAN HELP YOU MANAGE YOUR RIF Who can help me if I have questions about my RIF investments? What are my income withdrawal options? What are the costs involved in opening a RIF account at PH&N? We are here to help you

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5 1. PLANNING FOR YOUR RETIREMENT INCOME 1.1 How can I plan for my retirement income? Throughout our working years, we save for our retirement. You may have saved for retirement through an employersponsored Group RSP (GRSP) as well as a personal Registered Retirement Savings Plan (RRSP) (see box in the next column for details). An important milestone in our lives is the point at which we switch from contributing to our retirement savings plans (RSPs) to withdrawing from them to meet our needs in retirement. By the end of the year in which you turn age 71, you will have to decide whether to redeem your RSP, or to convert it to one of a number of retirement income options. You may withdraw the funds in cash from your RSP and pay the applicable taxes. You may use the funds to buy an annuity. However, most people choose to convert their RSP to a Retirement Income Fund (RIF) (see the box that follows for details), because it offers so much flexibility. This booklet answers the most commonly asked questions about RIF accounts. A Phillips, Hager & North (PH&N) advisor is always available to provide more information or answer any other questions. 1.2 Your retirement income needs Your investments will probably be your most important source of retirement income and you want to ensure that they are managed to last at least as long as you do. If you retire at 60, for example, you may need income for another 30 years almost as long as your working life. You might also want to provide for the future of a spouse after you have gone. Canadians are living longer. At the age of 71, the average life expectancy in Canada is to the age of 85 for men and 88 for women. 1.3 Converting your RSP Although you may choose to convert your RSP at any age, you are legally required to do so by December 31 of the year you turn 71. (December 31 will also be the deadline for a final contribution to your RSP, as the normal 60-day extension into the following year does not apply.) 1.4 What options are open to me when my RSP matures? A number of options are available and it is important to choose the one that is right for you. You want your money to work as hard for you as you have worked for it. You will want a retirement plan that allows you to choose the investments that suit your needs. In addition, your plan should provide you with as much flexibility as possible to draw the varying amounts of income that you will need at What is a Retirement Savings Plan (RSP)? A retirement savings plan is an account designed to encourage retirement savings. There are several different types of RSPs: Registered Retirement Savings Plan (RRSP): An RRSP or Spousal RRSP is a registered account designated for retirement savings. RRSPs are available to investors under the age of 71, provided that they have earned income and a Social Insurance Number. Account holders have a range of choices with regard to how they invest the savings held within their accounts. RRSP accounts benefit from advantageous tax treatment if held until retirement age. By the end of the year that the owner of an RRSP reaches the age of 71, the RRSP must be closed, and may be converted into a Registered Retirement Income Fund (RRIF) or a spousal RRIF. (See box on page 4 for more details about RRIFs.) Registered Pension Plan (RPP): An RPP is a plan where funds are set aside by an employer and/or an employee to provide a pension income when the employee retires. If the employee leaves the employer before reaching retirement age, the holdings may be considered locked-in. Locked-in assets would have to be transferred from the pension plan to a Locked-in Retirement Savings Plan. Locked-in Retirement Savings Plan (LRSP) or Locked-in Retirement Account (LIRA): An LRSP or LIRA (depending on the province of residence) is similar to an RRSP in that the account holder retains control over how the account s holdings are invested, but different in that the account holder is not permitted to draw on these holdings until retirement age (as specified by the original pension plan). In the year the accountholder reaches the age of 71, the assets must be transferred from the LRSP into another acceptable locked in vehicle that can pay out income, such as a Life Income Fund (LIF) or Locked-in Retirement Income Fund (LRIF). (See box on page 4 for more details about LRIFs.) different stages in your retirement life. You will also need to consider the tax implications of the various options. You may: cash in your RSP; purchase an annuity; and/or convert to a RIF. Your choice may be to use one or more of these options. Cashing in your RSP If you decide to take all or part of your RSP assets out in cash, the amount paid out will be added to your taxable income. Depending on your tax bracket and the province in which you live, you may have to pay more than 45% of the value of your RSP in tax. This is the main reason most people do not choose this option. Purchasing an annuity You may buy an annuity from a life insurance company with some or all of your RSP money. An annuity is a Retirement Income Funds Information Booklet 1

