# TFSA Usage during Retirement and End Game



## milhouse (Nov 16, 2016)

How are you utilizing your TSFA in retirement and what's your end game for it? 

I don't think I'm going to need to rely on regular TFSA withdrawals to support my expected spend in ER so I assuming I'll continue to contribute and build up my TFSA. I'd rather not just build it up, never use it, and leave it as a legacy. Curious if I should just use it as an emergency fund or employ whatever it yields as another income stream to spend on whatever. 
I'm assuming at the very end however, it will just end up with the missus and/or it being used as part of a legacy and for any estate related costs.


----------



## redsgomarching (Mar 6, 2016)

Most from what I've seen is people using excess funds (cpp, pension, rrif withdrawals, dividends) that they don't use to top up their TFSA. 

Because of the nature of TFSAs they are pretty handy to re-invest some wealth and grow it taxed free.


----------



## My Own Advisor (Sep 24, 2012)

Interesting question.

I will use up RRSP + RRIF assets first (only early 40s now - will do that in my 50s and 60s); then non-reg wind down (60s and 70s); then TFSAs "near the end". I might consider withdrawing from TFSAs in 50s and 60s, just the dividend income part mind you while keeping capital intact.

To be honest, not sure yet. So much "depends". It would nice to predict the future someday. Then again, maybe I don't want to know....

Certainly I've always seen the TFSA as the perfect retirement account from day 1. I mean, tax-free dividend growth and capital gains??? It's a gift that can keep on giving 

Like reds, whatever I don't need to spend from RRSP or RRIF, the excess will go into TFSA in retirement. 

Personally I wouldn't use the TFSA as an emergency fund. Open a savings account and keep your $5K, or $10K, or even $50K in there as you wish.


----------



## janus10 (Nov 7, 2013)

+2

We will also top up our TFSAs annually using income (RRSP withdrawals, dividends and capital gains from our non registered accounts). We will drawdown our RRSPs first, then move to our non-registered accounts. If they are exhausted, then we would move to the TFSAs.

The only reason we might use the TFSAs early would be if they had built up a substantial amount, our non-registered were growing faster than we could spend, and we wanted to gift significant money to our adult children to help them with part of their inheritance before we die.


----------



## agent99 (Sep 11, 2013)

We are well into retirement. Our TFSAs are maxed out and we keep them that way by contributing part of our required RRIF withdrawal each year.

We do occasionally draw from the TFSAs when we need some cash for say a tax payment or whatever. This only when we otherwise would have to sell something in our taxable account that would incur CG taxes. We always top back up again after we make our RRIF withdrawals. In a way, it is at present an emergency fund. But in time, it could become a tax free addition to our taxable account that we can draw from for living expenses.


----------



## milhouse (Nov 16, 2016)

Ideally, I'd like to open a LOC against the house as the emergency fund as another option to using the TFSA for it but the missus needs some convincing as she doesn't like the concept of easy access to debt. 

So, Janus10: I think I can see a potential eventual plan for your TFSA as a legacy for your children. 
agent99: Being well into your retirement and being able to keep your TFSA topped up is great. I see similar options for our TFSA as an emergency fund or adding to cash flow to living expenses. 

I guess I don't want to our TFSA being this untouchable sacred cow but want to use it in a strategic and pragmatic way, taking advantage of it's tax free growth and withdrawals. I'm still trying to figure out what's most optimal for us.


----------



## RBull (Jan 20, 2013)

Same pattern here as most mentioned above. Been fully retired for 3+ years, wife 6 years. Turned 58 a little while back. 

TFSA contributions continue to be made from other income sources we have: work pension, RRSP withdrawals, LIF, unregistered dividends. Plans now are to draw down RRSP more aggressively before govt pensions start somewhere @ age 65+ and unwinding of unregistered, remaining LIF/RRIF till the end. Draw down unregistered 60/70's. Draw down TFSA 80's+. No intention to build an inheritance. 

How long will we contribute to TFSA or will we access just dividends at some point before drawing down capital? Will we follow this overall cash flow plan? Hard to say. Much depends on return on investments, health, our needs and wants. It's a lengthy time frame with lots of variables. 

