# transitioning RRSP assets to income stream in retirement



## dubmac (Jan 9, 2011)

Hey all you silver-haired boomers!

Quick question.
I'm getting ready to retire in a year or 2 - hopefully done by 2023, maybe 2024. I'll be 62/63. I plan on CPP in late 2025. - so I need to plan for the 2 years before getting the government pension.

I am thinking about selling all the assets in my RRSP, and buying VRIF. VRIF will serve up a steady income in the RRSP which I can siphon off monthly as an income source, without selling any of the VRIF units. (If I do this now, then I can let the VRIF distribution accumulate as cash in the account until I retire, and then use the cash wedge to help with income until I get CPP and OAS and begin to draw down on my company nest-egg pension.)

Does this sound liek a good strategy? Has anyone adopted a similar approach? 
Or do you just carve off a chunk of the RRSP each month, and eat it?


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## cainvest (May 1, 2013)

dubmac said:


> Or do you just carve off a chunk of the RRSP each month, and eat it?


What's you current RRSP asset allocation? Is it close to the 50/50 VRIF?


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## dubmac (Jan 9, 2011)

My allocation is more like 70:30, so more equity than VRIF.
I haven't purchased any VRIF yet.
I am considering selling all the stocks & MF's in my RRSP within the next month or 2, and converting to cash. Then, buy 100% VRIF. the distribution is monthly. I could, if I strcuture my finances carefully, simply siphon off the income monthly from the RRSP accounts in pre-retirement to help with the transition to full retirement at 65.


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## Ponderling (Mar 1, 2013)

You dont have to do full rrsp to rrif prior to 71. 

So maybe set up a rrif for part of your portfolio.

Use it as baby steps learning how to spin income and wrap your brain de-accumulation.

While most of the nest egg still percs along in your rrsp.


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## dubmac (Jan 9, 2011)

Ponderling said:


> You dont have to do full rrsp to rrif prior to 71.


Yes, I am aware of the rule than RRSP to RRIF at age 71, but, I am curious about how to leverage these assets in pre-retirement (a time between leaving a full-time position and accessing gov't and company pension). 
When you say "set up a rrif for part of your portfolio" ..are you suggesting to buy VRIF as a portion of the RRSP account? If so, that sound like a move toward what I had been suggesting in my OP.


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## Numbersman61 (Jan 26, 2015)

I have EIT.UN (closed end investment fund) in my RIF - cost in fall of 2017 was $11.74. Every month my RIF received a distribution of 10 cents per unit ($1.20 annual). I recognize that some of this was return of capital and that cash becomes available because they are always issuing more units but I do like the monthly cash flow. Current trading price of $13.48 (NAV $13.55). In addition, my RIF owns XEI,XIU,XDV and Rate reset preferred shares. I recently reduced ETF holdings and purchased VRIF and VBAL.


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## cainvest (May 1, 2013)

dubmac said:


> My allocation is more like 70:30, so more equity than VRIF.


Well that's one consideration, dropping to 50/50 from 70/30 might reduce your portfolio amount over time.

It's hard to judge without the bigger picture, many moving parts here. For example, can you delay your gov pension like one can for CPP? Is there any tax concerns/clawbacks going forward that you see?


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## GreatLaker (Mar 23, 2014)

VRIF has about a 4% yield. RRIF minimum withdrawal is 4% at age 65, rising to 5% at age 70 according to the formula 1/(90-age). Then starting at age 71 it gradually rises according to this table: Chart – Prescribed factors - Canada.ca

So VRIF's distribution will not be sufficient to meet the minimum RRIF withdrawal. You would have to withdraw additional funds above what VRIF distributes.

Dan Bortolotti of Canadian Couch Potato discussed that here: Is VRIF Right for Your Portfolio? | Canadian Couch Potato
And a few other posts on VRIF: Search Results for “vrif” | Canadian Couch Potato

Edit: just to clarify, VRIF's 4% distribution won't be an issue as long as you have it in an RRSP, but eventually you will need to move your RRSP assets to a RRIF. At that point if you are over age 65, VRIF's distributions won't be enough to cover the mandatory RRIF withdrawals. Then you would need to liquidate something anyway, or else transfer some VRIF units in kind to a non-RRIF account.


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## Eclectic21 (Jun 25, 2021)

dubmac said:


> ... When you say "set up a rrif for part of your portfolio" ..are you suggesting to buy VRIF as a portion of the RRSP account? If so, that sound like a move toward what I had been suggesting in my OP.


I doubt it as the RRIF is a separate account that RRSP assets are transferred to. You could buy VRIF in the RRSP and then have it transferred but I'd either transfer the equities or cash and buy VRIF within the RRIF.

I suspect the main point is that instead of taking an RRSP withdrawal that likely has a fee per withdrawal, one can setup a RRIF and transfer part of the RRSP to the RRIF. The withdrawals from the RRIF typically don't have a withdrawal fee, with the added bonus that the minimum withdrawal amount won't be subject to the RRSP/RRIF withholding tax. Keep in mind that the withholding tax is a down payment that will be fixed up when the final tax return is filed as some mistake it as the final tax paid.








