# RRSP/RRIF/Retirement help needed



## Freedom45 (Jan 29, 2011)

So some close family members are nearing/in retirement, and have asked for some advise/help, as they're not overly well off, or financially saavy.

I'm not very familiar with many retirement related issues, as I'm still pretty young, and haven't taken a real interest in learning about them yet. Thus, I'm asking for enlightenment from the CMF crew.

Scenario:

Him: 66
Her: 60
His RRSP: ~$31,000. 35% bonds, 20% cdn equities, 18% global equities, 13.5% US equities, 13.5% International equities. MER 2.74% (ick)
Her RRSP: ~$15,000. Unknown allocation, but suspect it's similar to his

Her income ~$25,000
His income ~ OAS + small pension

Home is paid for, minimal debt (~$5000 owing on a car loan)

He's been retired for a number of years for medical reasons, and she's looking to retire in the next 4-5 years.



My questions:

1. At what point to they have to switch their RRSP's to RRIF's? When they're ready to start withdrawing? What does this entail exactly?

2. They're used to living on a very modest income. I'm assuming they should convert to RRIF's when she retires, and they're ready to start withdrawing funds?

3. I'm thinking they might be better suited to an allocation closer to 60-70% fixed income, and 30-40% equities, and ideally in a way that gets them away from their current high MER's. I'm thinking maybe 60% bonds/GIC's/???, and 40% in solid dividend paying stocks. Am I off base? Comments?

4. For their fixed income allocation, what's their best bet? An etf such as XSB/XBB? CLF? Individual GIC's? Individual bonds?


I know they're not overly well off, but I'd like to try and help them make the best of what they have. Any comments or suggestions greatly appreciated.

Cheers!
Freedom45


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## GeniusBoy27 (Jun 11, 2010)

1) At the low interest tax rates, he should pull out the RRSP into non-registered firms. I would start withdrawing now.
2) She should start withdrawing when she retires.
3) Re: Investment, I think 35% equities, 65% fixed income is probably best, but with low MERs.


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## FrugalTrader (Oct 13, 2008)

May want to talk to a pro, but it looks like they may qualify for GIS. If that is the case, then the wife may want to consider withdrawing from the RRSP over the years prior to retirement and place it in a TFSA instead. That way, her GIS benefits won't get disrupted when the RRIF mandatory withdrawals come around.


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## OhGreatGuru (May 24, 2009)

Freedom45 said:


> ....
> 
> Scenario:
> 
> ...


Oh Boy, where to begin?

1._At what point to they have to switch their RRSP's to RRIF's? _ At the very latest, in the year in which he/she turns turn 71. it has to be converted to either a RRIF, or an annuity. 

1.(b) _What does this entail exactly?_ The institution holding the RRSP will offer RRIFs. They are very similar ot RRSPs, except there is a minimum rate of withdrawal each year, based on age. Annuities are an insurance product that provide a fixed monthly income that you can read up on separately.

2. _They're used to living on a very modest income. I'm assuming they should convert to RRIF's when she retires, and they're ready to start withdrawing funds?_ (a)As you have seen from other comments, for peopel in low income brackets, it may make more sense to withdraw the RRSP money in lump sums, because they may pay little or no tax penalty. This would require looking in detail at what their income is, their tax bracket, and how much they could withdraw without tax costs. 
b)If his pension is under $2K it may be worth while to start a RRIF now to provide at least $2k pension income, in order to take advantage of the pension income credit, because RRIF or annuity income after age 65 is eligible for this.
c) You may need a tax advisor to help you work out the optimum strategy.

_3. I'm thinking they might be better suited to an allocation closer to 60-70% fixed income, and 30-40% equities, and ideally in a way that gets them away from their current high MER's. I'm thinking maybe 60% bonds/GIC's/???, and 40% in solid dividend paying stocks. Am I off base? Comments?_

a) The MER is ridiculous - move the RRSPs to a different institution if you have to. (Receiving instition will do all the paperwork.
b) Dump the foreign equity at their age and income level. Ratio depends on their income needs. 60/40 as a start, but might have to be even higher inocme if they have to draw on it regularly to meet essential needs. The account sizes are small to be playing around with a lot of different funds. RBC has a very well-rated Monthly Income Fund, but it is no longer available in registered accounts. i believe TD Monthy Income still is though. Alternatively, a good CDN Dividend Fund for equity, and a bondfund/bond index/ or laddered GICs for income.


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## Cal (Jun 17, 2009)

Is her current plan to work until 65, then retire? Or does she want to retire earlier, or later?


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## Maltese (Apr 22, 2009)

I noticed that he is receiving OAS + a small pension. Is there a reason he is also not receiving CPP? If he's eligible he should apply. Also, his wife should ask CRA for her Statement of Contributions so that she can get a estimate of how much CPP she will receive when she retires. 

In my mind, proper planning can't take place until all the figures are known.


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## Financial Cents (Jul 22, 2010)

Without responding with lots of details, I say the following:

1) Given their modest to low income, start withdrawing funds from RRSP now and place monies (assuming they don't need this money right away for immediate expenses) into a TFSA. Get most of that money into a safe TFSA product like XSB. They'll gain 3-4% off that tax-free.

2) Ensure overall asset allocation is about 70% fixed-income and 30% equity. I would use bond ETFs for the FI, use 30% equities for XDV or CDZ. 

*Get out of all mutual fund(s).*


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## steve41 (Apr 18, 2009)

I whupped up a plan, but I need to know the size of the 'small' pension. I fudged it at $400 a month. Is that hi or lo?


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## Freedom45 (Jan 29, 2011)

Thaks for the info/suggestions/tips everyone!

I spoke with them again today, and got some clarification on his income situation. It's better than I originally thought.

He's getting:
OAS $550-575/mo
CPP ~$700/mo
PENS ~$800/mo


As for their RRSP's does it make sense as some have mentioned, to pull out a little at a time, and stick the $$ in a TFSA? If so, I'd assume they would want to pull out a small enough amount to keep their income in the lowest tax bracket possible (they're in NS)? She's planning on working to 65.

I'm going to get him out of his current mutual funds, and was thinking the following:
65-70% Income - Thinking CLF and/or XBB and/or XSB
30-35% Equities - Thinking CDZ and/or XDV and/or XTR?


Thoughts?


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## steve41 (Apr 18, 2009)

OK.... based on his pension/CPP stuff our couple could see a constant $34K die broke at 95 lifestyle based on a 4% ror, 2% inflation, living in BC (where else would you consider living?)

Here are the plans....
Mrs Help Needed
Mr Help Needed

$34K.... domestic beer rather than imported, but doable, IMHO.


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