Weekend Reading – #RRSP deadline advice, selling our house, retirement using ETFs, and more #moneystuff
Hey folks!
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
Well, we put our house up for sale this week.
Stressful, but necessary stuff.
It’s all part of the move to the city that will happen in just four more months – something I wrote about here in my housing dilemma series.
Overall, we’re really excited to own our condo in the sky – a 1,200 sq. ft. 2-bedroom condo on the 6th floor of a building in the core of our city (Ottawa) within 30 minutes walking distance of everything – including work. We’re also fortunate to have a 286 sq. ft. private terrace as well off our living room – which should be great to relax on in every season but our current, long, cold, dreary winter.
I’ll keep you posted on the sale process. We’re optimistic with four private showings booked already, within 48 hours of listing, we have a chance of selling this house.
Finally – if you live in Ottawa, want to move to this lovely spot, send me an email! I’ll be happy to send you the listing for you, family or friends!
Congratulations to Ross and Tony, winners of the Pensionize Your Nest Egg books via this review and post on my site – why you should consider pensionizing part of your nest egg at some point. The author will be sending your book in the mail soon!
Enjoy these articles and some Weekend Reading!
Mark
Interesting MoneySense column about why so many athletes run into financial trouble. From the article, some wild stats:
“The need for athletes to get their money managed professionally should be apparent from a WyattResearch.com report (publicized in Sports Illustrated in 2009) that found an astounding 78% of NFL players and 60% of NBA players file for bankruptcy within five years of retirement.”
Dale Roberts wrote about creating a retirement portfolio using low-cost ETFs. I think such an approach is great but you need to be mindful of the following, which Dale wrote about:
“Selling assets continually when the market is down kills the cow. You’re owning less of the companies. You’ve had to sell large portions of your shares to fund retirement; you’re decreasing your ownership of those companies and profit centres.”
This is why my bias is to own a modest cash wedge in semi-retirement – something I’ve written about.
In using a cash wedge, I can ride out short-term bad markets without selling any assets. Also, in using an income-oriented approach, I can largely choose when I want to sell assets – cutting back on my expenses in a bad, prolonged market while continuing to “live off dividends”.
My dream to live off dividends remains alive and well!
Royal Bank increased their dividend this week. Thanks very much – more income to report in February!
My friend Robb Engen wrote about taking CPP at age 70. I find this subject gets a lot of attention – maybe rightly so!
“RRSP Season”
Hey fans…it’s RRSP season again – that means the March 1, 2019 deadline for contributing to an RRSP for the 2018 tax year is approaching fast.
Are you contributing this year? Why or why not?
Here are some of my top posts about investing in this account while being tax-efficient and considering beneficiaries as well.
It’s “RRSP season” – here are my top tips to build a fat RRSP nest egg.
Check out these RRSP “dos” and “don’ts” for this 2019 tax season!
Should you draw down your RRSP before taking any workplace pension? It could be a great idea.
In your 60s? Approaching your 70s? Consider an RRSP withdrawal strategy before age 71. I intend to.
Can you have too much money in your RRSP? Even if you have a workplace pension? I highly doubt it – here’s why.
Happy investing and see you in the comments section!
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.
Of course…anytime.
Cheers
Congrats my man! Hope you post some pics of the new place when you are all settled in.
P.S – I’ve been referring a few people to your site lately who I’ve been helping getting out of high cost mutual funds, and moving over to self directed ETF’s. (your post(s) on the top ETF’s)
Sweet 🙂 Thanks Jordan. I’ve been meaning to write you and others about some guest posts/Q&A on my site. Would you be game this spring?
Happy investing and keep the pedal down with XAW!
Mark
@May, I expect our registered accts RRSPs & LIF lasting somewhere between age 80-85, depending on how aggressive we go on withdrawals there and/if from unregistered. FWIW, the software plan I have says RRIF depletion at age 85 (RRSPs) & 90 (LIF) respectively, using conservative 4% returns, CPP @70, and lower withdrawals after that starts to tax smooth. That is consistent with numbers I also did on taxtipsRRIF calculator.
