# Would it be a good idea to draw down RRSP early?



## BC Eddie

I tried searching past posts but to my surprise I could not find this topic covered anywhere.

Over the years my wife and I have been fortunate enough to build up considerable RRSPs. For the past few years I have been concerned that by the time we are forced to withdraw from them or convert to RRIFs that we will actually be in higher tax brackets then what we were in when we made the contributions (I know - we could have worse problems). Because of this more recent avoidance of RRSPs we have now accumulated about $70K contribution room between us. (We have both maxed out our TFSAs)

As we approach full retirement (both semi-retired now) I am wondering should we start drawing down the RRSPs now and use the money to live on (or, more likely, re-invest in our non-registered portfolio).

I realize that that we give up the (temporary) tax free status of any earnings on this money within the RRSP but would that be better than waiting until we hit the RRIF limit around age 71 (in 9 years) and being forced to take it out in big chunks each year and be heavily taxed on it then?

Or should we use up our RRSP contribution room now while we are still earning? (I am thinking - no)

Any advice appreciated.


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## wendi1

Well, this is an interesting question, but we need numbers. What is the expected value of your RRIF at age 71? Are planning on buying an annuity with your RRIF? Do you have any other pension income? How much do you and your wife expect to get in CPP and OAS (I assume GIS is out of the question)? What is your income and your wife's in semi-retirement and will it continue to age 71?

Once you answer these questions you might find out that the answer is obvious. It's all about the numbers. But you can certainly withdraw money from your RRSP at any time, as long as you are willing to take the tax hit.


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## Eclectic12

... not sure why as there's been a lot of discussions.


The answer is it depends on how confident you are that the minimum withdrawals, when all added to all other sources of income (i.e. pension, CPP, investments) are going to put you over the something like $67K of income and what your available options are.

http://www.theglobeandmail.com/glob...void-the-dreaded-oas-clawback/article4192451/

Don't forget in your evaluation that if you have dividend income, it's your taxable income not what you were paid that is considered (ex. paid $1 dividend income, taxable income is something like $1.40).


Cheers


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## OnlyMyOpinion

Yes, but tough to find in one thread though? 
Here is a link to a similar article: http://www.moneysense.ca/retire/how-to-tap-your-rrsp
Its something we've been grappling with as well and as wendi1 points out, it very much depends on the source and amount of your other income streams, types of investments, assumptions about future returns, tax rates, mortality, etc.
Also this link: http://www.diamondretirement.com/meet-daryl-diamond/in-the-media. Not a shill honestly, just find that it has some interesting ideas and discussion worth reviewing if you're considering this.


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## spirit

I too have been thinking about this. I am not a tax attorney but I would think that if both my husband and I died at or near the same time....our holdings in our RRSP's would need to be collapsed. That would be a huge tax burden on the estate since our children would be at a very high tax rate with that inheritance.
Of course we will both live into our 90's:tongue-new: but still.....


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## OnlyMyOpinion

Spirit, an RRSP (or RRIF) can remain tax-sheltered and transfer to the remaining spouse. When the surviving spouse dies, the balance of the RRSP becomes income in the year of death and the estate will have to pay tax on it (except in circumstances where a minor beneficiary has been named). So your adult children would receive the remaining after-tax proceeds. It only puts them into a higher tax rate in the sense that they now have money to invest and declare income on (assuming they have no TSFA or RRSP contribution room that they choose to invest it in).
Let us know if you would sooner not encumber your kids with a big inheritance and we'll see if ours would take it instead


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## Jacq

It boggles my mind that people don't model or try to control what can be their biggest expense - tax. (It is mine anyway and is about as much as I spend in total per year on ALL other expenses - and that's just working half the year). 

I've modeled my own i-orp.com style decumulation spreadsheet since I couldn't find anything for Canadians that did what I wanted it to with tax brackets etc. It's becoming increasingly clear that working and saving longer isn't really paying off in the long run if I'll never spend it and contributing more to the RRSP may not be that sensible either. Also that a melt down strategy prior to 65 is a good thing. I'm tentatively planning to just take dividends earned on the RRSP's when I stop working for good but am also considering melting down the principal to help out my kids while they're young enough to enjoy it.

My father built up fairly large RRSP balances and continued to have fairly high income into his 80's. Pretty sure his OAS has been almost entirely clawed back almost every year of his "retirement" / post 65 years - 30 of them so far. He doesn't even spend his CPP alone so everything goes to charity/accumulates anyway. Not very efficient IMO.


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## martin15

spirit said:


> I too have been thinking about this. I am not a tax attorney but I would think that if both my husband and I died at or near the same time....our holdings in our RRSP's would need to be collapsed. That would be a huge tax burden on the estate since our children would be at a very high tax rate with that inheritance.
> Of course we will both live into our 90's:tongue-new: but still.....


RRSPs are really only good if you live to enjoy them.
If not, for children anyway, the tax benefits quickly evaporate.