We have a HELOC and LOC but don't ever expect to use, and I'm not fond of leveraging. We plan to always have a large cash position and some FI maturing periodically to access.


----------



## heyjude (May 16, 2009)

RBull said:


> Same pattern here as most mentioned above. Been fully retired for 3+ years, wife 6 years. Turned 58 a little while back.
> 
> TFSA contributions continue to be made from other income sources we have: work pension, RRSP withdrawals, LIF, unregistered dividends. Plans now are to draw down RRSP more aggressively before govt pensions start somewhere @ age 65+ and unwinding of unregistered, remaining LIF/RRIF till the end. Draw down unregistered 60/70's. Draw down TFSA 80's+. No intention to build an inheritance.
> 
> ...


My plans are very similar.


----------



## Eclectic12 (Oct 20, 2010)

milhouse said:


> ... I guess I don't want to our TFSA being this untouchable sacred cow but want to use it in a strategic and pragmatic way, taking advantage of it's tax free growth and withdrawals. I'm still trying to figure out what's most optimal for us.


I've had advantages to using TFSA withdrawals/contributions next year while working. Or by doing a stock contribution to the TFSA while the market is down (must be a long term type stock IMO).

In retirement, where you say the TFSA assets aren't needed - the choices may be limited, without bits like paying for taxes without cashing in investments or having withdrawals to cover a new roof but having to pay for it before the withdrawals show up.

Or like my parents, you could use withdrawals from the TFSA to pass on some of the legacy earlier to the future recipients (possibly when they need it more).


Cheers


----------



## gardner (Feb 13, 2014)

My plan is to aggressively draw down the RRSP so as to amortize the withdrawals over as many years as possible, and minimize the overall tax liability. The TFSA has no tax liability hanging over it, so it will be the last to go. There will be no trouble at all coming up with the $5.5K ... $10K that TFSA allowances are likely to be in my lifetime.

I am interested in RBull's approach. I am looking for a calculator or estimating model to help plan drawing down the RRSP so as to minimize the overall tax burden and/or maximize the spendable money in my hands. I want to avoid the situation my mum is in where she did not withdraw earlier and now has minimum withdrawal percentages that are much more heavily taxed.


----------



## steve41 (Apr 18, 2009)

Please read this PDF. I wrote it in 2005 and everything still applies today!

http://www.fimetrics.com/indexed-brackets-and-the-RRSP 

Shelter your RRSP unless you expect to die prematurely.


----------



## My Own Advisor (Sep 24, 2012)

One of the easiest and best:
http://www.taxtips.ca/calculators/rrsp-rrif/rrsp-rrif-withdrawal-calculator.htm

Totally agree with the "keeping the TFSA until then end" approach - doesn't make much sense to spend tax-free money too quickly (maintain a tax liability for the rest of your life).


----------



## Mechanic (Oct 29, 2013)

I'm sure the government will be taking a look at how to get some of that TFSA money before too long


----------



## gardner (Feb 13, 2014)

steve41 said:


> Shelter your RRSP unless you expect to die prematurely.


I have read that, and the expected shifting of the tax brackets over time is certainly something to consider. But saving the RRSP forever is probably also a bad move. Worst case, your estate cashes it all in at once, exposing most of it to 54% marginal tax rate. You should be able to do better than that, and there will be an optimum in which the most amount is withdrawn at the lowest marginal rate -- maybe 22%-25% target rate, but whatever can be achieved for X amount of RRSP withdrawn over Y years with Z other income, and whatever assumptions we make about return inside the RRSP and inflation of tax brackets. It's a thing that can be optimized, and I'll be trying to put together a model to optimize it.

I have looked at the tax-tips calculator and it does a lot of this. I will need to work it in two steps as there will be a draw-down period before pensions kick in, and then a longer one where I need to back off the draw-down a bit to keep the overall income level from getting too high. Even deducting expected actual expenses there will be excess taxable investment income to take into account too.


----------



## milhouse (Nov 16, 2016)

steve41 said:


> Please read this PDF. I wrote it in 2005 and everything still applies today!
> 
> http://www.fimetrics.com/indexed-brackets-and-the-RRSP
> 
> Shelter your RRSP unless you expect to die prematurely.


