Weekend Reading – End the RRIF Withdrawal Schedule Already
Hey Folks!
Welcome to a new Weekend Reading edition: hopefully the time is near to end the RRIF withdrawal schedule already!
Before a take on that, a few recent reads and reminders:
I like owning stocks with moats, and there are certainly a few to consider in Canada that deliver income and growth.
I happen to own some international stocks in my portfolio and you probably should too.
I posted my latest monthly dividend income update in our pursuit towards some form of semi-retirement / work on own terms in the coming year or so:
Weekend Reading – End the RRIF Withdrawal Schedule Already
A recent Globe and Mail article (subscription) caught my eye, something I’ve been pondering for some time in fact:
Why do we need to keep the existing RRIF withdrawal schedule?
Do you agree with the need to review the existing RRIF framework as part of our registered retirement system?
Image Source: Pexels, Tristan Le.
I believe big changes are required.
First up, the advoacy for change:
From the G&M article, some takeaways:
- The C.D. Howe Institute labels existing RRIF rules “stuck in the past” – based on historical life expectancies (now outdated) and investment returns married to bonds and fixed income (also outdated) in their recent report.
“Without lowering the withdrawal percentages further – or using the more powerful tool of raising the age at which withdrawals must start – today’s seniors have a far higher chance of living to see severe depletion of their RRIF nest-egg’s purchasing power,” the report said.
- Based on a response to a private member’s bill put forward last summer, the Department of Finance is expected to study population aging, longevity, interest rates and other factors related to the existing RRIF framework. “It is expected to report its findings and recommendations to the House of Commons by June.”
- “When the overarching framework was last set in 1992, the assumption from government is that retirees would use their RRIFs to invest in safe assets such as government bonds, said Alexandre Laurin, one of the report’s authors and director of research at the C.D. Howe Institute.” Of course, such linear thinking on “safe assets” is incorrect. Bonds have some risk too.
This Globe article also pointed to other submissions/calls for a comprehensive RRIF review.
- The Conference for Advanced Life Underwriting, representing insurance professionals, argued that mandatory withdrawals (existing today) could be triggering clawbacks on programs unnecessarily.
- CanAge Inc., a national seniors’ advocacy organization, highlighted that change to delay tax collection (i.e., without mandatory withdrawals) could benefit the government in the long run in that “potential tax revenues on larger sums of unspent capital, it said, could easily exceed revenues from smaller chunks collected over a longer period of time.” i.e., upon death.
But not everyone seems to be a fan of RRIF change:
Some experts have been quoted as saying this will impact government revenues:
- “Major changes have the potential to seriously erode government revenues and its ability to pay for health care, long-term care, and education,” she said. ”We’re going to have to get taxes somewhere.” – Frances Woolley, a professor of economics at Carleton University
Weekend Reading – End the RRIF Withdrawal Schedule Already
What is my take?
Well, I will first point to an overview article from 2014 on this subject.
I wrote the following in that nearly 10 years ago:
“Opportunities with an RRSP to RRIF conversion are many so it’s important to do the math.
What should also be considered, at some point, is the entire removal of RRIF minimum withdrawal criteria IMO. It makes no sense to have this criteria with folks living longer so having minimum withdrawal criteria hampers account flexibility. RRIF income will still happen by folks that need the money throughout retirement, of course, but it shouldn’t be on a prescribed schedule. There is no such thing with TFSAs. There are no forced withdrawals from any non-registered accounts. This makes the RRSP/RRIF a uselful retirement tool but very much a tax-grab by our government if not managed wisely. I consider the RRSP/RRIF a tax liability. You should too.”
Essentially, bluntly, our government should be in the overarching position to streamline processes so that it always benefits our taxpayer base – simple is better.
More rules, more complications, more bureaucracy with our tax system, is not an enabler to that objective. Sadly, nothing new.
My snappy thoughts on RRIF mininum / mandatory withdrawals: get rid of them entirely.
My rationales:
- The government will get their money, eventually, if/when folks don’t use their money wisely.
- The government needs to simply things to avoid creating endless rules to manage the financial literacy of their tax base. As an example, there are no withdrawal rules related to TFSAs or taxable accounts. They are more flexible and practical accounts by decent design.
- I get that “RRIF taxes” are part of the government revenue stream (to pay for various programs and services) but the inability of our current government to properly manage money is hard for me to stomach on a good day.