OnlyMyOpinion said:


> Spirit, an RRSP (or RRIF) can remain tax-sheltered and transfer to the remaining spouse. When the surviving spouse dies, the balance of the RRSP becomes income in the year of death and the estate will have to pay tax on it. So your adult children would receive the remaining after-tax proceeds.


Yes, but if the RRSP is sizeable, a lot of it will be taxed at 43% before it is passed on.
That can be quite a shock for some people.


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## My Own Advisor

Here is an article I recently wrote on this topic...
http://www.myownadvisor.ca/cha-ching-cash-rrsp/

The comments readers had, who were in this position (thinking of drawing down RRSP) were interesting.

I still need to do more research for my parents but it would make sense for them to access RRSP funds sooner than later instead of moving everything to RRIF.


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## Eclectic12

Jacq said:


> It boggles my mind that people don't model or try to control what can be their biggest expense - tax. (It is mine anyway ...


Yes ... though part of that I suspect is the lack of knowledge plus idea that "it's complicated, leave it to the professionals".




Jacq said:


> ... I'm tentatively planning to just take dividends earned on the RRSP's when I stop working for good ...


Does your model take into account that the income test for OAS will include the taxable income (i.e. $1.38) for eligible dividends instead of the received dividends (i.e. $1)?




Jacq said:


> ... My father built up fairly large RRSP balances and continued to have fairly high income into his 80's. Pretty sure his OAS has been almost entirely clawed back almost every year of his "retirement" / post 65 years - 30 of them so far. He doesn't even spend his CPP alone so everything goes to charity/accumulates anyway. Not very efficient IMO.


Well if that happened in 2012, then as I understand it - his 2011 income was at or over $112,771.60 to get 2012 OAS to zero. This also makes him one of 2% of seniors.
http://retirehappy.ca/minimizing-old-age-security-clawback/

As for efficiency - it beats the alternative of not having enough money. 

Also bear in mind that there's no free lunch here. There's ways of reducing income to reduce the impact such as TFSAs, taking income as a capital gain etc. but it's still an income test. If one can't avoid the income - then there's no way around it.


Cheers


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## steve41

Jacq said:


> It boggles my mind that people don't model or try to control what can be their biggest expense - tax. (It is mine anyway and is about as much as I spend in total per year on ALL other expenses - and that's just working half the year).
> 
> I've modeled my own i-orp.com style decumulation spreadsheet since I couldn't find anything for Canadians that did what I wanted it to with tax brackets etc. It's becoming increasingly clear that working and saving longer isn't really paying off in the long run if I'll never spend it and contributing more to the RRSP may not be that sensible either. Also that a melt down strategy prior to 65 is a good thing. I'm tentatively planning to just take dividends earned on the RRSP's when I stop working for good but am also considering melting down the principal to help out my kids while they're young enough to enjoy it.
> 
> My father built up fairly large RRSP balances and continued to have fairly high income into his 80's. Pretty sure his OAS has been almost entirely clawed back almost every year of his "retirement" / post 65 years - 30 of them so far. He doesn't even spend his CPP alone so everything goes to charity/accumulates anyway. Not very efficient IMO.



RRIFmetic covers all this stuff off, including tax bracket indexing, clawbacks, surtaxes, melting vs sheltering your RSP. It is a nontrivial problem.


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## uptoolate

Thanks for commenting Steve. I know you spend alot of time looking at these issues. Do you have a quick and dirty estimate as far as age/amount where RRSPs are getting too big. I suspect I know the answer but I wonder if after looking at it for so long, you have a feeling for it (say for someone with a full CPP amount). Obviously, having an RRSP that has performed so well that you are losing your OAS is not such a bad problem to have. I guess the beauty of RRIFmetic is that you can get an idea of at what point you are faced with diminishing utility. Thanks for all of your comments.


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## steve41

Well, the problem is.... it depends. Remember, there is a large actuarial component. If you continue to shelter your RRSP past 75 say, and you die at 76, then your estate would suffer compared with melting your RRSP early. On the other hand, if you melt your RSP/RIF early, and you live to 100, they will be screwed as well. It is an actuarial crapshoot.

Sorry for ducking the question, 

Steve


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## uptoolate

lol - no I think I knew the answer but was hoping that you might have a rabbit up your sleeve. The tax hit for heirs is a pain but I think that we will let it be their pain! As pointed out, I think it gets to be much more of an issue in situations where two good size RRSP/RRIFs get collapsed into one at the death of the first spouse. I think for us, whoever is left will have to get a bit more aggressive on the draw down and go to the bottom of the top tax bracket. There is a chance of course, if things go 'well', that the minimum withdrawal will be above that level. Perhaps that is the target to shoot for and use the time between retiring and mandatory withdrawals to draw down to that level.


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## Brian Weatherdon CFP

Hi Ed, people may want to avoid getting buried in the weeds in this question. With an accountant &/or certified financial planner you can address this kind of question in sufficient depth. 

I agree on face-value here with your general assumption. Ie. I believe you are right, as a general statement, that the nearer we approach retirement the less value there is in maximizing RRSPs. Most especially as you say, when your tax-rate in retirement may actually exceed your tax-rate while working. 

