# Investing and withdrawing during Retirement Too much saved?



## Plugging Along (Jan 3, 2011)

This is for a family member that has been asking me advice to prepare for retirement in about two years. This person has no desire to invest their own, and will stay with an advisor. There main goal is to minimize taxes 

Here's the back ground...
Age at retirement 55 in about 2 years
No spouse or children 
Full pension at retirement
Pensions is more than enough to cover all living expenses
Surplus of at $1500 a month from pension

Other assets 
Fully paid off home
Cash in bank of $100
Rrsp $150k in mutual funds
TSFA $35k in mutual funds
Non register investments $250k in mutual funds.


Here are the questions:

Since the pensions covers ALL living expenses! what should the surplus be out in once they max their TFSA each year? Cash, non registered?

Can one put money in an rrsp if the only income is pension income?. I think the answer is no, nut was trying to confirm.

Since the person doesn't ever NEED to take out the money, what is the best way to with draw the money to minimize taxes?

Allocations for the investment? right now the advisor has the person in a very large amount of equities over 90% of the overall portfolio. This seems high given the age and the persons lower risk tolerance and investment understanding. Perhaps it is because the person doesn't need the money? 

Should the accounts all be treated as one portfolio when doing allocations? I see a lot of duplicate funds.

Is there a general rule of what should be in non registered, tfsa, and rrsp? For example fixed income in rrsp, equities in tfsa, etc? 


Thanks for any input.


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## My Own Advisor (Sep 24, 2012)

"Since the pensions covers ALL living expenses!"

Wow.

"Surplus of at $1500 a month from pension"

Double-wow.

"Should the accounts all be treated as one portfolio when doing allocations?"

I would say yes, and treat the pension as "fixed-income" allocation.

"Is there a general rule of what should be in non registered, tfsa, and rrsp? For example fixed income in rrsp, equities in tfsa, etc?"

No firm rules that I know of, but I'm personally 100% equities across all accounts. Many investors put fixed-income (interest-bearing) assets in registered accounts, dividend-payers, capital appreciation assets in non-registered accounts. 

Given there is a healthy monthly surplus, although the numbers need to be run, I would say this:

1. Get tax-inefficient money out of RRSP sooner than later, convert RRSP to RRIF, and W/D money from RRIF to TFSA first, then non-registered second; making this tax-efficient money. Spend the dividends and distributions from tax-efficient money only, leaving capital for future healthcare expenses, or other unexpected turns like can make.

2. Party and spend some money. They seem to have more than "enough".


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## lonewolf (Jun 12, 2012)

From my understanding pension income can go into an RRSP. Could be a restriction on age 71 & over ???


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## My Own Advisor (Sep 24, 2012)

If you put (some) pension income into RRSP, then you've essentially paid taxes on that income, move some money into RRSP, get tax-deferred credit only to pay taxes on the income yet again when you take money out of RRSP. 

Personally, I wouldn't do that.

Take any pension income not needed, and convert it to tax-free income (TFSA) and if TFSA is maxed out (a good problem to have) then move money into non-registered account and buy tax-efficient CDN dividend-paying stocks or a CDN dividend-income ETF that is eligible for the dividend tax credit.

Money in RRSP or RRIF while tax-deferred, is tax-inefficient in my opinion.


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## rikk (May 28, 2012)

lonewolf said:


> From my understanding pension income can go into an RRSP. Could be a restriction on age 71 & over ???


Well my pensions do not count as income in the RRSP context ...


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## OhGreatGuru (May 24, 2009)

RRSP contribution room is earned by employment income. So when your family member retires, he will no longer be earning contribution room. If he still has unused contribution room left after retirement, he can contribute to it, but in his particular case it may not make economic sense to do so.

The restriction on age 71 and over is that the year you turn 71 is the last year in which you can make a contribution to your RRSP. Furthermore an RRSP must be converted to an Annuity or RRIF before the end of the year in which you turn 71, with mandatory withdrawals beginning the following calendar year.

He should inquire if he will be receiving a lump sum "retiring allowance" when he retires. There are special RRSP provisions that allow part or all of retiring allowances to transferred to an RRSP, depending on the years of service and when the service occurred (above his current accumulated RRSP room). If the sum is substantial, it may make sense to put it into his RRSP to defer a large tax hit in one calendar year.


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## Plugging Along (Jan 3, 2011)

Thanks for the responses so far. 

My question regarding pension income was worded incorrectly. I meant does pension income count as employment income and increase contribution room. I have that now. 

The person will not be getting a lump sum retirement payment, and the rrsp already totally maxed out.

Also, would you guys recommend the person star making rrsp withdrawals earlier rather than later. I was think that with the pension, the person will be in the second tax bracket, they could take out a lot more at a lower tax bracket prior to taking cpp. 

Also, cpp at 60 or 65?


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## Plugging Along (Jan 3, 2011)

My Own Advisor said:


> "Since the pensions covers ALL living expenses!"
> 
> Wow.
> 
> ...


For answer one, are you suggesting that the person convert the rrsp earlier than 71?

I agree with number 2, but this person is really frugal and does everything they already want to do. I don't see that changing. Trading to convince the person to travel more and go on a dream vacation. No desire.


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## My Own Advisor (Sep 24, 2012)

"For answer one, are you suggesting that the person convert the rrsp earlier than 71?"

Why defer taxes only to pay higher tax on RRIF withdrawals, later, when you add in OAS and CPP on top of pension income?