TaxTips.ca - What tax is deducted from RRSP or RRIF withdrawals?


TaxTips.ca - Withholding tax percentage on a withdrawal from an RRSP or RRIF increases as the amount of the withdrawal increases. Fees are not tax deductible




www.taxtips.ca






I've seen RRSP withdrawal fees range from $50 to $150. If the cheaper end fee applies to your RRSP then monthly withdrawals are going to cost you $50 x 12 = $600 a year. 

I haven't checked recently but the one broker that was posted as waiving the RRSP withdrawal fee swhen enough assets were held across all accounts was Royal Bank's brokerage.


Cheers


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## dubmac (Jan 9, 2011)

I'm starting to pick up more of the details required here. I'm leaning to keeping the RRSP unchanged until I retire (from my current job in 2 years), and then open a RRIF at age 63 or so. Then transfer the contents of the RRSP into the RRIF, and de-accumulate. Is that what most of you folks do?
Are there any advantages to opening an RRIF _before_ retirement? 
For example, could someone transfer their RRSP into a newly opened RRIF, fill it with equities and some income stocks,, and let the dividends/distributions/dripped shares accumulate for 2 years, and then started to draw down on the account?
I didn't know that asset managers charge a fee to transfer funds from an RRSP account. I'll need to look into that.


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## cainvest (May 1, 2013)

dubmac said:


> I'm starting to pick up more of the details required here. I'm leaning to keeping the RRSP unchanged until I retire (from my current job in 2 years), and then open a RRIF at age 63 or so. Then transfer the contents of the RRSP into the RRIF, and de-accumulate. Is that what most of you folks do?
> Are there any advantages to opening an RRIF _before_ retirement?
> For example, could someone transfer their RRSP into a newly opened RRIF, fill it with equities and some income stocks,, and let the dividends/distributions/dripped shares accumulate for 2 years, and then started to draw down on the account?
> I didn't know that asset managers charge a fee to transfer funds from an RRSP account. I'll need to look into that.


I'm pre-retirement so the info I have is just from reading about it. With that said, only open a RIFF (and transfer RRSP funds to it) when you are going to extract money every year from the RIFF. From what I read there is a minimum % you must take out of a RIFF, not sure what age that starts at but could be 65. So before manditory RIFF kicks in (~71) you may want to place only part of your RRSP into the RIFF to control the minimum withdrawal. All this depends on the RRSP total you have and how much you're going to take out.


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## fireseeker (Jul 24, 2017)

dubmac said:


> I didn't know that asset managers charge a fee to transfer funds from an RRSP account. I'll need to look into that.


The charge is for "deregistering" RRSP funds. This means withdrawing money from the RRSP as income. There will be withholding taxes. (Some discount brokers waive the fee at certain asset levels.)

If your assets don't qualify for that treatment, most people are better off opening a RRIF, transferring some or all of the RRSP to the RRIF and then making withdrawals from the RRIF. RRIF withdrawals don't usually have fees.


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## diharv (Apr 19, 2011)

I'm new to retirement and mid 50s, so a ways away from touching the RSP as we are drawing on other sources. I was under the impression that a RRIF was not a separate account that you opened, but rather you just convert all or a portion of your RRSP into one. And I thought that once its converted to a RRIF, you must take out a certain % as taxable income each year. Until you are ready to do that, there is no point in converting it. If one wants to continue to grow the plan, keep is as an RRSP. Am I correct here?


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## GreatLaker (Mar 23, 2014)

diharv said:


> I'm new to retirement and mid 50s, so a ways away from touching the RSP as we are drawing on other sources. I was under the impression that a RRIF was not a separate account that you opened, but rather you just convert all or a portion of your RRSP into one. And I thought that once its converted to a RRIF, you must take out a certain % as taxable income each year. Until you are ready to do that, there is no point in converting it. If one wants to continue to grow the plan, keep is as an RRSP. Am I correct here?


Convert a RRSP into a RRIF is a commonly used phrase, but it is not accurate. Investors must open a new RRIF account, then transfer some or all of the assets from their RRSP to the RRIF. 

All RRSPs must be deregistered by the end of the year the investor turns 71. On deregistration, the funds may be withdrawn in cash (fully taxable as income in the year of the withdrawal), use the funds to purchase an annuity, or transfer the investments to a RRIF, or some combination thereof. RRIF is the most common choice.

Mandatory RRIF withdrawals start the year after the RRIF is opened. If you opened a RRIF in 2021, your mandatory withdrawals start in 2022. The withdrawal amount would be based on the RRIF value as of Dec 21, 2021, and your age on Jan 1, 2022. Most (all?) FI will show the minimum withdrawal in your online account access and on monthly statements. Before age 71, the minimum RRIF withdrawal % is based on 1/(90-age), so at age 65 it is 4% and at 70 it is 5%. Starting at age 71 it is based on this table: Chart – Prescribed factors - Canada.ca 

I don't see a reason to open a RRIF unless you want to begin withdrawing funds annually. The benefit of opening a RRIF before age 71 is to avoid withholding taxes on the min withdrawal, and to avoid the RRSP deregistration fee. TDDI charges $25 + HST as a deregistration fee on RRSP withdrawals.