By the way if you are feeling there could be a significant surplus to your estate (taxable at that!) it's not too late to build estate-insurance alongside your RRSP/RRIF and TFSA planning. It has many advantages while living ...as well as for your "ultimate intentions". Don't discount this out of hand without a proper discussion with your own advisors. A general resource on this is Guaranteedincome4life.ca/blog/estate-insurance/ ...but be sure to discuss with your own insurance/financial advisor.


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## Jacq

Eclectic12 said:


> Yes ... though part of that I suspect is the lack of knowledge plus idea that "it's complicated, leave it to the professionals".
> 
> 
> Does your model take into account that the income test for OAS will include the taxable income (i.e. $1.38) for eligible dividends instead of the received dividends (i.e. $1)?
> 
> Well if that happened in 2012, then as I understand it - his 2011 income was at or over $112,771.60 to get 2012 OAS to zero. This also makes him one of 2% of seniors.
> http://retirehappy.ca/minimizing-old-age-security-clawback/
> 
> Also bear in mind that there's no free lunch here. There's ways of reducing income to reduce the impact such as TFSAs, taking income as a capital gain etc. but it's still an income test. If one can't avoid the income - then there's no way around it.


True, and I'm an accountant, so it probably just seems like a no-brainer to me. Many of my fellow accountants are completely oblivious about money. As was I when I was younger. 

Not in the case where I'm drawing the dividend _amount (obviously can't just draw the dividends themselves) out of the RRSP. That is treated as regular income. But yes, dividends from my taxable account are treated the same as they are today while not retired. I have a low expectation of receiving OAS and will be happy that my investments have done well enough that I don't receive it. It's small potatoes and wouldn't change my standard of living.

Yes, there has to be a downside to owning land between Edmonton and St. Albert that was bought decades ago. But overall, a nice problem to have - except it seems like a waste to me to over-save. YMMV :subdued:

Yes, if you haven't planned ahead. Sometimes not working longer than you have to for your version of "enough" is a good strategy. It's the only way I know how to "avoid the income" that doesn't take a ton of work and fits in with how I want to live my life._


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## BC Eddie

Geez this Canadian Money Forum is an amazing resource!!!

I am glad I have found it recently but I wish I had found it when it first started. Not sure how I missed it because I have been on the web from the early days. 
Thank you all for responding to my query. I have learned a lot from your very helpful posts and the associated links you were very kind enough to supply.

Steve41 - I am very interested in your RRIFmetic tool. I have been using Retireware for several years and have been happy with it (I really like the Monte Carlo feature). 
I purchased Retireware when I realized my homemade Excels just could not cut it (even though I had built in CPP/OAS and house appreciation and sale). From what I am reading I am thinking RRIFmetic might be my next logical step.

I mentioned that we have built up about $70k RRSP contribution room because of my concern that I was going to have a “tax on withdrawal issue” down the road. If, after I crunch my numbers RRIFmetric supports we should start drawing down our RRSPs earlier, is it likely that I am still right to not contribute any more to RRSPs? I ask this now as the 2013 contribution deadline is approaching and I don’t want to miss the opportunity if it is a good idea.

Again -- thank you all.
Ed


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## pacman

Hey BCEddie

I am in a similar situation to you. I contributed to a spousal RRSP for many years. My wife has no income, I am still working, and have contributed to my own RRSP now for 5 years or so. It made sense to me to start melting down her RRSP. I bought Steve's RRIFmetic program to do my retirement planning - at least the financial part. 2 thumbs up for the program, as it really does cover most situations. Takes a little while to learn, but is straight forward after going through the learning curve. Anyways, when I crunch the numbers in the software, I come out almost a wash, slight advantage to melt the RRSP starting now. I'm sure the situation is different for every person. 

pacman


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## Ponderling

I to use RRIFmetric. It is not simple - it takes a few days of thinking to get the model of your finances and pre retirement expenses organized if you have any sort of sophistication going with your investments, but boy does it let you run scenarios. 

One thing it does not do well is optimise since TFSA's have been added to the mix. I have corresponded with Steve41 on this point and he agrees. TFSA's add one more variable that makes optimising ever more complicated.

My best bang retirement simuation was to retire early, and as part of early melt of RRSP for day to day living expenses, to toss the max into the TFSA every year along the way. 
Then if I kick earlier than my die broke age, particualrly much earlier there are much more funds that pass to the estate without the big RRSP/RRIF collapse and tax hit.

I have modelled that I will only want 80% of pre 80 retirement funds once we hit age 80. 

There were times in my future early 80's that there was surplus cash to invest for as few years, that RRIFmetric tosses into a taxable account for a few years by default. You can tweak this even better by pouring these funds into your TFSA for while you do not need them them right away.


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## piano mom

How much for the RRIFmetrics program? We were initially thinking of retiring latest at age 50. But now that my husband is in a scenario where it is beneficial to work until 55, we might not be able to avoid, or at least reduce the taxes. Well, it is not the worst problem to have, I guess.