- If RRIF rules were based on some logic that “safe assets” like bonds and fixed income are better as you age, then certainly no government official is remotely familiar with an equity glide path. Maybe they should read a bit.
See Michael Kitces work as one fine example.
Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better?
I have no idea what might happen in a few months once this particular Department of Finance study is done but my hunch is knowing our government culture one of the following two outcomes might happen:
- We spend time, resources and energy to complete this study – to trigger more “study” work, and/or
- Nothing is done.
At some point, I would be impressed if we got rid of the RRIF concept altogether and simplified some key accounts this way:
- Merge the RRSP/RRIF – one tax-deferred account for retirement saving, investing and asset decumulation with tax consequences when money is taken out.
- Keep the TFSA – an amazing tax-free account for retirement saving, investing and asset decumulation with no tax consequences when money is taken out.
- Maintain non-registered / taxable accounts – open as many accounts as you wish to increase your personal complexity – for saving, investing and asset decumulation with ongoing, taxable consequences depending upon assets owned (i.e., domestic stocks, foreign stocks, ETFs, bonds, etc.)
I suspect I will be very old if/when any considerations to simplify our tax system might actually occur but I will keep some faith…!
More Weekend Reading…
A reader asked me to produce a table comparing RRSPs, RRIFs, and TFSAs. So, I made one. I hope this information helps others below!
| RRSP | RRIF | TFSA | |
| Tax deduction on contribution | Yes – contributions made | No – withdrawals occur | No – contributions made with after-tax dollars |
| Annual contribution limit | The lesser of the two following items: · 18% of earned income in previous year, · The annual RRSP-limit 1 | No – withdrawals occur | $6,500 2 |
| Contributions carry forward | Yes – unlimited | No – withdrawals occur | Yes – unlimited |
| Lifetime contribution limit | It depends 1 | No – withdrawals occur | $88,000 2 |
| Ability to defer tax / tax deferred growth | Yes – until withdrawals are made | Yes – until withdrawals are made | No – given withdrawals are tax-free |
| Tax free growth | No | No | Yes |
| Withdrawals taxed as income | Yes | Yes | No – given withdrawals are tax-free |
| Taxable withdrawals subject to withholding tax | Yes | Yes – if over RRIF Min. Schedule 3 | No – given withdrawals are tax-free |
| Beneficiary or successor holder / successor annuitant option 4 | Beneficiary only | Both | Both |
| Upper age limit for account / age considerations | Yes – collapsed in the year you turn age 71 | No – can be converted from RRSP to RRIF at age 65 for income splitting 5 | No |
| Notes: 2 – subject to lifetime contribution limits – see link above by tax year 3 – https://www.taxtips.ca/rrsp/withholding-tax-deducted-from-rrif-and-rrsp-withdrawals.htm 4 – https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/ | |||
Dividend Daddy is taking a trial run at early retirement, to see if his passive dividend income can continually exceed his expenses.
Can you retire using just your TFSA? The answer might surprise many 20-somethings!!
A fine roundup of Easter Sunday Reads from Dale Roberts is found here, including what to watch out for related to central banks fighting inflation.
New Cash-Yield T-Bill ETFs from Horizons
With some popular cash ETFs (e.g,. CASH ETF) blocked for Canadian investors in multiple bank brokerage channels and in light of the recent announcement regarding a federal review of these cash ETFs, Horizons ETFs let me know they are launching some “challenger” products:
- the Horizons 0-3 Month T-Bill ETF (“CBIL”)
- the Horizons 0-3 Month U.S. T-Bill ETF (“UBIL.U”).
You can find more here from Horizons ETFs. I hope to have Mark Noble back since he is excellent to talk to about such ETF products. I previously interviewed Mark here:
These ETFs (CBIL and UBIL.U) will be the first in Canada to provide exclusive, ultra-short exposure to Canadian and U.S. T-Bills.
| ETF Name | Ticker | Investment Objective | Management Fee* | Initial Target Annualized Net Yield |
| Horizons 0-3 Month T-Bill ETF | CBIL | CBIL seeks to provide interest income through exposure to Government of Canada Treasury Bills with remaining maturities generally less than 3 months. | 0.10% | 4.23% |
| Horizons 0-3 Month U.S. T-Bill ETF** | UBIL.U | UBIL.U seeks to provide interest income through exposure to U.S. Treasury Bills with remaining maturities generally less than 3 months. | 0.12% | 4.25% |
*Plus applicable sales taxes.