6 guaranteed income stream for life. As an annuity locks you into defined, regular income payments, it could be an attractive option when interest rates are high, but may not be a wise choice when interest rates are low. An annuity does not enable you to benefit from any capital appreciation or investment income on the money you used to buy the annuity. Since the annuity payments are fixed, you cannot change the amount of your income from time to time. For full details on whether an annuity may be suitable for some or all of your retirement dollars, please contact a life insurance representative. Converting to a Retirement Income Fund (RIF) Most people choose to make a tax-free transfer of their RSP funds into a tax-sheltered investment plan called a RIF. A RIF is basically a continuation of your RSP, except that you can no longer make new contributions and you must begin to withdraw a minimum percentage of your plan each year. You may keep the same investments in your RIF as in your RSP, and you have the same freedom to make switches between mutual funds or other qualifying investments whenever you wish. Your investments can continue to grow tax-free. Your money will be treated as taxable income for the year that you withdraw it from your RIF. If you plan to convert your RSP to a RIF in the year you turn 71, you should meet with your advisor well ahead of the December 31 deadline. There are no disadvantages to converting early in the year, as payments do not have to commence until the following year (the year in which you turn 72). You may start drawing an income from your RIF the month following your conversion from an RSP, subject to the applicable withholding taxes. 1.5 May I still contribute to a spousal RSP after I set up a RIF? After you convert your own RSP to a RIF, you may continue to contribute to a spousal RSP as long you have earned income and your spouse is 71 or younger. Your RSP contribution room (the amount you may contribute) will be based on your earned income in the previous year, as it appears on the assessment notice that Canada Revenue Agency (CRA) sends you each year after you file your tax return. 1.6 When must I start receiving my RIF income? You may start drawing your RIF income as early as you wish in the year you convert to a RIF. You must start drawing income no later than December in the year following the year you converted to a RIF. The RIF rules What is a Retirement Income Fund (RIF)? Individuals who hold RRSP, Spousal RRSP, GRSP and/or LRSP accounts are required by law to close these accounts no later than the last day of the year in which they turn 71. Many individuals choose to transfer their retirement savings plan assets into a Retirement Income Fund (RIF), which is a tax-sheltered account from which you can draw income. Registered Retirement Income Fund (RRIF): A RRIF pays out a prescribed mandatory minimum payment each year, but there is no maximum annual withdrawal limit. RRIFs allow a great deal of flexibility regarding how the holdings may be invested. Withdrawals from a RRIF over the prescribed minimum amount are subject to withholding taxes imposed by the Canada Revenue Agency (CRA). Life Income Fund (LIF) or Locked-in Retirement Income Fund (LRIF): Holders of an employer-sponsored pension plan, LRSP or LIRA may transfer their assets from this account into a LIF or LRIF (depending on the applicable provincial legislation). The difference between a LIF or LRIF and a RRIF is that both the LIF and LRIF have a withdrawal maximum (effectively locking the holdings into the fund). The account holder retains control over how the holdings are invested. require that you take at least the minimum payment each year. For the year you convert to the RIF, there is no required minimum payment. Starting the following year, the minimums apply. For details on RIF minimums, see section How will my RIF income be taxed? RIF withdrawal payments are added to your other income for the year and taxed at your personal rate. Investment income (interest, dividends and capital gains) generated by your RIF is sheltered from tax as long as it remains in your RIF. Withdrawal payments will be taxed as regular income. No distinction is made for tax purposes as to whether it is original capital, interest, dividends or capital gains. The full RIF withdrawal payment must be declared as income and will be taxed at your personal rate in effect that year. If you withdraw only the required minimum, income tax does not have to be withheld at source (although you may request to have it withheld). On amounts over the required minimum, tax will be withheld on the excess as follows: where the excess is not more than $5,000, tax is 10% of the excess; where the excess is more than $5,000 but less than $15,000, tax is 20%; where the excess is more than $15,000, tax is 30%. 2 Phillips, Hager & North Investment Management

