Weekend Reading – Art and math of RRIF withdrawals

Weekend Reading – Art and math of RRIF withdrawals

Hey Readers!

Almost holiday time, right?!

via GIPHY

Welcome to a new Weekend Reading edition, highlighting some art and math related to RRIF withdrawals based on some of my personal reading, reader questions to me and other inspirations. 

First up, some recent reads on my site:

I updated this year end tax tips post and included some new facts for the 2024 tax year as well, such as:

  • Maximum RRSP contribution: The maximum contribution for 2024 is $31,560; for 2023, it’s $30,780. The 2025 limit is $32,490.

  • TFSA limit: In 2024, the annual limit is $7,000, for a total of $95,000 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009. The annual limit for 2023 is $6,500, for a total of $88,000 in room available in 2023 for someone who has been eligible since 2009.

(Just some suggestions to max out your TFSA, first, as much as possible.)

If you spend that RRSP refund then TFSA makes more sense

I also wrote about the party coming to an end for GICs in the coming year, although these products still have some value to deliver in your portfolio depending on your short-term needs.

Weekend Reading – Is the party over for GICs?

 

Weekend Reading – Art and math of RRIF withdrawals

Weekend Reading - Art and math of RRIF withdrawals

Unlike some financial experts, I’ve long since touted the merits of making RRSP withdrawals before waiting until the age of 71 for RRSP>RRIF conversion to take effect, when minimum RRIF withdrawal rates kick in. 

I’m hardly 70. Not even close (since I just left my 40s)!

Rather, I’ve learned these benefits from others…

While personal finance and investing is always personal, I believe, being forced into managing your portfolio in any way is usually the wrong decision. Successful folks have told me so. 

Here are two key experiences from others to share related to RRSP/RRIF withdrawals:

  • Unless retirees have very high taxable income already; lots of assets (in the millions) whereby they already stomach paying higher taxes most retirees or semi-retirees should at least consider some RRSP withdrawals in their retirement years to help “smooth out taxation”.
  • Beyond RRSP/RRIF income, should any retiree have a workplace pension and/or who may have other significant income streams in retirement (like non-registered investments that generate healthy dividends) they may find themselves in a higher tax bracket as they age into their 70s and 80s, via forced RRIF withdrawals, potentially losing out on government Old Age Secuirity (OAS) benefits.

One of the inspirations for this week’s theme was from this MoneySense article:

RRIF withdrawals: What should seniors with million-dollar portfolios do?

I thought the punchline was spot on for this 80-something (Amy) who has a wealth/tax problem to navigate now:

“In summary, Amy, there is no magic bullet to help with your large RRIF account. You will pay a high rate of tax during your life or upon your death on those withdrawals.”

While any retiree’s cashflow objectives will differ, unless you’re in the extreme minority, most successful early and traditional retirees I chat and engage with seem to plan WAY ahead on such matters whereby they consistently choose to make some RRSP withdrawals well ahead of when there are forced to.

In making financial decisions before they are forced to, I’ve observed four key benefits:

  1. Income near-term, from the portfolio they’ve work hard to establish, leveraging income splitting opportunities with RRSPs > RRIFs in their mid-60s in particular. 
  2. The ability to “smooth out taxation” and be selective to meet both income needs and minimize taxation.
  3. The opportunity to funnel any strategic withdrawals, to TFSAs (tax-free) or to non-registered assets as they please, the latter which can favour capital appreciation which is tax-efficient. 
  4. While you can leave your RRIF to your spouse for ongoing tax-deferred reasons, a large RRIF could be subject to over 50% taxation on death. This is not the account to keep for estate planning.  
Check out my own pillar post on RRSP and RRIF taxation for deeper details – what I consider a must-read for any prospective semi- or traditional retiree!
 

Watch out for RRSP and RRIF taxation

What do you make of RRSP or RRIF withdrawals before you are forced to? Agree or disagree? Happy to read your thoughts in a comment below.

Weekend Reading – beyond the art and math of RRIF withdrawals

I liked this post from Patrick Sojka, who shared how to select the right Aeroplan flight award option to maximize the value of your points.