I have not made RRSP contributions since age 45, 10 years before retiring, due to self employment, lower and P/T employment.
Tax optimization makes sense because you’ll choices, and income splitting will help. At 65 you can convert some of your RRSP to a RRIF so you can do income splitting from that. For whatever time frame you retire before 65 being able to split withdrawals evenly would save tax. After 65 you can figure out whatever combo you need to optimize it evenly. We have been able to and expect to always be able to split incomes ~50/50.
OAS clawback doesn’t even “start” until 155K gross houshold income and very unlikely we’ll ever reach that level here, especially with income splitting. If we reached it (and its still around) I’d view it as an incredible “problem” to have.
Yeah, it’s very unlikely we will hit the OAS claw back. Especially we still have many years to contribute to TFSAs.
Making $155K per household, if no debt in retirement, is a crazy amount of money that only 40-year+ gold-plated pension plan couples or two teachers might ever reach. The folks that get both retirees clawed back, I suspect, are the 1% of the 1% for Canadian retirees. An incredible problem to have.
We’ll never get there but then again, we don’t want to be there 🙂
Congratulations, Mark. Obviously you and your wife keep a nice home and it makes the sell so fast.
RE: Too much RRSP. As of today, we have a little bit over $1M in our RRSPs combined. I have wondered if we could have too much RRSP. Bud we don’t have any pension and most likely we will retire quite a few years before 65, I figure I can always delay CPP/OAS and try to draw down RRSP as much as possible before 71. Anyway, too much RRSP will be a nice problem to have so I decided not to worry about it.
Thanks May. I hope to write about our process in the coming weeks on the site – once things are final. I try to avoid counting any chickens before they hatch… 🙂
re: too much RRSP – you’re in a great place. You can likely create your own pension (re: pensionize your nest egg) with some portion of your RRSP at some point. You can absolutely delay CPP and/or OAS. The biggest problem with a large RRSP is you have choices!
Mark
May, IMHO you have the right strategy. Mark’s right with his tongue in cheek answer – choices will be your problem. A good problem.
I suspect your employment incomes are significant and you therefore have considerable tax savings with registered asset contributions. If your retirement income is structured to be nearly equal between spouses (spousal RRSPs if useful?) and is the same or lower in retirement than working its a great way to fly. It seems you will have years to draw down these assets a fair bit before other government benefits OAS/CPP, or having larger set forced withdrawals with an RRIF, if you choose. During those years if you have FI and/or cash wedge you’ve got some extra insurance on potential market swoons. You can use RRSP withdrawals for living, topping up TFSAs and if appropriate also unregistered accts. Seems to work for me!
@RBull and @Mark, thanks for confirming that I am doing the right thing. I am pretty sure our tax rate will be lower after we retire than when we are still working. We might get OAS clawback after 71. But again, that is also a nice problem to have, right? Also, who knows what will happen to OAS in such a long time period. I don’t include OAS for our retirement plan anyway.
We did not do spousal RRSP as I assume we should be able to split RRSP withdrawal after my DH turns 65. Before that, I figure my own RRSP should be good enough to withdraw from.
@RBull, what you are doing right now is exactly what I plan to do in retirement. Draw RRSP down before CPP/OAS kick in. We will not do RRSP withdrawal based on what we need for living as that probably will leave a large amount in RRSP at 71. Most likely we will do the withdrawal based on tax optimization. We will definitely top up TFSAs and will not touch it until very late in the life.
I think it’s very smart to draw down personal assets (e.g., RRSP and RRIF) to the extent possible and as needed before CPP and/or OAS. In that case, if you don’t “need the money” then it makes sense to defer CPP and/or OAS up to age 65 and spend other non-inflation protected assets.
When in doubt, you can always take CPP and OAS at age 65 and if you don’t need the money – fill up the TFSAs with it. Again, not a bad problem to have. Win-win.