7 If the RIF originates from a spousal RSP, a special attribution rule applies when the spouse takes out more than the minimum contribution. The excess RIF withdrawal will be taxed as the contributing spouse s income up to the amount of contributions made by the contributing spouse over the current and preceding two years. Special rules apply in cases of marriage breakdown, non-residency or death. If you are 65, RIF income is eligible for pension income splitting in accordance with the new tax measures announced by the federal government effective in the 2007 tax year. For more information about pension income splitting, please visit our website at or contact our Investment Funds Centre at How is the RIF income payment calculated? Although the Income Tax Act requires you to make a minimum annual withdrawal from your RIF, there are no limitations on a maximum withdrawal. You can control how much you take out each year and can alter the amount at any time. This is one of the great advantages of the RIF because your income withdrawals can be scaled to your current needs throughout your retirement. The minimum withdrawal amount is dependent on your age (or the age of your spouse) and your RIF balance on December 31st of the previous year. The table of calculations in the next column shows the minimum required withdrawal each year. Important points to remember are: If your spouse is younger than you and you want to keep your RIF investment growing tax-free for as long as possible, you should base the minimum withdrawal on your spouse s age. At any time, you may take out more than the required minimum from your RIF as a lump sum or as a regular withdrawal. However, the excess amount will be subject to the applicable withholding taxes mentioned on page 4. You have some flexibility regarding the timing of the payments you withdraw over the year. Depending on your circumstances, you may benefit from timing your withdrawal as a single payment at the end of the year to maximize the tax-sheltered growth of your investments. If you make large withdrawals, you may run out of capital. Table 1: RIF minimum withdrawal Your age (or your spouse s) Annual minimum withdrawal (% of RIF)* 1.9 How long will my RIF income last? Based on the minimum withdrawals that increase with your age, the normal pattern is for the RIF capital to grow during the early years and gradually deplete in later years. The charts on the next page demonstrate this using the following assumptions: start drawing from RIF at age 72; $100,000 initial investment; minimum annual withdrawals; Your age (or your spouse s) Annual minimum withdrawal (% of RIF)* & older *Note: If you are transferring a prescribed RIF, or a RIF that was opened before January 1, 1993, we will provide you with specific minimum withdrawal calculations. growth rates of 5%, 7% and 9% per annum, respectively. Figure 1 on the next page shows how different investment return rates would affect the minimum withdrawal amounts you could expect over your retirement. This figure assumes a consistent rate of return, and does not take into account market volatility, nor the impact of eroding your capital through large lump-sum withdrawals in excess of the Retirement Income Funds Information Booklet 3

8 required minimum. These are important considerations that you must take into account when planning for your retirement. Figure 1: Minimum RIF Withdrawal at Different Investment Return Rates $ $ 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Figure 2 shows that your RIF capital will continue to grow as long as your investments are growing faster than your withdrawals. If your withdrawals are higher than the investment returns, or your investments lose value in a given year, your capital will shrink. As discussed earlier, if the value of the investment capital held within your RIF shrinks, you will receive smaller minimum withdrawal payments than you would if your investments were earning higher rates of return. Figure 2: RIF Capital at Different Investment Return Rates 120, ,000 80,000 60,000 40,000 20, % rate of return 7% rate of return 5% rate of return What happens to my RIF when I die? If you designate your spouse as the beneficiary of your RIF, the balance of your RIF capital can be rolled over tax-free into your spouse s RSP or RIF, or it may be used to buy an annuity. If you designate your spouse as successor annuitant of your RIF, your spouse simply becomes the annuitant of the existing RIF. 86 Age Capital remaining assuming minimum withdrawals at different rates of return Age % rate of return 7% rate of return 5% rate of return You may also designate a dependant child or grandchild as the beneficiary of your RIF, and the balance may then be rolled over tax-free into an annuity providing equal annual payments until the child or grandchild turns 18. If the child is infirm, your RIF may be transferred tax-free to his or her RSP, RIF or annuity. 