“Being flexible with the dates and time of travel, selecting one stop over non stop, flying into one city and back from another, partner airline flights and of course class of service all play a part in maximizing the value of your Aeroplan points.”

Joe from Retire by 40 asked what happened to the American Dream? It’s gone… 

Mortgage guru, Ron Butler, highlighted that mortgage rates are likely coming down for many over time in 2024 compared to where they are now – given the U.S. Federal Reserve’s position on pivoting away from more interest rate hikes. Canada is likely to follow suit. Time will tell!?

The COP28 (United Nations Climate Change Conference (COP28)) ended recently, suggesting the “beginning of the end” of the fossil fuel era by laying the ground for “…a swift, just and equitable transition, underpinned by deep emissions cuts and scaled-up finance.” We’ll see.

I’d love to see a reduction or at least some tapering of fossil fuels usage, but the reality is, our collective behaviours don’t even come close to matching any ambitions/talk. 

“The United Nations’ recent Emissions Gap report highlights a concerning reality: the ongoing rate of emissions combined with existing policies steers humanity towards a world that is 3°C warmer than pre-industrial levels. This contrasts starkly with the goals of 1.5–2°C agreed to in 2015.”

Visual Capitalist released this interesting graphic:

VC-Footer_CO2-Emissions-Through-Time_Dec-11

The Dividend Guy shared his dividend income portfolio update.

5i Research compared Bell (BCE) or Telus (T).

Sadly, Canadians leave some $17 billion (not a typo) on the table paying money management fees. Yikes! Glad that isn’t me and I hope that’s not you!

Save, Invest, Prosper!

As always, check my Deals page – partnerships and discounts to help you make the most out of your money – some of them you can’t find anywhere else!

Check out my partnerships with:

  • Dividend Stocks Rock (including my deep lifetime discount from Mike!)
  • 5i Research
  • StockTrades.ca
  • LegalWills
  • Borrowell 
  • and more!

As always, you can also consider reaching out here for some low-cost financial projections services – anytime.

Cashflows & Portfolios

I launched this service with my semi-retired, passionate DIY investor and good friend, Joe – a service founded by DIY investors for DIY investors – to deliver quality services without the conflict of any advice, without costly fees (like some folks charge), while offering money-back guarantees because we’d expect that as DIY folks ourselves…

Make sure you ask me about our holiday discount too, when you click to learn more….

Like Santa, gifts are for the giving – I like providing DIY savers and investors deals. 🙂

Enjoy your weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

20 Responses to "Weekend Reading – Art and math of RRIF withdrawals"

  1. Great post Mark. My wife and I retired in 2022 in our mid-50s. With maxed out RRSPs and TFSAs, we are fortunate to be able to set each of our incomes to the top of the first federal tax bracket in order to level out and lower our lifetime tax burden. We don’t need that much money to live on, so we max out our TFSAs annually with unused cash. If we didn’t start now, we would likely find ourselves forced into the second federal tax bracket when we start collecting CPP at 70 and OAS at 65.

    Reply
    1. Nice to hear from you, Carl. Been a bit!

      Seems very smart and I hear of other successful retirees doing the same thing: money not needed, not required, is funneled to the TFSA every year.

      Yup, exactly what I wrote from others….if you don’t start RRSP/RRIF withdrawals in your 60s, for some, you are forced into higher tax situations as you age, when you least want to deal with it.

      Kudos on your planning!

      Reply
  2. Hello Mark,
    Long time reader first time commenting. We started to seriously save 8 years ago. (60% of our income) Our rrsp should be maxed out in 2 years when I’m 60. Tfsa is maxed. We are not using our total rrsp contribution as a deduction. When we switch to part time work at 60 our plan is to withdraw from our rrsp account and put that in our tfsa account. No tax should be paid as we are carrying forward the deduction from previous contributions. Hopefully we can do this for 5 years. Your thoughts?