Thank you for CPP numbers.
Congratulations on the house sale Mark. Hope mine will go that quickly when I decide to move. Wait, what we’re never moving – drat!
CPP thoughts:
Your 50’s are your GROW years – usually when you make the most money while working
Your 60’s are your GO years – healthy enough to play (travel etc..) if you have the money
Your 70’s are your SLOW years – it hurts to play (Joints wear out) and health concerns usually manifest more
Your 80’s are your NO years – you just can’t do it anymore, energy gone, can’t get travel insurance
These are of course generalities. My mother in law is 95 going on 65 and dances once per week. My dad passed in his mid 60’s
We all want to GO as long as possible.
I would rather add the CPP to my GO years and live it up awhile – even at the discount. My spouse is five years older and we want to play now. Of course it’s Saturday and my mind might change by Monday, depends which day of the week has the most vowels in it while I’m thinking about this stuff.
CPP is a DB pension plan. It is rock solid, guaranteed and will be there for you. Yes we all contributed but the majority of Canucks will draw out substantial more than they ever put in. I am very grateful for it.
Totally agree with that lifecycle. My goal is to get more fit in 2019 and 2020+ so I can really enjoy semi-retirement the way I want for the coming decades. Not point in having financial options if I can’t do anything with them health-wise!!
CPP = DB pension = absolutely. Rock solid. This is why some Canadians should consider deferring it if they can to maximize the income from it.
Hey Mark, Are you moving to the Glebe? closer to Landsdowne Park?
You got it – closer to the Glebe and Lansdowne. Less than 4 months until we move.
Did you already purchase your condo? Did I miss that in another post? I’m busy being newly retired in Mexico and I’m behind on my reading:)
Newly retired in Mexico sounds WAY less stressful than trying to sell a house in the winter in Ottawa!
Yes, we purchased a pre-construction condo about 1.5 years ago.
Sounds like a good start on your home sale interest. With a lovely home and a buoyant housing market in Ottawa I think you will be handsomely rewarded soon, and able to make an easy transition. Best wishes.
That pro athlete story was interesting. I will try and get the book.
Dan B @CCP had a compelling article in Globe yesterday on AIO etfs that you first reviewed in your recent thread.
As you know I have a similar mentality with dividend bias, cash wedge etc but there are some appealing things to these AIO products particularly when we also have FI….more moving parts.
Indeed with Robb Engen. That’s a touchy subject as we’ve seen on here. Easy stuff to say decades away but I wonder if he will walk the talk. My intentions now are to go that delay route but who knows……I think market performance will play a role for us and it may be hard to resist easy access to that income stream. A lot can happen in that time.
“That’s a touchy subject as we’ve seen on here.”
I think it’s touchy everywhere. I know what my options are, and I know what the numbers are, but I still can’t make a decision. I’ll stare at the figures for an hour, running scenarios through my mind and driving myself nuts (I know, short trip). I end up throwing my hands up in frustration and going for a walk in the cold (it doesn’t help with a decision but it sure takes the mind off the subject). The clash between the pure financial picture and the emotional side combined with the indecision on what to do overall makes deciding on a path darn near impossible. As a humourous aside, on one of my walks on our road (rural gravel roads and I walk the mile out and mile back), I found a kitchen fork embedded in the packed snow/gravel. Literally, “a fork in the road”. Someone trying to tell me something? Of course I picked it up, brought it home and its sitting at the back entrance and I see it every day as a reminder.
I’m going for a walk.
Great story. Wasn’t a fan of him but reminds me of P E Trudeau’s famous walk in the snow to decide his future.
I agree it’s touchy period. There is probably not any one right answer for all. The key thing is to actually collect true information, make an informed choice. Not sure a lot of people do that part.
I recently purchased access to a program that did a retirement cash flow scenario, incorporating all income sources, acct types & balances. You can do various modelling on it before/after tax, and CPP at different ages, drawing from different acts $ first or last etc. and the actual dollar outcomes are. I just purchased and still have more scenarios to run and save. Delaying CPP to 70 gave us about $2100/yr indexed more now to age 100 to spend than @65. Didn’t try 60. I assumed only a 4% return.
