# Modeling after tax income in the withdrawal phase



## heyjude (May 16, 2009)

I recently retired at age 55. I have no pension, but I have a corporation which will effectively become a holding company. It holds about 30% of the investable assets available to me. I have RRSPs and a LIRA amounting to about 15%, income producing real estate (~15%), and the remaining 40% comprises non tax sheltered investments and TFSA. I am not including the value of my home, which is paid for. My withdrawal rate is less than 3%, which should be sustainable. Mindful of the sequence of returns, I am being very careful not to exceed 3% during the retirement risk period and I have a cash buffer. 

Conventional wisdom suggests that I should draw down on my taxable portfolio first, and/or take dividends from my corporation. However, this strategy will leave me with a very large RRSP, plus the LIRA, at age 71 and the RMDs will immediately vault me into the top tax bracket, as well as leading to a complete clawback of OAS. 

Given my age there is an opportunity to partially draw down the RRSP at a lower tax rate prior to age 71, which would smooth taxes payable while still keeping me in a moderate tax bracket in the short term. However, my understanding is that setting up a RRIF would not entitle me to a pension tax credit until I reach 65. 

My assets are sufficiently complex that I would like to be able to model different scenarios to solve for portfolio values, tax efficiency and NPV. I like to tinker. Waiting weeks for a financial planner to run one scenario is not what I am looking for. I am aware of RRIFmetric, and I once downloaded a demo version, but I found it clunky. In addition, my old PC has crashed and died, and I now use a Mac. RRIFmetric does not have a Mac compatible version. 

Is anyone aware of modeling software available to the general public that will help me answer my questions?


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## OnlyMyOpinion (Sep 1, 2013)

Check into converting enough of your LIRA to a LIF and then to an annuity to take advantage of the deduction at 55 (e.g.http://retirehappy.ca/are-you-taking-advantage-of-the-pension/. We realize that annuities at today's rates and at your age may not provide value however.
We've used excel to give us rough estimates of each source's future income stream.
Any estate considerations? We're currently planning to live off of our non-sheltered income while the RRSPs continue to grow, then nearer to 71 will gift the non-sheltered capital to the kids (early inheritance) and switch to living off of the RRSP/RRIF income. Or, depending on circumstances then, just spend it all on ourselves in one big blow out :biggrin:


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## heyjude (May 16, 2009)

OnlyMyOpinion said:


> Check into converting enough of your LIRA to a LIF and then to an annuity to take advantage of the deduction at 55 (e.g.http://retirehappy.ca/are-you-taking-advantage-of-the-pension/. We realize that annuities at today's rates and at your age may not provide value however.
> We've used excel to give us rough estimates of each source's future income stream.
> Any estate considerations?


Thank you, good ideas. There are two reasons why I don't think the LIRA-LIF-annuity conversion would be right for me. First, I am female, aged 56, and the return on an annuity would be relatively low. If I purchase an annuity it will probably be in my 70s when I would get more bang for my buck. Second, if an annuity is purchased with tax sheltered funds such as a LIF, my understanding is that the payments are taxed as ordinary income. If an annuity is purchased with non tax sheltered funds, part of the annuity payments are taxed as capital gains. 

I am single so there are no estate considerations. Most of my estate will go to a donor advised charitable fund. Of course there will be some tax saving opportunities associated with funding this if and when I hit the high tax bracket. My primary objective is to fund a comfortable and sustainable retirement. When I'm dead, I'm dead! 😄


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## Spudd (Oct 11, 2011)

Perhaps you could contact the author of RRIFmetic and provide him with the relevant inputs and ask him to create a report for you? I would think this would not be too expensive.


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## MoneyGal (Apr 24, 2009)

There are two personal finance modelling software packages that could help: 

- FP Solutions (I like this one as you can "peel back" the top layer and look at the calculations taking place in the background year by year)
- CorpWorks from VisionSystems


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## heyjude (May 16, 2009)

Thanks MoneyGal! I will take a look at both of these.


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## birdman (Feb 12, 2013)

Not sure if it will help you but I just finished having my accountant to some "what if" scenarios on "Tax Planner". What he did served my purposes nicely (36 pages of data and an excel summary)


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## steve41 (Apr 18, 2009)

Spudd said:


> Perhaps you could contact the author of RRIFmetic and provide him with the relevant inputs and ask him to create a report for you? I would think this would not be too expensive.


 I am happy to do that gratis, as long as it is not too convoluted. BTW, "clunky" is an apt description for RRIFmetic. It started out as a simple, tax-accurate Reg/Nonreg cash scheduler, and grew as my users dictated more and more features (loans, realestate, RESPs, DB/DC pensions, early/late CPP&OAS, ROC, etc) 

The main issue I stuck with was that the most important aspect of an individual's financials was after tax spending. The program allows you to specify an exact aftertax target over time, and proceeds to deliver exactly that after-tax profile..... it is a highly complex recursive calculation, which I have refined to the point where a run takes under 2 seconds. 

I make the source code for the tax calculation available for viewing, BTW.


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## heyjude (May 16, 2009)

Wow, thank you steve41. I will send you a PM.


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## BC Eddie (Feb 2, 2014)

steve41 said:


> I am happy to do that gratis, as long as it is not too convoluted. BTW, "clunky" is an apt description for RRIFmetic. It started out as a simple, tax-accurate Reg/Nonreg cash scheduler, and grew as my users dictated more and more features (loans, realestate, RESPs, DB/DC pensions, early/late CPP&OAS, ROC, etc)
> 
> The main issue I stuck with was that the most important aspect of an individual's financials was after tax spending. The program allows you to specify an exact aftertax target over time, and proceeds to deliver exactly that after-tax profile..... it is a highly complex recursive calculation, which I have refined to the point where a run takes under 2 seconds.
> 
> I make the source code for the tax calculation available for viewing, BTW.


Steve,

You are too modest. While your product might not have all the wiz-bang graphics and other fluff some products have, for me, the bottom line is that it provides the answers I was looking for and I think it is pretty robust and well documented.


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## heyjude (May 16, 2009)

I just want to let CMF members know that Steve very kindly ran a scenario for me on RRIFmetric. The scenario, which showed RRSP withdrawals after age 71, suggested that I am not likely to run out of money, though I would indeed pay a truckload of income tax beginning at age 71, and OAS would be clawed back. I note that RRIFmetric assumes a uniform rate of return for all investments, which is unlikely to be the case if they are allocated for tax efficiency. If I had a PC I would certainly purchase the software and do lots of scenarios to answer my original question. Incidentally, the two software packages recommended by MoneyGal are also designed for PCs. I was unable to find the software recommended by Frase. 

Thank you again, Steve!


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