9% If you name your estate as the beneficiary of your RIF, 7% your entire plan will be collapsed at the time of your 5% death. The amount of RIF capital that goes to your estate Age will be added to your income for that year. Your estate will be liable for income tax on the full amount. Should you designate a beneficiary other than a spouse or dependant child or grandchild, that beneficiary will receive the full balance of your RIF capital in the form of a cash payment, but your estate will be liable for income tax on the full amount. It is important to designate a beneficiary of your RIF. Rules differ between provinces as to whether this should occur in your RIF plan or through your will. We recommend that you obtain professional legal and tax advice from a qualified practitioner to ensure proper estate planning How do I open a RIF account? Whether your RSP is currently managed at PH&N, or you are transferring your RSP from another institution, a representative from our Investment Funds Centre would be happy to assist you in completing the necessary forms. You simply provide: the usual account details; the funds you have selected for your RIF investment; the amount of income you would like to receive (subject to the required minimum withdrawals); frequency of income payments; the funds from which you would like those payments to come and in what proportion (e.g., prorated across all funds, or a specific percentage from specific funds); and how and where you would like payment to be made. You may modify these instructions at any time. For RSPs transferred from another institution, we will provide you with the required Transfer Form in addition to our RIF account application form, and we will contact 4 Phillips, Hager & North Investment Management

9 that institution to arrange for the transfer. If you hold several RSPs, you may find it much easier to transfer them all into one RIF. This will facilitate managing the account, monitoring your asset mix and calculating the minimum annual withdrawals. If you already hold your RSP funds with PH&N, we will automatically transfer your current mix of funds into your RIF account unless you instruct us otherwise. We encourage you to review your current investment mix when you shift from an RSP to a RIF. This important transition is an ideal time to make sure you hold the mix of funds that is best for you. Our investment advisors would be pleased to help you with this review. 2. HOW PH&N Investment Services CAN HELP YOU MANAGE YOUR RIF 2.1 Who can help me if I have questions about my RIF investments? PH&N Investment Advisors can answer your questions and provide the advice and information you need. Our advisors are experienced and highly qualified to provide advice on establishing investment objectives and choosing the appropriate funds to attain your goals. in Canada and our funds have management expense ratios that are well below the national industry average. Lower costs mean higher returns to you. To keep expenses as low as possible, the minimum initial investment required to open a RIF account at PH&N Investment Services is $25,000. Special arrangements may be available for clients whose total investments currently held at PH&N Investment Services are below the minimum amount. If this applies to you, please speak with one of our investment advisors. 2.4 We are here to help you This booklet is intended to answer the questions people commonly ask about retirement income planning and, in particular, about RIFs. If you have any questions that have not been answered here, please contact us. We are here to help you get the most from your investments so that you can enjoy a successful retirement. Contact our Investment Funds Centre Toll free: info@phn.com 2.2 What are my income withdrawal options? You can choose the payment frequency that suits you best. We offer five income payment frequencies: monthly; bi-monthly; quarterly; semi-annually; or annually. You may also choose from three payment options: direct deposit to your account at any Canadian financial institution; payment by cheque mailed to your address; or automatic reinvestment in a PH&N non-registered investment account. 2.3 What are the costs involved in opening a RIF account at Investment Services? There is no charge for opening or managing your RIF account at PH&N Investment Services. Moreover, we are one of the most cost-efficient investment fund companies Retirement Income Funds Information Booklet 5

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12 PH&N Investment Services Investment Funds Advice & Information Telephone: Facsimile: Website: Waterfront Centre 200 Burrard Street 20th Floor Vancouver, British Columbia Canada V6C 3N5 PH&N and Phillips, Hager & North are registered trademarks of Royal Bank of Canada. Used under licence. Trademark of Royal Bank of Canada. Used under licence. VANCOUVER CALGARY TORONTO MONTREAL