The flip side is what both you and I mentioned before. Earlier death, survivors benefits loss etc changes all that. This is possible but less likely and both of us would still very likely have little financial concerns regardless. I’m also less interested in relying on markets way into future and my own mental capacity to navigate them in 15-20 yrs. Plus we can change our minds on CPP and apply anytime anyhow. Wife is eligible already and I soon will be for starting early.
That’s my thinking for now but maybe things will happen or more thinking on it that will change my mind.
“I’m also less interested in relying on markets way into future and my own mental capacity to navigate them in 15-20 yrs.”
I think that’s smart thinking. If your late-70s or 80s – why take on more risk when you don’t have to?
Things can change but you’re on an outstanding path.
Yah, we’ll still likely have plenty of investments 75+ but if it’s less to manage and replaced with more from indexed CPP I’m thinking that’s a good thing. Without an inheritance to think of for maximizing our own assets, really the main consideration is just the CPP loss of one income issue, and that could apply to OAS as well.
Thanks. We’re plugging along.
Hi R Bull. Can you point me to this magic retirement cash flow scenario software ? I have been looking for something like that in online calculators for a while.
Hi Angela,
Definitely not magic. Some limitations to it but for the price a good place to start for a DIY investor.
https://cascadesfs.com/
Keep me posted on what you like about it….I might write about that 🙂
Lloyd, you’re in great shape and the reality is – even if you don’t make the perfect decision (whatever that is, hindsight is always 20/20) the fact that you have such financial decisions/options are huge.
Ultimately health is wealth. This you know. Enjoy the walk. Back to deciding on our house sale!
No real reason not to share the CPP numbers….
60 $1,154.58 64.0% $738.93
61 $1,149.92 71.2% $818.74
62 $1,142.58 78.4% $895.78
63 $1,134.82 85.6% $971.41
64 $1,116.74 92.8% $1,036.33
65 $1,093.93 100% $1,093.93
hopefully that posts okay.
Here’s mine posted in far right column and to age 70. You get a pretty big raise by waiting to 65. Mine much less so, with fewer years@ max and numerous where I was self employed and made zero contributions. My wife’s numbers are a little higher than mine.
60 $1,154.58 64.0% $738.93 $636.56
61 $1,149.92 71.2% $818.74 $691.63
62 $1,142.58 78.4% $895.78 $744.18
63 $1,134.82 85.6% $971.41 $794.39
64 $1,116.74 92.8% $1,036.33 $842.40
65 $1,093.93 100% $1,093.93 $888.36
66 $962.98
67 $1037.61
68 $1112.23
69 $1186.85
70 $1261.47
I admit I was surprised at how little difference retiring at 55 made to the pre-penalty numbers. Before I had Doug run the numbers I had *assumed* that my drop out would result in more of a loss than it actually does. That’s why I was shooting for a 62/63 before applying (use up the seven year drop out). Again I *assumed* that would be the optimal age so as to not get hit by a drop out of 10 years. Doug’s numbers show it isn’t all that big of a deal so deferring to 65 or even to 70 becomes a more viable option. Hence my indecision and frustration at myself for same. If we *needed* the money it is a no-brainer. The quit-day on the farming as well as the sale of the rental house also comes into play due to income from those.
IIRC, you’re 60 this May so your decision date is closer than mine. I might just load up a file with all the paper work and go see a professional for a more un-emotional opinion.
Yes. I’ve already decided definitely no to starting @60. I am really planning to go to 65 and then reconsider. My wife was 60 late fall ’18 and wants me to make the decision for her. So we delay.