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## piano mom

Ideally, we would stop working by 50 and start melting down the RRSP before the pensions kick in at age 55. But by working until 55, he will qualify for full medical in retirement.


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## Eclectic12

Jacq said:


> True, and I'm an accountant, so it probably just seems like a no-brainer to me. Many of my fellow accountants are completely oblivious about money. As was I when I was younger ...


Those who want to learn do, those in the middle might change their minds with a good incident or explanation but for a lot of people, they've given up before starting.




Jacq said:


> Not in the case where I'm drawing the dividend _amount (obviously can't just draw the dividends themselves) out of the RRSP. That is treated as regular income. ... _


_

Correct ... with all the talk of planning ahead, I missed the part about the dividends were in the RRSP and then withdrawn.




Jacq said:



... I have a low expectation of receiving OAS and will be happy that my investments have done well enough that I don't receive it. ... But overall, a nice problem to have - except it seems like a waste to me to over-save ...

Click to expand...

For me it depends ... if it keeps me from doing something today, then it's problem. If not, I'm happy to give away as much as I don't need. I am monitoring to stay in the "sweet" spot as long as possible. 

This seems to me to be one of those "diminishing returns" areas where sweating something that can't be avoided is counter productive.


Cheers_


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## Four Pillars

uptoolate said:


> The tax hit for heirs is a pain but I think that we will let it be their pain! As pointed out, I think it gets to be much more of an issue in situations where two good size RRSP/RRIFs get collapsed into one at the death of the first spouse.


There is no tax hit in that situation.


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## uptoolate

Sorry not to be clear Four Pillars. The tax hit is that you now potentially have a 2 million dollar RRIF and no one to income split with. Mandatory withdraws are up in the > 150k range. And worst of all, you are there to suffer the big tax bite every year! :biggrin:


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## fraser

Interesting thread. We are 60 and 62 and are actively working with our tax advisor to understand when best to bring down our RRSP's. We do not have extremely high balances because of my hybrid DB plan. A fair amount of the total is in a spousal plan.

We actually have started a spreadsheet started that covers the next 5 years for both us to determine the most tax efficient way to deal with pension income, RRSP's and OAS. Once we fill in the knows and 'best guesses' we will determine what we need to do in order to minimize the tax burden or OAS clawback.

Tax is a HUGE expense. Over the past few years we have reduced our tax considerably through spousal loans. We went to Service Canada last week to submit the forms for CPP pension splitting. We have paid for professional tax advice and that advice has paid for itself many times over...and continues to do so. We do not mind paying tax, we just do not want to pay a dime more that we need to.


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## Four Pillars

uptoolate said:


> Sorry not to be clear Four Pillars. The tax hit is that you now potentially have a 2 million dollar RRIF and no one to income split with. Mandatory withdraws are up in the > 150k range. And worst of all, you are there to suffer the big tax bite every year! :biggrin:


Ok - yes, that is a valid concern. 

However, that tax hit can be mitigated by finding a new partner. See my advice to Sherlock on the 'dating thread'.


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## humble_pie

Four Pillars said:


> that tax hit can be mitigated by finding a new partner. See my advice to Sherlock on the 'dating thread'.



oh my goodness no

too much of a chance that surviving $2 million spouse will be so weakened by grief - due to loss of mate plus new income taxes of truly himalayan proportions - that he or she will up & marry a golddigger

this will cook the goose for the heirs


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## OnlyMyOpinion

Can't argue with tapping assets in the most tax-efficient manner. 
Re/ comments on withdrawing from RRSP to contribute to TSFA - but if other sources of income/savings are sufficient to provide $5500 then you haven't really gained anything, just reduced your tax-sheltered growth? Even my cpp-oas-small pension parents manage to sock away the full TSFA amount every year without a RRSP withdrawl. 
So pulling money from tax sheltered growth in RRSP to reduce the amount remaining so you face less tax when the minimum withdrawl rates hit at age 71 seems risky. If we decide or require assisted living in our 70's (80's more likely) it is expensive to live on upgraded terms, up to $3000/mo. We'd better be sure we 'don't run dry before we die'.
At present, we're thinking of staying 'conventional' - that is living on non-sheltered investment income & cpp until age 71 while letting the RRSP's continue to grow unabated. Then at age 71 we'll convert to RRIF income and begin to gift our non-sheltered assets to the kids to the degree that seems reasonable at that time and reduce our otherwise higher tax burden. We don't expect to have to dip into the underlying non-sheltered capital, but the option is there if necessary.
We'll continue to toss and turn on this subject.

