# Most Tax Efficient way to withdraw during retirement



## kjeffrey (Feb 7, 2017)

I have just retired and have investments in RRSP/RRIF, TFSA and Non-registered accounts. What would be the most efficient way to withdraw funds during retirement?

Thanks.


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## Pluto (Sep 12, 2013)

I think the main thing is you have to know what your marginal tax rate is and do RRSP withdrawals such that it doesn't push you into a higher tax bracket - unless you really want the money that is. 
Try to have dividend income as much as possible in non-reg accounts due to the dividend tax credit.


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## like_to_retire (Oct 9, 2016)

kjeffrey said:


> I have just retired and have investments in RRSP/RRIF, TFSA and Non-registered accounts. What would be the most efficient way to withdraw funds during retirement?
> 
> Thanks.


Obviously, you want to pay as little tax as possible, defer tax as long as possible, and minimize effects on entitlements and credits such as OAS, age amounts, etc. But without a lot more detail it's impossible for anyone to give decent advise.

ltr


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## agent99 (Sep 11, 2013)

kjeffrey said:


> I have just retired and have investments in RRSP/RRIF, TFSA and Non-registered accounts. What would be the most efficient way to withdraw funds during retirement?
> 
> Thanks.


You say RRSP/RRIF. Does that mean you have already converted part of RRSP to RRIF so that you get the $2000 pension credit? That is usually the first thing to do at 65. The amount to convert depends on what other taxable income you have. It's not a bad idea to withdraw enough from RRIF between 65 and 71 so that you stay in a low or mid tax bracket. Once you are 71, you have to draw the minimum required and this can put you in higher bracket IF you have sizeable RRSP/RRIF.
Another thing, is to have dividend payers in your taxable accounts and interest payers in your registered accounts. 

It's useful to use a free tax program **** Studio Tax or Taxfreeway. Try various scenarios and see what works for you.


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## Mookie (Feb 29, 2012)

The answer to this question totally depends on your particular circumstances, but the way I see it, the main thing is to try to keep your (and your spouse’s) taxable income as level as possible from year to year over your entire retirement.

To do this requires some planning and preparation to set yourself up for an even and balanced flow of income between RRSPs, company pensions (if applicable), CPP and OAS for you and your spouse from year to year.

Many people think it’s always best to defer withdrawal of your RRSPs as long as possible, but if you’re retiring early, then you have an opportunity during the early years of retirement before other pensions kick in to withdraw a pretty sizeable chunk of your RRSPs at a lower tax rate. If you don’t spend it all, then shovel the excess into your TFSA, or your non-registered investments, gift it to your kids, or donate to charity. If you wait until 71 when you have to convert to a RRIF and must make withdrawals, then your RRSP income will be added to all of your other pension income, and this will likely push you into a higher tax bracket.

Probably the biggest tax inefficiency related to RRSPs though is dying with a huge RRSP/RRIF. Apart from missing out on enjoying that cash while you're still alive, whatever you leave behind all counts as income in that final year, leaving a potentially huge tax liability to your estate.


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## kjeffrey (Feb 7, 2017)

Thank you all!


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## none (Jan 15, 2013)

Mookie said:


> Probably the biggest tax inefficiency related to RRSPs though is dying with a huge RRSP/RRIF. Apart from missing out on enjoying that cash while you're still alive, whatever you leave behind all counts as income in that final year, leaving a potentially huge tax liability to your estate.


That's one of the main reasons I like this idea: http://business.financialpost.com/p...-72000-but-few-canadians-take-advantage-of-it


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## agent99 (Sep 11, 2013)

none said:


> That's one of the main reasons I like this idea: http://business.financialpost.com/p...-72000-but-few-canadians-take-advantage-of-it


Unless your family is known for its longevity, I would not delay CPP to 70!


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## none (Jan 15, 2013)

It's all about risk management - the consequences of running out of money is far worse than leaving your kids a larger nest egg


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## GreatLaker (Mar 23, 2014)

Mookie said:


> The answer to this question totally depends on your particular circumstances, but the way I see it, the main thing is to try to keep your (and your spouse’s) taxable income as level as possible from year to year over your entire retirement.
> 
> To do this requires some planning and preparation to set yourself up for an even and balanced flow of income between RRSPs, company pensions (if applicable), CPP and OAS for you and your spouse from year to year.
> 
> ...


Very well said. Here is an article that describes what you suggested in some depth:
http://www.rgafinancial.com/articles/What-Account-Should-I-Draw-From-First-In-Retirement.pdf

It's tough to determine on your own without the ability to analyze tax rates for different scenarios, plus you need to make assumptions about lifespan and tax rates that may or may not turn out to be accurate. The objective should be to provide the maximum after-tax estate value for a given set of assumptions around spending, rate of return, and lifespan. Conversely you could determine the maximum spending for a given after-tax estate value. But generally, withdraw enough from RRSP/RRIF to minimize future OAS clawback and tax rates. After that, withdraw from non-registered because it will be taxed at a lower rate, thus deferring taxes and leaving a larger portfolio to grow.


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## GreatLaker (Mar 23, 2014)

none said:


> That's one of the main reasons I like this idea: http://business.financialpost.com/p...-72000-but-few-canadians-take-advantage-of-it





none said:


> It's all about risk management - the consequences of running out of money is far worse than leaving your kids a larger nest egg



Yes. Deferring CPP/OAS results in more indexed government guaranteed income later in life when you have the least ability to recover from a portfolio shortfall. It provides more protection against running out of money due to long life, low investment returns, high inflation or any combination of the three. Especially important for retirees that don't have any other source of guaranteed indexed funds. Less so for retirees with a strong government or union backed indexed pension.

Do you want to take the bird in the hand now, or increase the likelihood that you will have enough eggs in the nest to live on later?


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## Eclectic12 (Oct 20, 2010)

Mookie said:


> ... Probably the biggest tax inefficiency related to RRSPs though is dying with a huge RRSP/RRIF. Apart from missing out on enjoying that cash while you're still alive, whatever you leave behind all counts as income in that final year, leaving a potentially huge tax liability to your estate.


For someone who does not have a qualified beneficiary, yes.

If there is a qualified beneficiary, the RRSP won't be taxed.
http://www.nilsonco.com/insight-past/rrsp_beneficiaries/


Cheers


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