Can Early Withdrawals Reduce The RRSP Tax Hit?

[steve41]

Examine the comparative net to estate graphs again. What happens if we die in five years and had chosen to adopt an RRSP sheltering strategy. It appears our estate will be disadvantaged to the tune of $20k.... inheriting $165K instead of $185K.

Now look at what happens at the other end of the life sweepstakes spectrum.... If we had made it to age 95, our estate would net $80K under the shelter option and zero under the melt option.

[Four Pillars]

Under the old rules all the money was out by age 90. Under the new rules some will still have money at age 90. It will not be many people, but I still think the rule change will be to the government's advantage.

This doesn't make sense.

The government would be better off if the money was withdrawn earlier, not later.

[MoneyGal]

^ This.

[steve41]

I would dearly love to change the title of this thread..... removing the word 'how' and substituting 'can'.

[kcowan]

There is no average guy. "Average life expectancy" means that 50% of the population is still alive at that age, and 50% is dead. The distribution of actual lifespans around that number is pretty wide -- wider than the distribution of stock market returns around the average for the past seven decades, for example.

When I did my serious planning in 2002, I found that my median was 92 with 20%iles at 84 and 100. So I use 100 as the "worst case" for my financial planning.

Living to 100 is only slightly less likely than living to 85. (NOTE: I am talking about dying at age 100, compared to dying at age 85.)

Yes I guess that parallels my experience.

I think the ability to melt down RRIF and put the proceeds in a TFSA is a major plus for today's seniors.

[Sampson]

Living to 100 is only slightly less likely than living to 85.

This is actually a pretty interesting and well documented observation among researchers who study aging. This is a high 'risk' of developing a terminal disease (whether heart, lung, disease, or cancer being some of the more prevalent) during the 55-75 age range. If you can get beyond those years healthy, the chance of living well into your 90's is quite high.

This is the interesting fact of curing these disease, if or when researchers can do it, it'll mean much longer lifespans, and theoretically, 120 and beyond should be possible (based on telomere length etc).

[kcowan]

When my Dad was 92, I completed a longevity calculator for him. It show a life expectancy of 3 years. By chance, he lived for 3 more years.

[Financial Cents]

I would dearly love to change the title of this thread..... removing the word 'how' and substituting 'can'.

Indeed. I am tempted to advise my parents of collapsing a small spousal RRSP before they get hit with more taxes once they start accepting OAS. They have some debt ($70 K+) which IMO really needs to be paid down, so any small withdrawals now over the next couple of years can be used for debt reduction, and avoid more taxes when they hit 65.