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## RBull (Jan 20, 2013)

If the person is with an advisor and wishes to stay with one; the questions you posed here should be asked of the advisor, particularly if they have in house tax advice. They should simply run various scenarios using software to meet the clients goals.

Hard to answer the questions without knowing what the person wants to do with regards to legacy- are we to assume since there is no spouse and children, or gifting indicated the money is to be exhausted by the pensioner in their lifetime? 

Some other considerations:

Is the pension indexed or will savings be needed to make up difference?

Is pension bridged to CPP so is there an effect on the income in future years?

Will OAS clawbacks be a factor?


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## steve41 (Apr 18, 2009)

RBull said:


> If the person is with an advisor and wishes to stay with one; the questions you posed here should be asked of the advisor, particularly if they have in house tax advice. They should simply run various scenarios using software to meet the clients goals.
> 
> Hard to answer the questions without knowing what the person wants to do with regards to legacy- are we to assume since there is no spouse and children, or gifting indicated the money is to be exhausted by the pensioner in their lifetime?
> 
> ...


.... or, better yet, fork out $100 for the program and do the calculation yourself, what-ifing at your own leisure. Much more sensible.


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## Plugging Along (Jan 3, 2011)

My Own Advisor said:


> "For answer one, are you suggesting that the person convert the rrsp earlier than 71?"
> 
> Why defer taxes only to pay higher tax on RRIF withdrawals, later, when you add in OAS and CPP on top of pension income?


That was what I was thinking. I was wondering if the person should collaspe their rrsp earlier through withdrawals, and before cpp and OAS kicks in. 



RBull said:


> If the person is with an advisor and wishes to stay with one; the questions you posed here should be asked of the advisor, particularly if they have in house tax advice. They should simply run various scenarios using software to meet the clients goals.
> 
> Hard to answer the questions without knowing what the person wants to do with regards to legacy- are we to assume since there is no spouse and children, or gifting indicated the money is to be exhausted by the pensioner in their lifetime?
> 
> ...


Good questions. As I said before there are NO children or spouses, so the person essentially wants to be able to take as much of the money out, at the lowest tax possible. I have ask for the family to considered what they want to do with their money, They really have no real need, but it kills them to just give it to the government.

I have suggested that the advisor to run the scenarios, however, it is always good to get an unbiased opinion and to bring forward any other questions or considerations the person should ask.


STEVE... There is absolutely no way the person will run their own scenarios. That has been declared. If I decided to do the software, then I could, but I don't what too get so involved. This person asked me a lot and I am really happy to help but I don't know feel if am qualified to be their advisor. In fact it was me that recommended the advisor, as the last advisor the person had was awful, and the relative didn't know it.


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## steve41 (Apr 18, 2009)

Plugging Along said:


> STEVE... There is absolutely no way the person will run their own scenarios. That has been declared. If I decided to do the software, then I could, but I don't what too get so involved. This person asked me a lot and I am really happy to help but I don't know feel if am qualified to be their advisor. In fact it was me that recommended the advisor, as the last advisor the person had was awful, and the relative didn't know it.


 Well, years ago, I had an 81 year-old user who ran the program just fine up til her death. If an 81 yo woman can run it, the average joe could as well.


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## Plugging Along (Jan 3, 2011)

It is not necessarily if a person can do it, but rather if they will choose to do it. My relative has pretty much indicated they have no interest in doing this. They will pay an advisor to do it for them, but was asking me as a second opinion. 

Just because one 81 year old women can do it (what does being a women have to do with in any ways), doesn't mean every one can.


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## steve41 (Apr 18, 2009)

Plugging Along said:


> It is not necessarily if a person can do it, but rather if they will choose to do it. My relative has pretty much indicated they have no interest in doing this.


 So, we can fritter away hours on Facebook and watching cute cat videos on Youtube, but we can't spare an hour or two trying to compute/optimize our financial plan. To re-state a prior comment.... _sigh._


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## RBull (Jan 20, 2013)

steve41 said:


> .... or, better yet, fork out $100 for the program and do the calculation yourself, what-ifing at your own leisure. Much more sensible.


Sorry I missed you on that. 

I'm one that should be doing this myself but have read your program has a good learning curve. I've barely mastered posting on the internet, let alone other programs so that sounds like it's out of the question for me.

EDIT LOL, just read your other post. I'm not a member of facebook and don't do youtube unless someone sends me something or it comes up when doing a specific search.


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## Plugging Along (Jan 3, 2011)

steve41 said:


> So, we can fritter away hours on Facebook and watching cute cat videos on Youtube, but we can't spare an hour or two trying to compute/optimize our financial plan. To re-state a prior comment.... _sigh._


Actually my relative does not have a computer at home, only a work computer that is used for work, definitely no Facebook, i don't think the person has cable tv either. The person chooses to spend time volunteering, helping other seniors by checking in on them, giving back through a lot of community service, and some frugal hobbies. A few months ago, the person was doing something with veterans, and the latest is babies. I think the person has pretty good priorities. 

I wish people would realize that not everyone is that concerned about finances. This person has always lived well below their means, has a really frugal life, and has just put away all the extra money. My relative has always know that their needs will be well met in retirement, and just wants to make sure that they can get the most out.... If the person the, pays more taxes, they wouldn't know the difference, but just wanted to ask me.

Also, my parents are the same way. They don't own a computer, English is a second language, and they would never be Able to run your program unless you translate into other languages. They have never seen a you tube, or any other social media on their life. They did hire an accountant and we helped them with their financial plan. At almost 80 years old, they see no reason to change how they have been living. I would have to agree.


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