Where we truly plan to utilize a good deal of capital it just makes it easier tax wise to bring the registered down at a faster rate before taking CPP, particularly before forced amounts @71. I don’t feel we “need” CPP now, or desire saving more of the registered for further down the road, and not crazy over just wanting to reinvest after tax CPP funds. And CPP is a known $ + indexed…forever other than the spousal loss potential. Maybe I’ll feel different if we have a huge market dump, but I doubt it, mostly because pension, dividends and loads of FI can help us ride it out for many years if needed. You know.
We’ll see how it unfolds as time passes. I’ve read enough and thought enough to understand the issues. There are pros and cons for everybody. Many don’t have a choice though. I think seeing a professional might sway you but I’m not sure it would be purely from an objective rather than a personal viewpoint. I get that with your situation. There are factors to consider.
My numbers are from longinvests spreadsheet, but confident they’re very close if not exact after doing some other manual calcs from Doug Rs formulas I saw.
“not crazy over just wanting to reinvest after tax CPP funds.”
Ya, this is something I’d rather not do. I’m leaning towards deferring CPP (today anyways). I should have some better data to base my plans on in the not too distant future. Getting the numbers from Doug was a huge big step.
The local town that pays me to handle their yard waste hasn’t committed for this year and will decide by the end of March. If they decide not to continue, then this will likely be my last crop year. My renter has indicated that he will continue to the spring of 2020 so that income will stop as well. I’ll sell the property and invest. With both of those income sources gone, I will likely work on emptying out my RRSP into an un-reg account (leaving my LIRRSP and wife’s RRSP). This will preserve funds for the wife in the event of my demise, while getting some assets un-sheltered at a decent tax rate.
Hope Mark doesn’t mind us talking here.
Talk away 🙂
Great stuff Lloyd. You’ve got lots of backstops and choice. That’s a very good thing.
I hope so too.
Lloyd, this was a good read re CPP.
https://business.financialpost.com/personal-finance/retirement/rrsp/the-rrsp-strategies-every-investor-in-their-60s-should-know
I had read that RB. It made me think that maybe a consult with a planner might be a good idea if only to bounce stuff off of. It would be pretty darn arrogant of me to think that I know and have considered all angles to this. An objective, knowledgeable review wold likely add a lot to filling in some of the foggier areas. Heck, just getting Doug to do my CPP gave me a much clearer picture to work from. I should also keep in mind that rejecting a *good* plan in the constant search for the *perfect* plan will just drive me nuts and I do have time.
Good. Sounds like that’s something beneficial for you to know that you explored all the angles and another source before deciding. You have some other factors also.
I’m guessing what you had told us about your pension choice before plays into being cautious and dilligent.
Well, 4 showings in 48 hours yielded 2 offers. Taking a mental break from the phone calls and texts with our agent and replying to some blogposts.
I hope it will be conditionally sold today. Crazy. Never expected it but it’s happening. I’m sure I will have an update.
I’m a huge fan of these AIO funds but I’m not sure I’ll be switching my portfolio right away. I tend to avoid breaking what isn’t broken.
It will be interesting to see what my cohort does or doesn’t do with these CPP, OAS, other programs – or even how we vote or don’t for such changes to them over time. My intentions are to delay until age 65 for CPP, likely take OAS at 65 but I could see myself taking either later in life if we spend some RRSP assets and those assets are “enough” to fund our needs. So much can change in the years to come.
Back to our real estate agent 🙂
Mark
Congratulations. I had no doubt it would sell fast! Very good news for you and I’m sure a load of both of your minds. Have a drink or two tonight.
I agree on the AIO and the if it aint broke thing. Similar thinking here. Things are working decently and feel confident we can reasonably weather the storms. If I start losing interest in investing or my mind deteriorates further LOL, then those AIO could be more serious considerations. I made a reply on your other ETF thread.
Good thinking on your part. I can see waiting to see just what your registered assets will finance and go from there.
RRSP this year? You betcha. I am getting close to finally maxing my RRSP room. This year it will all go the Spousal RRSP to ensure our withdrawals in the first part of early retirement are fairly balanced for tax purposes.
Great stuff David. Sounds like you’re a man with a plan!