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## Numbersman61 (Jan 26, 2015)

There is a potential tax benefit for a RRIF after age 66 before age 71 - the pension income tax credit and potential for income splitting.








The pension income tax credit: One benefit of opening a RRIF early


With some smart tax planning, you can take advantage of the pension income tax credit to reduce your household tax bill. Learn how.




invested.mdm.ca


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## dubmac (Jan 9, 2011)

Numbersman61 said:


> There is a potential tax benefit for a RRIF after age 66 before age 71 - the pension income tax credit and potential for income splitting.
> 
> 
> 
> ...


I have my RRSPs & a portion of assets with MD Magmt, so this link was very helpful. tx.


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## cdn5cents (Jun 24, 2018)

I'm 54 and started drawing on my RRSP this year. In my case I only transferred a small portion of my RRSP into my RIF. For the first few years my intention is to only put as much money and I intend to draw in the given year. This provides me with optionality to stop drawing on my registered accounts in a few years should I decide to return to work.

As far as portfolio re-balancing... I'd rather be the architect of my own cashflows rather than rely on the cashflows generated from Fund Managers marketing department.... ;-)


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## Eclectic21 (Jun 25, 2021)

dubmac said:


> ... [after retirement] ... transfer the contents of the RRSP into the RRIF, and de-accumulate. Is that what most of you folks do?


All my relatives and just about everyone I talk to do this.
The group that might not are those that retire early.




dubmac said:


> ... Are there any advantages to opening an RRIF _before_ retirement?


It takes a bit before the RRIF withdrawals start so I could see someone who plans to retire in Dec or say Jan the following year to open a RRIF before retiring.



dubmac said:


> ...For example, could someone transfer their RRSP into a newly opened RRIF, fill it with equities and some income stocks,, and let the dividends/distributions/dripped shares accumulate for 2 years, and then started to draw down on the account?


Not this way ... the RRIF forces at least the minimum withdrawal amount (though one can withdraw more than the minimum amount).

The delay that I've read of is opening the RRIF this year means the minimum withdrawal starts next year.




dubmac said:


> ... I didn't know that asset managers charge a fee to transfer funds from an RRSP account. I'll need to look into that.


Not the asset manager but the brokerage or bank (i.e. the financial institution).








Withdrawing From An RRSP? Get Ready For Partial Deregistration Fees | PlanEasy


...RRSP withdrawal fees are called “partial deregistration fees” and can range anywhere from $50 to $100+ but here's how to avoid them...




www.planeasy.ca






Cheers


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## ian (Jun 18, 2016)

There are fees everywhere. Canadian banks are the king of the heap when it comes to hidden fees.

There are two things to be aware of. The first is READ and UNDERSTAND what the fees are. The second is that fees are often negotiable if you ask. Sometimes you have to ask more than once before you get a positive answer.

Seems to me Canadians are very apathetic when it comes to this. Maybe it makes us feel good to pay unnecessary fees?

Either they are too lazy to read what they are buying or they are too self conscious or shy to ask for the fee to be waived or reduced. Too often, by the time many people understand the fees it is too late. The fee has been charged/paid from the funds remitted to you.

Over the years we have avoided countless fees simply by understanding what they are, how they are levied and then either asking that they be waived or by searching out competitive offerings with much lower or no fees. 

One thing is for certain....your bank or FI will not spend much time reviewing fees with you. There is a reason that the fee is usually at the bottom of the doc, sometimes in small letters. They knw that most people will not make it past the second paragraph let alone all the way to the bottom of the sales sheet.


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## dubmac (Jan 9, 2011)

Thanks everyone.
This helps. There is nothing quite like the experience gained by others when looking to make financial plans or decisions.


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## Eclectic21 (Jun 25, 2021)

ian said:


> ... Seems to me Canadians are very apathetic when it comes to this. Maybe it makes us feel good to pay unnecessary fees?
> 
> Either they are too lazy to read what they are buying or they are too self conscious or shy to ask for the fee to be waived or reduced ...


Most I talk to about fees lump it in as "too complicated", despite making far more efforts in other areas of their life.

Too often, by the time many people understand the fees it is too late. The fee has been charged/paid from the funds remitted to you.




ian said:


> ... Over the years we have avoided countless fees simply by understanding what they are, how they are levied and then either asking that they be waived or by searching out competitive offerings with much lower or no fees.


+1 ... the first Industry Canada review of bank fees was strange as their presentation claimed the cheapest I could do for my account was five dollars a month. When I check, it was more like my mistakes resulted in five dollars in fees over six years!!! 




ian said:


> ... One thing is for certain....your bank or FI will not spend much time reviewing fees with you.


True ... though about five times, I have had suggestions from the bank teller for changes that reduced fees ... which I was about to request.


Cheers


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