Found and added these links later: 
i) When an RRSP Helps and When it Hurts - John Heinzl, Globe & Mail, Feb.14,2014
http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/unravelling-rrsp-myths/article16902315/
ii) RRSP Bashers, Here's How the Math Works, John Heinzl, Globe & Mail, Feb.21, 2014
http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/rrsp-bashers-heres-how-the-math-really-works/article17034733/


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## Mookie

I guess everyone's situation is different, but in general, I think that if you end up with a lot of money in RRSPs, this is your money telling you to retire early. This will get you out of the RRSP tax trap. If you wait until you're 71, and are forced to start withdrawing your RRSPs, you will do so on top of your CPP, OAS, and company pension (if applicable). Not only will you pay a lot of taxes on your RRSP withdrawals, you may also trigger OAS clawback.

Instead, my strategy, and my suggestion to the OP is to retire early while you've still got your health, and can enjoy your retirement. Before OAS, CPP and company pensions kick in, start melting down your RRSP, while you're in a super-low tax bracket, and have no other sources of income. You don't have to spend all of what you withdraw - just shovel the remainder into your TFSA, or into a non-registered account, and invest in dividend paying stocks for favorable tax treatment. The key to paying the least income tax possible is to even out your taxable "income" as much as possible over the years.


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## Ponderling

piano mom said:


> How much for the RRIFmetrics program?


 Steve lets you down load it for free to try it out, and then after I think a month you cannot have it run reports. Personal use download full licensed fee is $100, as I recall. 

I have yet to pony up my cash. I went back into it about 9 months later, to update some assets data to see the potential long term impact of my growing my non sheltered account's holdings for dividend income and I was still able to manipulate the data, and run the simulations. I have yet to ever print out a report.


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## Four Pillars

Ponderling said:


> Steve lets you down load it for free to try it out
> ...
> I have yet to pony up my cash.
> ...
> I have yet to ever print out a report.


I think you just made Steve's ignore list.


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## Eclectic12

Mookie said:


> I guess everyone's situation is different, but in general, I think that if you end up with a lot of money in RRSPs, this is your money telling you to retire early ...





Mookie said:


> ... Instead, my strategy, and my suggestion to the OP is to retire early while you've still got your health, and can enjoy your retirement. Before OAS, CPP and company pensions kick in, start melting down your RRSP, while you're in a super-low tax bracket, and have no other sources of income ...


OP stated they were semi-retired so it's really a question of the variables at play (how big is "big"? There's 70K of RRSP room available that is tentatively being ignored. how long to age 71? what is CPP, company pension, investment income going to add up to?).



Mookie said:


> ... You don't have to spend all of what you withdraw - just shovel the remainder into your TFSA, or into a non-registered account, and invest in dividend paying stocks for favorable tax treatment. The key to paying the least income tax possible is to even out your taxable "income" as much as possible over the years.


The OP stated that TFSAs are maxed already so unless there's likely just the yearly TFSA amount that can be added.

If one is truly worried about OAS, dividend paying stocks aren't that effective in a taxable account as $1 in dividends received is reported at $1.38 or so for the OAS income test. Structuring for payments in capital gains or RoC would keep one short of the clawback longer.

Of course, if the RRSPs are truly that big - there's limits as to how much can be done as there's only so much TFSA contribution room and investment income is going to factor into the OAS income tests as well as how much tax is due.


Cheers


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## BC Eddie

Thanks again to all for your interest in my post. I composed several responses dithering back and forth on how much info to share. In general terms we are both early 60's, semi-retired, enjoying our work from home three days a week and also enjoying our time off. We have zero debt and have been fortunate to accumulate about $2M in savings (not including home) split 40/60 registered/non-registered and TFSAs are maxed out. We both expect to qualify for around 80% of CPP and OAS and my present thinking has us deferring this until 70 as we are both in excellent health and have a history of older ancestors (plus I am starting to think of CPP/OAS as an annuity and hedge against inflation as we have no other pensions. I am thinking around $80K after-tax annual income. It would be nice to leave some money in estate but this is not an absolute. 

Again my original question was should we start to draw down RRSP sooner to avoid heavy tax due to forced withdrawals from age 71 onward. I also have a contradictory question asking if there is any value in using up the accumulated $70K in RRSP contribution room while we are still working?

I am also leaning towards purchasing RRIFmetic as it looks like it might aid me in my decision making - just taking the time now to read the available user manual.


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## steve41

It is funny, but the (one of the) dumbest things I did when I first started this enterprise is naming the program. I stumbled on RRIFmetic as a play on the word 'rifmetic (a lyric from an old tune "School Days"....'readin and ritin and rifmetic') The problem is, 70% of the population doesn't get it, so it gets called rrifmetric. Sigh.... there's a lesson there, but I am not sure what it is.


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## Four Pillars

steve41 said:


> It is funny, but the (one of the) dumbest things I did when I first started this enterprise is naming the program. I stumbled on RRIFmetic as a play on the word 'rifmetic (a lyric from an old tune "School Days"....'readin and ritin and rifmetic') The problem is, 70% of the population doesn't get it, so it gets called rrifmetric. Sigh.... there's a lesson there, but I am not sure what it is.


Lol - branding problems.

I never noticed the proper spelling and I've never heard of that song. 

I had assumed the name only came from the RRIF account which presumeably most users would likely be making at least some of their retirement income from.