** Trades in U.S. dollars.
I believe, like Horizons ETFs, Canadian and U.S. T-Bills are generally some of the safest investments you can make and such products could be good cash-alternatives in our current rate environment to GICs, with potentially much better yields than any high interest savings accounts (HISAs) offer too.
Cashflows & Portfolios had a take on higher interest ETFs recently.
When it comes to keeping a balanced portfolio, this article suggests the 60/40 portfolio is not dead yet.
What is the ultimate level of wealth? While a very subjective scale, Ben Carlson offers some insights.
“Level 1. I’m not stressed out about debt.
Level 2. I don’t worry about what stuff costs in restaurants.
Level 3. I don’t worry about what a vacation costs.”
Level 3 would be great, someday 🙂
Have a great weekend!
Mark
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.
Here are a couple headlines about what may happen in June about RRIFs, of course this is government so who knows when we will see changes.
Outdated RRIF rules could get overhaul.
Department of Finance will wrap up its study in June(2023).
They talk about the CD Howe report and changing Demographics.
I hope so, Jason. Getting rid of RRIF mins. would be a major win and simplifying the account structure would be ideal. These outdated rules make little sense to me – just a mechansim for the government to get some tax revenue back.
I don’t really have a horse in the race on this one. They can change the rules if they want – I agree the original reasoning behind them is not aligned with current investing habits. I plan to melt things down. My current model has us converting to RIFs immediately upon retirement and I map my wife’s RIF being depleted by her age 67 and mine by age 75 for me. I’d be willing to draw mine down a bit faster for some special travel or other abnormal expenses and take the tax hit if need be.
The only caveat I’ll add is that if the minimum withdrawal requirements are reduced or eliminated I suspect some retirees will look to take CPP and OAS at the earliest opportunity and “hang on” to their RSPs / RIFs – in my opinion, to their detriment, especially related to estate taxes at death.
But, I’m no expert. My parents only ever took the minimum withdrawal based on the advice of their Investor’s Group advisor. UGH! Once I was given power of attorney I at least got her to take out an additional number for both of them equal to their TFSA contribution maximum each year. They passed with way too much money in their RIFs (at age 89!). That will not be the case for my wife and I.
“But, I’m no expert.”
Well, you know more than the IG advisor. LOL.
Best to avoid, as you know, a fat RRIF in your 80s or 90s. Much better to have that money/assets out by then and into TFSA (priority #1) or even tax-efficient non-registered account if the last person standing, as to pass on assets to family the sooner the better. That’s just me!
Cheers.
A weird question on RRSP/RRIF withdrawals. Currently I have my RRSP holding 100% VTI in US$ if I want to withdraw or convert into a RRIF can I withdraw in US$? If yes, how will CRA or the bank calculate withholding tax? I used Norbert gambit to convert the dollars before purchasing VTI and I assume I can do the same on the reverse to avoid the bank’s outrageous conversion rates. However, I wondered if I could leave everything in US$ putting them into my banks US dollar account and spend the cash from there (to enjoy the snow bird life).
Another note unique to my situation. I plan to drain the RRSP to zero in just a few years before taking my pension. Retiring early and deferring my pension by a few years will allow me to drain the RRSP while having zero income.
At the end of the day, CRA counts everything in CDN $.
For many brokerages, as far as I know, it would work this way: sure, you can withdraw U.S. dollars from your RRSP or RRIF, but withholding taxes will be charged and reported in Canadian dollars. Withdrawal fees (if applicable) from the U.S. dollar account will be charged in U.S. dollars for RRSPs. I would fact check everything with your brokerage.
Further, for income tax purposes, the U.S. dollar value of the security will be converted to Canadian dollars before withholding tax is deducted.
I would simply Gambit in reverse. “I used Norbert gambit to convert the dollars before purchasing VTI and I assume I can do the same on the reverse to avoid the bank’s outrageous conversion rates.”
Yup.
Cheers,
Mark
Just for a bit of clarification on RRSP/RRIF in-kind transfers to a TFSA (from taxtips). I can collaborate this as I did it once without realizing and triggered a capital gain in my non-reg account. After realizing hiw it works, I did the sell in RRSP/RRIF, withdraw RRSP/RRIF cash, deposit TFSA, and re-buy.