I read the article from your posting in another article. Not sure if I fully understand it though. Is it basically saying that not completely burning down your RRSP is a good thing because of bracket-indexing and pension tax credit from RRIF withdrawals? 
In my situation, I've maxed out my RRSP, maxed out my DC, maxed out my TFSA, and everything else is going into a non-registered account which is (unfortunately?) primarily dividend growth stocks. I'm looking to draw down my RRSP from 50-71, without factoring in my DC pension/LIRA yet, to help with OAS clawback. I estimate that without addressing my RRSP (and DC pension/LIRA) that my OAS will be completely clawed back at starting at age 71 when mandatory withdrawals are required. 

You mention in the article "and at the very high-end the OAS will get clawed back; but even then, the TPSP advantage is quite small." Can you expand on this? Are you inferring that if one is at OAS clawback range, the advantage is in fact with the TFSA instead of RRSP?


----------



## steve41 (Apr 18, 2009)

The time value of money is important as well. I would rather pay 1000 in income tax in 25 years than 500 in tax now.

The most effective plan is one in which the PV of all future taxes is minimized.


----------



## Nerd Investor (Nov 3, 2015)

steve41 said:


> Please read this PDF. I wrote it in 2005 and everything still applies today!
> 
> http://www.fimetrics.com/indexed-brackets-and-the-RRSP
> 
> Shelter your RRSP unless you expect to die prematurely.


I'm a fan of your paper 

I do projections pretty frequently on some good software. In the right circumstances, for early retirees with no pension in particular, tactical early withdrawals can make sense (ie: they come out ahead even if they live to age 90). Often though, the optimal amounts to be withdrawn are far less than people think and the benefit to their net estate is less than they'd expect. It's much easier to do more harm than good by withdrawing earlier. In Ontario, if I were trying to develop a rule of thumb, I would say most people can benefit (or at least won't do too much damage) if they withdraw early but keep themselves in that bottom tax bracket, and most will do more harm than good if they withdraw early and exceed a marginal tax rate of 31% or so (this is even more true if incurring OAS clawback).

As for the TFSAs, I've always been of the view that you should never stop contributing in retirement unless/until your non-registered account is depleted. There could be exceptions of course (trying to avoid triggering a massive capital gain) but overall, if you have one bucket producing tax free income (TFSA) and another bucket producing taxable income (non-reg), why not shift as much capital as you can to that tax free bucket every year?


----------



## My Own Advisor (Sep 24, 2012)

steve41 said:


> The time value of money is important as well. I would rather pay 1000 in income tax in 25 years than 500 in tax now.
> 
> The most effective plan is one in which the PV of all future taxes is minimized.


That depends a bit Steve - no?

Meaning, if your future expenses are going to higher (very likely due to inflation alone) AND your overall taxes are going to be higher (very possible), then you're playing the longevity risk game. Deferring taxes when a) you're the oldest but b) when you might need the money the most. 

I would personally like to "smooth out" taxes to the extent possible.

For us that means leaving the TFSA intact "until then end" but it also means find tax efficient ways of managing and drawing down RRSP/RRIF + non-reg. + pension income + government benefits in between.


----------



## gardner (Feb 13, 2014)

steve41 said:


> The most effective plan is one in which the PV of all future taxes is minimized.


I don't think this is necessarily true either. The most effective plan is the one that puts the most spendable money in your hands at the times you wish/need to spend it. If you could miraculously earn some outrageous fortune and wind up paying bagloads of tax, but also have more money in your hands, then that would be a win too.

The problem in my view is that if you don't move the money out of your RRSP at some point, you can never spend it. And given that it has to come out some time, I want to spread that across the maximum time-span. Once it's out, it can earn dividends and capital gains, whereas as long as it's in, all it can earn is income. If it could miraculously earn more inside my RRSP than outside, then leaving it in longer would make more sense. But if I get my average tax rate right, it will only earn 25% more inside than out, and the difference would be, ultimately, taxed more heavily anyway.


----------