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## BC Eddie

I would have thought the first lesson to learn would be to never include in the name of your product a government originated acronym. 

Steve I have been reading a lot of your material in the last couple of days (and I am old enough to know the lyrics to that song) and have read several times how the name evolved and never once did I absorb that it is RRIFmetic not RRIFmetric. Earlier post now corrected.


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## steve41

I think the bigger folly was the fact that a potential buyer would see the name and think...."that's just a RRIF illustrator", I want something that includes everything, not just RRIFs" As it turns out, I did start it out (15-20 years ago) as a simple RRIF illustrator.

Marketing is not my strong suit.


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## wendi1

Thanks for the numbers, BC. Without going into too much niggly number-crunching - I would think you are correct. 

That $70K of RRSP room that beckons is not your friend. GIS is not happening. If that $80K is income split, you will still both get OAS. You will have plenty of money under most circumstances, and you are set.

Now, how to optimize your taxes on that income - that's what you need the software for (or the services of someone with the software). Nice problem to have - I think if you were tax-inefficient, you would both still be okay, and have a big estate left over.


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## BC Eddie

wendi1 said:


> Thanks for the numbers, BC. Without going into too much niggly number-crunching - I would think you are correct.
> 
> That $70K of RRSP room that beckons is not your friend. GIS is not happening. If that $80K is income split, you will still both get OAS. You will have plenty of money under most circumstances, and you are set.
> 
> Now, how to optimize your taxes on that income - that's what you need the software for (or the services of someone with the software). Nice problem to have - I think if you were tax-inefficient, you would both still be okay, and have a big estate left over.


Many thanks Wendi1. This is the kind of answer I was hoping for. You have convinced me to get RRIFmetic and to try and crunch some real numbers myself.


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## carverman

Four Pillars said:


> Lol - branding problems.
> 
> I never noticed the proper spelling and I've never heard of that song.


School Days..I remember singing it in music class in public school in the 50s. It is a classic example of ELISION..THIS IS POETIC "LICENSE" AFTER ALL..and sometimes done for dropped syllables
to fit into Iambic Pentameter poetry rhyme.... the exclusion of the preceding word/vowel in this case ('the 3 'R's) is another example of alliteration. 



e·li·sion
iˈliZHən/Submit
noun
1.
the omission of a sound or syllable when speaking (as in I'm, let's, e ' en ).

School days, school days
Dear old Golden Rule days
*Reading and 'riting and 'rithmetic*
Taught to the tune of the hick'ry stick
You were my queen in calico
I was your bashful, barefoot beau
And you wrote on my slate, "I Love You, Joe"
When we were a couple o' kids


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## BC Eddie

wendi1 said:


> That $70K of RRSP room that beckons is not your friend.


So I purchased RRIFmetic. I like Steve's documentation and I am not intimidated by the tool. I believe it will be very useful to me once I am confident I am using it correctly and understand the results. 

However, in the very short term(i.e., March 3rd), I don't expect to master the software so I am re-thinking whether we should use up our RRSP contribution room this year while still working. Above you say the RRSP room is not my friend. Is this true even if this year our income will be significantly higher than when we will be drawing down the RRSP? Would we not benefit from the tax deferral and the sheltered growth in the RRSP at least until we start to withdraw, especially if our 2013 income is high? 

I know I am flip-flopping on this but earlier I was questioning RRSP contributions I made years ago when my income was low vs. future withdrawals in years with higher income.


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## Eclectic12

BC Eddie said:


> ... However, in the very short term(i.e., March 3rd), I don't expect to master the software so I am re-thinking whether we should use up our RRSP contribution room this year while still working.
> 
> Above you say the RRSP room is not my friend. Is this true even if this year our income will be significantly higher than when we will be drawing down the RRSP? ...


If you can plan for it and be sure that the contribution plus any growth is withdrawn when your income is lower, it's a good deal to use it.

The trade off is that with so much already in the RRSP, using it will add to what needs to be removed and might mean that you don't have enough time/lower income room to draw the RRSP value low enough to help when the higher income hits. 


Cheers


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## wendi1

Well, you didn't say what your income was. :rolleyes2:

And no one has a crystal ball, either - not to be morbid, but when both you and your wife die, the RRIF is taxed at the highest marginal rate. 

IMHO, you should make sure you have enough for retirement, and to take care of your obligations to your family. You do. Squirrelling away more money than that in your RRSP is unnecessary, will jeopardize your OAS, and will hit your heirs with a whopping tax bill. 

Are you sure you are not just feeling anxious? Retirement is a big step.


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## BC Eddie

Thank you both Eclectic12 and Wendi1 for helping me think through this. I will work on trying to master RRIFmetic and see what the numbers look like. I had started to put pressure on myself to possibly make a contributions for 2013 but I am now thinking, IF it does make sense to contribute more, that we can just as well do it for 2014. So maybe we lose a year of tax free growth but that is probably better than getting hit with too much tax later. Best to make an informed decision without the pressure.