Here’s the link as well as the key part of the text.
https://www.taxtips.ca/rrsp/in-kind-withdrawals-from-rrsp-or-rrif.htm
Making “In Kind” Withdrawals From an RRSP or a RRIF
An “in kind” withdrawal can be made from a registered retirement savings plan (RRSP), or from a registered retirement income fund (RRIF), which would include LIFs and LRIFs, since they are considered to be RRIFs under the Income Tax Act. A withdrawal of investments can be transferred to a non-registered account, or they could be transferred to a tax-free savings account (TFSA), subject to the amount of contribution room available. However, they are still considered to be transferred into your non-registered account and then out of the non-registered account to your TFSA. The TFSA or non-registered account would have to be in the same account holder name as the RRIF or RRSP in order to do the transfer. A transfer to the TFSA of a spouse would have to first have the withdrawn investments going to a joint non-registered account. From there the investments could be transferred in kind to the TFSA of the spouse. If there were no existing shares of the same stock already in the non-registered account, there would be no capital gain unless the investments increased in value, after being withdrawn from the RRSP or RRIF, by the time they were transferred into the TFSA. If they decrease in value this would be a superficial loss which would not be deductible unless the transfer to the TFSA is done more than 30 days after the withdrawal from the RRSP or RRIF.
Existing Shares of Same Stock Already in Non-registered Account
However, if you have existing shares of the same stock already in the non-registered account, your new ACB will be averaged using the existing shares and the newly transferred shares, in the same way it is averaged whenever you purchase additional shares. This new ACB per share will be used as the ACB on the disposition of shares into the TFSA, which may result in a capital gain or loss. If the new averaged ACB is greater than the MV per share, don’t transfer them into another registered account, as you would have a superficial loss.
To avoid having a capital gain or loss on shares being transferred from your RRSP or RRIF to your TFSA if there are existing shares of the same security in your non-registered account, you could sell them in the RRSP/RRIF, withdraw the funds (taxable) which you would deposit into the TFSA. Then you can buy the shares in the TFSA.
Ciao
Don
That’s one of the best sources around, Don, TaxTips.ca
I also like the Government of Canada too.
Personnally, I’m not going to transfer assets out of the RRSP or RRIF in-kind. Rather, sell assets as needed, transfer cash to the dollar I need it. More exact. So, over time, RRIF assets will be sold and just move the cash. That may or may not work for others I know!
Thanks for sharing your source and thoughts!
Mark
Question; when transferring stocks out of a RRIF to a non registered trading account for one’s obligatory minimum payment, is it deemed sold and a declaration of capital gains is to be reported on income tax return for that year? If one is holding a security in a RRIF that is worth less than its original purchase price would it not be a good time to transfer it to a non registered account for obligatory RRIF payment?
Assets come out of registered accounts at market value. As such (in my opinion) it’s much easier to sell them in the RRIF and just move cash. Also, in that way, you can move the exact dollar amount desired.
You got it. Thanks for your contribution, Neil.
Mark
I haven’t done it myself but should be fairly straightforward.
No tax is withheld when the minimum amount is withdrawn from a RRIF, so, if moving assets in-kind / as-is, then it is not necessary to sell any investments before making the withdrawal.
Pros and cons IMO.
If an asset in RRIF is now worth less, you still have to meet min. withdrawal amount.
Personally, I always want my assets worth more 🙂 Happy to have a small tax headache in retirement (all things being equal).
Hope that helps a bit!
Mark
(Note: regardless of cash for in-kind withdrawal, the withdrawal from the RRIF is included in the taxpayer’s taxable income, so depending on the individual’s circumstances, tax may be payable when the tax return is filed. They get you either way.)
Hi Mark,
Are taxes withheld if the maximum amount is withdrawn from the RRIF?
Thanks.
Yup!
https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/registered-retirement-savings-plans-registered-retirement-income-funds-rrsps-rrifs/registered-retirement-savings-plans-registered-retirement-income-funds-rrsps-rrifs.html
“In general terms, a payment from a RRIF in excess of the “minimum amount” is subject to tax deductions at source using the lump-sum withholding rates noted below.”
Best to consider/stay with the RRIF min. withdrawal schedule I believe to avoid more tax surprises in the spring but everything reconciles at tax time. Just the way it works!