    Reply
    1. Thanks for commenting, Brian. You should do that more. 🙂

      A maxed TFSA + maxed RRSP is a great 1-2 punch for any comfortable retirement – doing so will provide financial options.

      Full marks on slowly withdrawing from RRSP, and putting assets/money not needed into TFSA to “smooth out taxation” over time.

      I certainly feel any large RRIF balance (while nice!?) in your 80s or beyond is a major tax liability and best do what you can to remove that liability over time, including for estate planning purposes – unless part of your plan is to give lots of $$ back to the government. I wouldn’t advise it. 🙂

      Mark

      Reply
  3. PaulM (65, retired @62) · Edit

    My wife and I decided drawing down our RRSP/RRIF early was a good strategy for us. My wife is 4 yrs younger than me and this yr I converted most of my RRSP to a RRIF with the intent to deplete most, if not all of it, in the next 5 yrs. This has/will allow us to 1) assign half the income to her (along with half my DB pension and all her small DB pension) prior to her being OAS eligibility thus doesn’t matter so much that her net income is well into OAS clawback range, 2) keeps my net income just below clawback range for 4-5 yrs, 3) withdraw from RRSP/RRIF at a lower tax rate than later when I start CPP at 70 and my wife starts OAS and CPP, and 4) move those funds to, thus augment, our non-registered account that primarily holds relatively tax efficient dividend growth stocks from which we derive our investment income from to help cover our annual living expenses.

    Reply
    1. Great work, Paul. I continue to be impressed by the well thought-out retirement income planning here via comments, reader emails, etc. You’ve all worked through so many sound details.

      Not sure of your plans, long-term, but I know of other readers that will have the following churning our some >$70k or more per year rising via inflation as they age:

      1. x2 or 1 CPP income
      2. x2 or 1 OAS income
      3. Tax-efficient CDN dividends (since they’ve moved out most RRSP/RRIF assets by their mid-70s).
      4. A growing TFSA balance for tax-free withdrawals.

      #1, #2, and #3 are inflation-fighting income streams. They sleep easy at night.
      #4 (TFSAs) now worth some >$200k for many couples are larger emergency funds.

      Pretty bulletproof. 🙂
      Mark

      Reply
  4. Lloyd (63, retired at 55) · Edit

    You could put five guys in a room to discuss RRSP/RRIF decumulation strategies/plans and you’ll likely hear a dozen strategies. None of them would be likely be wrong. Like many things in financial planning, personal situations play a big part.

    I have a RRIF and LIF from my equity RRSP and LIRSP just to stop the growth of them and take some income to ensure the lower tax brackets gets used up. The wife’s equity RRSPs won’t be converted until she turns 65. We will both likely leave the GIC RRSPs alone until we are forced to convert.

    Reply
    1. CJ (57, will retire at 59) · Edit

      Mark – thanks for another great post. Lloyd – thanks for sharing your age and retirement date in your name – that provides good context on your comments (I appreciate that).
      Colin J

      Reply
    2. Thanks very much, Lloyd.

      Sounds similar to what other readers (who do not comment) tell me: they often stop reinvesting dividends and distributions inside RRSP or LIRA, a few years before retirement, then when time comes, withdraw cash built up for RRIF and LIF. RRIFs make sense at age 65 for income splitting.

      Have a great weekend,
      Mark

      Reply
      1. Lloyd (63, retired at 55) · Edit

        “they often stop reinvesting dividends and distributions inside RRSP or LIRA, a few years before retirement”

        A big factor is age when a RRIF is set up. I set my RRIF up at age 60 so the RRIF factor was substantially less than the yield the portfolio generated so I only turned off the DRIPs a few months early. With the distributions exceeding minimum withdrawal, I am still acquiring positive cash. 5.28% current yield over 3.7% RRIF factor for 2024. I have a small GIC ladder to park those extra funds in every January 10th. If I live long enough, eventually that excess cash will be consumed as the minimum withdrawal percentage exceeds yield.