Yes, from my own spreadsheet tools, using Retireware software, and recent help from this board, I am feeling pretty good about the "have we got enough" question. Although, while my childhood was not one of absolute poverty, it was a common occurrence to have our electricity and phone shut off because of failure to pay and being evicted from our home. That kind of history makes it really hard to not keep earning when you have the opportunity - just to be sure. 

I think I am comfortable with my decision to retire - but it is a fair question. In fact I was prepared to do it back in 2006 when we first moved to our current location. However the ability to work from home, part time, was just too good to pass up (plus my wife took on a contract that left me with too much time on my hands alone. The plan now is to retire (i.e., stop working - not necessarily start CPP/OAS) at the end of 2014 or 2015 at the very latest. My wife has the same kind of schedule in mind.

The biggest "fear" is probably moving to "fixed income" status. Right now, we pretty much spend our money on whatever we want. We do not have a crazy rich lifestyle but it is very comfortable. My hope is that, by using RRIFmetic, I will be able to nail down the tax piece and that will go a long way to saying just how "fixed" our income will be.

We have been fortunate to work in an industry (computer systems) that has been very rewarding both financially and work interest. However, I have rarely tied my identity to the job; nothing I have done has ever saved anybody's life. So when it ends it will not be scary. I have a number of other interests and will not have any issue with what I then do with my life.


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## wendi1

Good for you. Fortunately, the wealth you two have accrued gives you plenty of options. 

Just don't let yourself get too wound around the twist with the optimization strategies. There's an old saying, "Perfection is the enemy of good enough". :encouragement:


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## Eclectic12

wendi1 said:


> Well, you didn't say what your income was. :rolleyes2: ...


Not to a great amount of detail but it was estimated up-thread at:


> ... I am thinking around $80K after-tax annual income.



Cheers


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## cardhu

BC Eddie said:


> is there any value in using up the accumulated $70K in RRSP contribution room while we are still working?


Based on the info you’ve posted, yes ... the RRSP contribution room that beckons you is your friend ... probably would have been better to continue contributing in smaller increments over the past 8 years or so, but that is water under the bridge, now ... I disagree with the suggestion that the value of RRSP contributions diminish as retirement approaches ... especially in a case like yours (no DBP, self-funded)



BC Eddie said:


> I had started to put pressure on myself to possibly make a contributions for 2013 but I am now thinking, IF it does make sense to contribute more, that we can just as well do it for 2014.


But what if it makes most sense to contribute in both years? Especially since you may not have enough income to warrant a full $70k contribution in one year. You have until midnight tonight, if you have online contribution capability. 



BC Eddie said:


> For the past few years I have been concerned that by the time we are forced to withdraw from them or convert to RRIFs that we will actually be in higher tax brackets then what we were in when we made the contributions


Your tax bracket in retirement is not what matters in an evaluation of RRSP efficacy... tax *rates* are what matter ... and it is well within the realm of possibility to face a lower tax rate on RRSP withdrawals, even if you are one of the rare exceptions who retire into a higher tax bracket. 

In any event, there is nothing in your posts that indicates either a higher tax bracket, or high tax rates on withdrawals, with only $2million in assets ... quite the opposite, in fact ... especially if you have set yourself up for effective income splitting. 


Your other question, about drawing “early”, I’ll address separately ... its not as urgent.


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## BC Eddie

Cardhu thank you for taking the time to reply to my questions.



cardhu said:


> Based on the info you’ve posted, yes ... the RRSP contribution room that beckons you is your friend ... probably would have been better to continue contributing in smaller increments over the past 8 years or so, but that is water under the bridge, now ... I disagree with the suggestion that the value of RRSP contributions diminish as retirement approaches ... especially in a case like yours (no DBP, self-funded)


Thanks to RRIFmetic I think I now see that making a contribution in the near term to use up our contribution room will be a good thing. Unfortunately I have run out of time to get it in for 2013 due to logistics but will do for 2014.



cardhu said:


> But what if it makes most sense to contribute in both years? Especially since you may not have enough income to warrant a full $70k contribution in one year. You have until midnight tonight, if you have online contribution capability.


The $70 is split almost evenly between my wife and I and we will both have enough income to use the balance up in one year



cardhu said:


> Your tax bracket in retirement is not what matters in an evaluation of RRSP efficacy... tax *rates* are what matter ... and it is well within the realm of possibility to face a lower tax rate on RRSP withdrawals, even if you are one of the rare exceptions who retire into a higher tax bracket.


OK I see that now.



cardhu said:


> In any event, there is nothing in your posts that indicates either a higher tax bracket, or high tax rates on withdrawals, with only $2million in assets ... quite the opposite, in fact ... especially if you have set yourself up for effective income splitting.


My point was that in a number of the early years when I made a contribution my income was relatively low so I was assuming that at the time we would be withdrawing that our income would be relatively high and thus taxed at a higher rate. But, again through the magic of RRIFmetic I can now see that while will our income will be comfortable, the tax will not be excessive.



cardhu said:


> Your other question, about drawing “early”, I’ll address separately ... its not as urgent.