I am in agreement with a previous poster in that just because we do not like the rules now we want them changed. I knew what the rules were when I started the process. The RRIF rules still allow for flexibility in the sense that you do not have to spend the money if withdrawn. It is just that tax is due.and people do not like it.
I am currently 67 and will have the problem of not getting OAS when I am “forced” to convert to a RRIF and withdraw.
People do not like to hear it but OAS is a form of gov’t welfare as we never paid into it during our working careers. I think it is a very useful social tool for those that need the funds but do you really think that a couple making 80k each should get social assistance. It has become ingrained into our thinking somehow that we are “owed” it. I would much prefer that these funds be more directed to those in the lower income levels that really need it. The move to reduce the age from 67 to 65 was totally a political move.
I agree with Mark totally on not liking what gov’e spends my tax money on but that is really a diversion from the issue here.
The withdrawal rates are not onerous but they could be simplified. Just say 5% per year until age 75, 10% till 85 and whatever you want afterward.
We have so much more flexibility now with the TFSA but that adds complexity as well.
If someone does not like the “rigid” RRIF then use the TFSA first.
And if you have additional funds and do not like the RRSP/RRIF rules then use a non registered account…. Capital gains taxed at 50% make this more compelling to some people as a RRIF will be taxed at the 100% inclusion rate.
My point being is we all want options and now that we have them we don’t like them because it is too complex or I do not get the OAS….yikes
I must say that I disagree with OAS being a social program, GIS is the social program. OAS comes from general tax revenue so a person who’s paid taxes all their life is just getting back a tiny bit of what they’ve paid into over the many years.
I’m very sympathetic to true low income people but not sympathetic in the least to people that have lived beyond their means their entire life. Canada definitely penalizes savers and it’s getting worse and worse with all the current freeloaders.
But, I will agree with you and Mark that our current gov’t wastes an incredible amount of tax revenue and has absolutely no idea what they are doing. I don’t feel sorry for the “entitled” millennials but sure feel sorry for the following generation(s) that will have this huge mess to deal with as well as having a way lower standard of living.
Ciao
Don
I like OAS as a concept but the program needs an overhaul. No senior (just my opinion) who makes $80k per year, or up to $120k or so per year, needs “income security”. That is bonkers. I think GIS and OAS need a significant overhaul.
As for the government wasting money, lots to say on that, far from happy these days based on what I see.
There will be a huge financial mess coming. We’re seeing this play out in real time…
Thanks for chiming in!
Mark
There is no question about the government waste. And I also agree that making all these retirement accounts simpler to manage is a good idea.
But Ken is also right that OAS is a social program. It makes no difference how much or how little tax you have paid, you get OAS.
It was brought in to help seniors that had a hard time making ends meet and this helped pull them out of poverty. Not all social programs are bad. Otherwise I’m all for doing the best you can for yourself and have government get out of the way.
WE make too much out of trying to avoid the claw back of the OAS benefit. This was never meant for us and is rightly means tested. We should concentrate on our investments and forget about OAS. I do realize that we are all greedy and want more, but should stop looking for government handouts. When we have to struggle to find strategies to avoid paying more taxes then we have done well.
I’ve always seen OAS as a social program given OAS benefits are delivered from general tax revenues. We all pay into it. Therefore, it’s a social safety net program. CPP is a contributory program. Not the same thing.
I would agree most folks worry about OAS, OAS clawbacks, way too much. That is of course, assuming you don’t really, really need the OAS money. Then you worry about it.
I see OAS as a bit of income gravy so I’ve/we’ve always focused on the reasonable income our portfolio can deliver, not focused on what the government benefits will or will not pay us. That’s just me/us. I focus on what I can control. Not government benefits that may or may not change.
Thanks for your comment.
Mark
My point is that if you make 80 – 120K you don’t need the OAS.
Totally, same point. No senior making $80k per year, needs any income security. Assuming no debt, that’s a pile of money to spend per year.
Thanks for your thoughts, Ken.
But in theory, you could take away the min. RRIF rules and you could still have your own schedule if you wanted based on those rules. Just not forced. As I mentioned in a comment too, there is no max. RRIF withdrawal. So, again, you can take out more today or in future as you wish. Simply, assets stay tax deferred inside the account.
The real reason the government forced rules is to start assuring they get some of their money back. It’s forced.