        Reply
        1. Great stuff. That’s part of our reasoning to turn “off” our DRIPs inside our RRSPs, let the cash build up, make any strategic purchases as we wish but more importantly we’re building a modest cash wedge using cash ETFs inside our RRSPs now whereby we wouldn’t have to sell much if any assets for a year or so if really forced into a long, bearish market. It could happen. I want to guard against that.

          The fact that your RRIF income seems > RRIF age min. withdrawal is a nice sign of good saving and plannig 🙂

          You’ll have a tax problem to navigate which is better than having an income problem.

          Happy Holidays to you.
          Mark

          Reply
          1. Lloyd (63, retired at 55) · Edit

            “You’ll have a tax problem to navigate”

            I’ve accepted that I will be paying more tax (and likely a loss of some of the OAS) than I had hoped way back when any planning was first put done. Having said that, all of that planning went down the drain due to life events.

            I’m not sure there is much navigation that will be helpful, although we are utilizing charitable giving to ameliorate it somewhat. It isn’t really a “problem”, but it is a fact. Better to be on the side of too much tax being owed than the alternative.

            All the best to you as well.

            Reply
            1. 100% = “Better to be on the side of too much tax being owed than the alternative.”

              That’s why you are, where you are. 😉

              Kudos and best holiday wishes!
              Mark

              Reply
  5. Hello Mark,
    Thank you for your post as always very informative , reading about the RRSP withdrawal in our 60’s and 70’s just like you I’m still a bit far from that but it’s something that I need to educate myself on but one thing I’ve personally heard from couple of my colleague is the fact that they’re already withdrawing from their RRSP in order to pay their mortgage/bills/ credits , this sudden hike of interest rates took a lot of people by surprise especially the young generation because we were living in free money era for some time now so that sudden change was devastating to some, I keep telling them that my first mortage was about 13 or 14% interest and they couldn’t believe it.

    Reply
    1. Ha, yes, I’m a few decades away when forced to do something with RRSP, but I will be withdrawing some dividends and distributions from RRSP in my 50s and 60s.

      When it comes to mortgage/bills/credit owed, yes, I can appreciate this caught some people off guard. More and more as I age, now just entered my 50s, the freedom that no mortgae debt and/or very low debt offers seems rather priceless. Our mortgage is done/dead in less than 5 months now to the day. That will be rewarding. 🙂

      Happy Holidays to you and thanks for reading!

      Reply
  6. TD charges $25 for RRSP/DC Pension withdrawals so I decided to convert my DC pension to a LIF at 62. I still have my main personal RRSP, but I’ve also opened up a regular RIF that I can use to transfer cash/assets from the RRSP to make additional withdrawals fee free.
    We were fortunate enough to be able to save 7 figures in our registered accounts so we plan to draw that down somewhat and delay CPP and OAS until we are closer to 70.

    Reply
    1. Outstanding, Dave. Thanks for the comment. I see/hear a lot of that: the ability thanks to great investing over the past few decades to have the option to delay CPP (to age 70) and also consider delaying OAS (to age 70) as well. That is ideal since you are making those financial decisions on your own terms, not because you have to. Kudos. 🙂

      Happy Holidays!
      Mark

      Reply
  7. Hey Mark,
    I’ve been following you for a couple of years now and want to say thanks for the suggestion of getting out of high-MER bank mutual funds and into ETFs. I opened a self-directed investment account for my TFSA at BMO 2 years ago.
    Yesterday I got a survey from BMO that wanted to know how interested I would be to pay for investment advice, and I could happily say “Not at all interested.” In the comment box to explain my reason for being not at all interested in paying for investment advice, I stated that actively managed funds don’t beat passive ETFs in the long run, they just charge more fees.
    Thank you for giving me the confidence to manage my own investments and save myself a lot of fees over the next few decades!

    Reply
    1. These comments make my day, thanks very The Wall. 🙂

      Low-cost, diversified ETFs are an outstanding way to great wealthy eventually with a 1. sustained savings rate for investing over a couple of decades coupled with 2. avoiding the temptation to tinker with your portfolio.

      Keep me posted on your journey as it progresses into 2024.
      Mark

      Reply

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