Again, through RRIFmetic I think I am seeing that the early RRSP withdrawal strategy probably will not be relevant for us.


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## jmarks

Eclectic12 said:


> ... not sure why as there's been a lot of discussions.
> 
> Don't forget in your evaluation that if you have dividend income, it's your taxable income not what you were paid that is considered (ex. paid $1 dividend income, taxable income is something like $1.40).
> 
> Cheers


Interesting thread as I'm consider a similar strategy.
Eclectic12 I don't understand what your saying with your statement above? It's true that their are some gymnastics involved with calculating taxes for eligible dividends, but the bottom line is you get a credit which more than compensates for the increased income. 

Please let me know what I've missed.


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## OnlyMyOpinion

Think this was referring to the gross up of cdn dividends increasing the earned income you have to report and potentially increasing the claw-back of GIS/OAS income. The cdn dividend income itself receives credit as you note.


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## jmarks

Eclectic12 said:


> ... not sure why as there's been a lot of discussions.
> 
> 
> The answer is it depends on how confident you are that the minimum withdrawals, when all added to all other sources of income (i.e. pension, CPP, investments) are going to put you over the something like $67K of income and what your available options are.
> 
> http://www.theglobeandmail.com/glob...void-the-dreaded-oas-clawback/article4192451/
> 
> Don't forget in your evaluation that if you have dividend income, it's your taxable income not what you were paid that is considered (ex. paid $1 dividend income, taxable income is something like $1.40).
> 
> 
> Cheers





OnlyMyOpinion said:


> Think this was referring to the gross up of cdn dividends increasing the earned income you have to report and potentially increasing the claw-back of GIS/OAS income. The cdn dividend income itself receives credit as you note.


Thank You that's what I was thinking, but it was mentioned a few times so I wanted to ensure I understood what he was saying. 
Eligible dividends are such a tax saver it's hard to believe its legal


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## Canadafan

As has been mentioned , depends on a lot of variables.
What works for us: My wife has close to zero taxable income. Our overall assets are very RRSP heavy.
melting down a small amount each year , in our model: RRSP amounts come out less than 15% , taxed. The $ adds to overall cashfliw & TFSA growth.
In addition the RRSP total continues to grow, although at a smaller rate.
This model works well under the ability to income split later on.
Else, the Two RRSP accounts would be unblanced and tax advantage could be lost, at eventual age 71 for example.


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## Eclectic12

jmarks said:


> ... Eligible dividends are such a tax saver it's hard to believe its legal


When comparing only to regular income ... absolutely.

When comparing to capital gains, one's province and income may make a difference ... for example, using the Ontario tax rates from:
http://www.taxtips.ca/taxrates/on.htm

Where income is over $43,953 up to $70,651 - regular income which is at 31.14% > capital gains which is at 15.58% > eligible dividends which is at 8.46%

Skipping up four brackets,
Where income is over $87,907 up to $136,270 - regular income is 43.41% > eligible dividends at 25.38% > capital gains at 21.70%


Nova Scotia starts on a higher rate for eligible dividends 20.42% at $59,180 while Alberta always has cheaper eligible dividend tax rates.

http://www.taxtips.ca/taxrates/ns.htm
http://www.taxtips.ca/taxrates/ab.htm


Cheers


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## Eclectic12

Brian Weatherdon CFP said:


> ... I agree on face-value here with your general assumption. Ie. I believe you are right, as a general statement, that the nearer we approach retirement the less value there is in maximizing RRSPs ...


Isn't this more of a YMMV situation?

I know of many people who have switched jobs multiple times so that their DB pension, when it starts - it going pay out an income *four* or more tax brackets down.
Since only about 1/4 of what they have invested is in a taxable account - I suspect that their RRSP is going to be of use, right up to the last possible day.

Adding in their investment income plus CPP and possibly OAS is going to bump up the brackets ... but except for a few, I doubt it would bump up four brackets.


Cheers


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## Eclectic12

OnlyMyOpinion said:


> jmarks said:
> 
> 
> 
> ... Eclectic12 I don't understand what your saying with your statement above?
> It's true that their are some gymnastics involved with calculating taxes for eligible dividends, but the bottom line is you get a credit which more than compensates for the increased income ...
> 
> 
> 
> Think this was referring to the gross up of cdn dividends increasing the earned income you have to report and potentially increasing the claw-back of GIS/OAS income...
Click to expand...

The issue is that the OAS test is that the test is when the gross-up has occurred and before the DTC has been applied to reduce the income.

So capital gain of $1 is reported as $0.50 and only moves one closer to the OAS clawback by that amount.
Interest of $1 is reported as $1 and only moves one by the amount.

Dividends of $1 paid means reporting $1.38 or so and moves one $1.38 closer to the OAS clawback.
Later on in the tax return, the DTC is applied making it more tax efficient in terms of what needs to be paid ... but that is long after OAS test
took it's income number.

http://retirehappy.ca/minimizing-old-age-security-clawback/


Cheers


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