OAS is a very good social tool but I do struggle with any senior, maybe myself eventually, getting income security. So, to your point, any senior making $80k per year, $160k per year per couple, absolutely don’t need income security. That program needs an overhaul in my opinion.
“The move to reduce the age from 67 to 65 was totally a political move.” – couldn’t agree more.
I appreciate your take!
Mark
I’m not a fan of asking for the rules of the game (that I was aware of and agreed to when I started to play) to be changed just because I now don’t want to follow those rules anymore. Having said that, if there was a clear and present danger to keeping them the way they are then by all means do so. I just don’t see much substance in the arguments presented in that article.
I also acknowledge that my view is somewhat hypocritical in that I *want* the OAS/GIS and TFSA rules to be modified.
I drive myself nuts some days arguing with myself. 😉
That’s fair, Lloyd. There could be a transition though in any change. Merging and taking away RRIF min. withdrawal rules wouldn’t really change how you could manage that account. You could always use the schedule as you wish, on your own, just not forced. You can always withdraw more than RRIF min. now too. There is no max. withdrawal limit with RRIF. Thoughts?
Mark
I’m sure there are a number of things that *could* be done. I’m not convinced they *need* to be done.
Everyone that contributed to their RRSPs knew (or ought to have known) that they were a tax deferred savings plan with rules and guidelines. The RRSP is intended to be a tax deferred savings method to allow for accumulation up to a set age and then converted to some form of income (RRIF or annuity) after a set age. There are options and *some* flexibility for the transition to income but we knew we had to do something by a certain age. We agreed and accepted those rules/guidelines when we chose to partake.
Having said all that, there have been numerous tweaks to the RRSP and RRIF guidelines/rules over the decades. They went from a use or lose it position, they added a home buying option, they removed the Canadian content rule, they revamped the RRIF and the RRIF Factor numbers, etc etc. So I acknowledge that it is somewhat hypocritical of me to be against more changes and this could just be the curmudgeon in me coming out (again). 🙂
Yes, there have been a few tweaks for sure…HBP, Learning Plan, etc. I guess I grow tired of all the boutique stuff. 🙂 Keep it simple.
I appreciate your take.
Mark
An alternative de-cumulation strategy is to defer OAS and CPP as long as possible and accelerate withdrawal of registered assets. In that strategy, the RRIF minimum becomes irrelevant (because you’ll be withdrawing far more than that). But what does happen is that you might find yourself constrained by LIF maximums (if you have pension assets).
But either way, it does feel like the government makes it overly hard for you to plan the right retirement for yourself.
I think that is where I am coming from, thanks Neil. The average Canadian would be much better off when the account strutures are easier to understand and manage. There is less waste in the system per se but I doubt I will see meaningful change in my lifetime. I will of course advocate for it 🙂
Thanks for your comment and take.
Have a great weekend!
Mark
That’s exactly what I’m doing, Neil (and Mark). Starting to deplete RRIF early, deferring OAS/CPP to obtain the maximum, transferring withdrawn RRIF funds into non-registered account (TFSA maximized) where it will be taxed as capital gains only when I sell in the future. Non-registered account currently invested in several Horizons funds. Also a cash wedge for the first few years currently earning 4.70% in high-interest accounts.
Love the site, Mark, and all the useful info!
Very smart, Deb. Based on the work we do at Cashflows & Portfolios, see many retirees do the following general drawdown order for great tax efficiency overall:
1. Slowly deplete RRSP/RRIF assets over a few decades, defer CPP and OAS if you can but definitely CPP if possible to age 70.
2. Any RRSP/RRIF $$ not needed for living expenses, goes to TFSA(s) every January.
3. If any RRSP/RRIF $$ still not needed for living expenses, then after TFSA filled up put into taxable account for capital gains/leverage tax efficient ETFs or stocks, etc. to be strategic.
4. Keep cash. Always. In some cases, 1-2 years for that cash wedge via GICs, cash yield ETFs, GIC-ladder, etc. to avoid touching equities for 1-2 years if/when markets don’t cooperate!
Very, very smart 🙂
Mark
Hi Mark,
I agree with all your remarks and general drawdown plan above. I’m delaying my CPP and OAS to age 70 so that I can drawdown some of my other investment accounts. Originally I was taking money from RRSP to help reduce potential for OAS clawback.
Do you ever see situations where it is better to drawdown non-registered assets first over RRSP / RRIF assets?
One thing to consider, if you hold a lot of non-registered Canadian stocks that pay eligible dividends. The eligible dividend is grossed up (by 38%) in order to calculate taxes, and then the dividend tax credit reduces the tax payable (at the very end of your tax return). Generally this works out very well, especially in the lower tax brackets. HOWEVER, the OAS claw-back is based on the grossed up amount of income. So, strictly speaking, it might be good to draw down those non-registered assets before you start OAS at 70. These variables will very much depend on your exact situation, the breakdown of your assets, your tax brackets, etc.
One other situation that comes to mind is an early retirement one. Say you retire at 55 and your spouse has less taxable than you. If you hold on to your RRSP assets until you turn 65, your RRIF payments will be tax-splitable with your spouse. Your non-registered assets are not splitable, so draw those down in the years between 55 and 65. Again, it’s a strategy for a specific scenario.
Thanks Neil. Yes we do have ETF’s (stock and bond that distribute dividends throughout the year) in the Non-registered accounts.
As a couple we do have more non-registered funds than RRSP due to some inheritances. I have been drawing my RRSP to some extent as my partner has about twice the amount of RRSP than I so splitting with her, especially after age 71, is not gonna help at all. She also is still part-time working so not much of a chance to get too many withdrawals out at this time. I did run my financial plan through an excel spreadsheet Solver function to determine the best % of needed annual income to come from each account in an attempt to provide the highest after-tax income for the estate. Results did provide all non-registered withdrawals prior to 65, mostly non-registered withdrawals with some RRSP withdrawals between 65 and 71, then all non-registered withdrawals after 71 (not including the minimum RRIF withdrawals which there is no option to not take them out). So this does seem to agree with what you have said. Trying to minimize OAS clawback as much as we can.
I just plan to update the plan once or twice a year and then run the optimization to see if things have changed. Takes about 1/2 hour for the optimization to finish.
Thanks again, Any other comments or references / websites / etc. that might be of help on this topic would be appreciated. Just trying to fully understand exactly why this is happening to determine if I should loosen the optimization a bit to prevent causes unexpected situations in the future.
Yup. I just replied and have the same comment in that if you can defer (both CPP and potentially OAS) government benefits to age 70, then slow wind-down of non-reg. assets can make sense. Capital gains is also a very efficient form of taxation, generally speaking 🙂 I see, hear, support lots of folks seeing their potential to:
1. Turn RRSP > RRIF age 65 for income splitting; predictable income,
2. Defer CPP to age 70, accept OAS at age 65; support longevity risks,
3. Tap some non-reg. assets in their 60s and 70s to be tax efficient with drawdown, and the while….
4. Keeping TFSAs “until the end” for tax-free compounding and estate planning.
Thanks for your detailed comment, some tax savvy stuff there. 🙂
Mark
Absolutely. The “NRT” (Non-reg. before RRSP before TFSA) drawdown order as I call it works when there are larger non-reg. assets and folks might have a modest to large company pension plan. To avoid higher taxation, a large bump in taxation in your 70s at least when CPP and OAS might be forced to come online, anyone that has a good pension + CPP + OAS and now non-reg. income may incur OAS clawbacks. It does really depend on your income streams and alphabet soup of accounts but I feel, and see, and hear from many retirees, that generally speaking there should be a strong consideration to tap RRSP/RRIF assets sooner than later in retirement and if you can, defer CPP at min. to age 70. Taking OAS is common. Those are very good considerations.
Thanks for your comment and hope that helps a bit 🙂
Mark
Thanks Everyone for your feedback. That was very helpful. Just one follow-up question that is related. Would it be better, even though projections show Non-registered withdrawals first to be better for the overall plan, to take a mix of Non-registered and RRSP/RRIF withdrawals early as well? My concern is a huge tax hit upon death should we both pass away earlier than expected. The longer after 71 we live the more of the registered funds are removed and the less the impact on the estate taxation.
I often see just that, Ed, a blended approach to drawdown RRSP assets and some non-reg./taxable assets over time to smooth out taxation and avoid lumpy tax hits.
Ideally, for some couples at least, by mid-80s and by early-90s for sure….all RRSP/RRIF assets are gone and/or whatever is not spent from RRSP/RRIF is transferred to TFSA (priority #1) and then to taxable investments. A big consideration for most.
Mark