# Question on RRSP from Newly Retired Couple



## gemma119 (Apr 6, 2009)

Love the forum! After reading and following the threads in retirement my wife and I had some questions about retiring as we will be fully retired this coming fall. We are 62 and 60 years of age and have saved up for our retirement all our life’s and hope we have saved enough to support our life style. I seem to read all the threads trying to gain information that helps us feel comfortable about our situation. What led me to write this thread was the article on melting down your RRSP before your regular savings. We really don’t have a company pension but have about $425,000 in RRSP’s and a bit more than this saved in non-registered savings. We have no debts at all and own our own home. My question is if you don’t want to leverage any investments does it pay to withdraw the maximum from your RRSP or RRIF before taking from your regular savings after retirement and when is enough in the RRSP’s before making no more contributions. Thanks


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## Bullseye (Apr 5, 2009)

You're going to pay taxes on the RRSP withdrawls sooner or later, so your first step should be to do so while paying the least amount of taxes. That might mean that withdrawing from your RRSP first, before CPP/OAS kick in, would be best. 

Far too many factors to say for sure, though. Anyone here would really need a lot more info about things like your cash flow needs, estimated lifespan, risk tolerance, planned inheritances, etc, before they could give any decent suggestions. The more info you give, the more likely posters here will feel they can add something helpful. 

The other suggestion would be to find a decent financial planner, maybe a for-fee one, and pay for a good plan. Your assets are certainly large enough to justify it.


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## johnsazzr (Apr 20, 2009)

Your situation is a perfect example where it is really about crunching the numbers to determine the best income stream for you while saving the most taxes...particularily until you both reach the age of 65 ....whatever advice you receive from an advisor or whatever, I strongly recommend that you have an accountant review your numbers and give you a decisive and ACCURATE recommendation....not only will the fee be money well spent..it will be tax deductible..call it income tax preparation!...because it truly is preparing for income tax!


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## ethos1 (Apr 4, 2009)

*gemma 119 - Part one response*



gemma119 said:


> Love the forum! After reading and following the threads in retirement my wife and I had some questions about retiring as we will be fully retired this coming fall. We are 62 and 60 years of age and have saved up for our retirement all our life’s and hope we have saved enough to support our life style.


Congratulations & trust you have weighed up all of the pro’s & cons to taking early retirement as well as having thought through about having enough income to sustain you both till one of you reaches 65 or beyond till the end of life.

Being 62 years old myself, I can probably give you a personal unqualified responses below (some repetition), but I would suggest unless you have really got this analyzed already, that you may need to get some professional (paid for) advice from an Accountant of Financial advisor.



> I seem to read all the threads trying to gain information that helps us feel comfortable about our situation. What led me to write this thread was the article on melting down your RRSP before your regular savings.


In early retirement most people have set out or planned to have income of some sort, whether its savings, investments, passive income, RRSP’s even the lottery etc. 

In your post I think that you have provided very little information on post-retirement income sources, such as

	Are either of you drawing or planning to draw CPP
	Do you have passive income or any other income generated not from savings or employment income
	Will the younger of the two of you or even yourself be working part time
	Are either of you collecting any form of pensions already
	Will one of you be collecting a severance package or employment income continuance
	Or simply the complete dependency on investment savings or RRSP’s
	Will you live 100% of your time in Canada
	Do you have a second home or vacation property



> We really don’t have a company pension


What does this mean?


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## ethos1 (Apr 4, 2009)

*gemma 119 Part 2 response (cont'd)*



> but have about $425,000 in RRSP’s and a bit more than this saved in non-registered savings. We have no debts at all and own our own home.


After you pull the plug this fall is there or will there be any income from non-employment sources that could affect the taxes you pay or indeed support you without drawing down the RRSP? I’m thinking savings, CPP, passive income, rental income etc



> My question is if you don’t want to leverage any investments does it pay to withdraw the maximum from your RRSP or RRIF before taking from your regular savings after retirement and when is enough in the RRSP’s before making no more contributions. Thanks



1.	I presume that you would already know how much per-month or year it is that you need
2.	Do you know where that income will come from
3.	You also know that any income from RRSP meltdown will have some tax taken off when you start to take it out
4.	Is the RRSP’s invested smart, safe & securely in something like GIC’ at 4 -5 % return annually?

RRSP’s: Since you have $425,000 and assuming it is invested at 5%, the annual growth in the RSP’s will be $21,250. Is that enough for you to live on (in addition to drawing from savings or having other income) till you reach 65?

Since there is $21, 250 of income growth within the RRSP, it also supposes that you do not want to touch the capital value, then, you could take out the minimum in $5k lots as you need it.

If you need more than $21,250/year to live on and the RRSP’s is the only possible revenue source, then by taking out more than $21,250 the RRSP’s would start to slowly diminish. Only you can make the decision on how much to take out for your needs

As individuals & joint couple, you need to decide the lifestyle you want in retirement, the cost, how much & you will need. No advice from a forum can give you that – its way too personal

The tax issue is not that important, what is important is that you have saved and put away money, have a nest egg that includes real property & RRSP’s, you are debt free, have some savings, are 3-5 years from collecting OAS and any other benefits to support the income that you both will need


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## lb71 (Apr 3, 2009)

OAS benefits start at 65 and are income dependent (the less income you have, the higher the OAS benefit). So you may want to start with your RRSPs now since you will have no other income (other than possibly CPP) and stop at 65 when OAS starts at which point you would draw on your savings if necessary. You could dip into your RRSP too if needed before you convert to a RRIF.


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## ethos1 (Apr 4, 2009)

*gemma119 Part 3*



gemma119 said:


> We really don’t have a company pension but have about $425,000 in RRSP’s and a bit more than this saved in non-registered savings


_forget to add this point on the total money value that you have_

That makes it close to the million bucks (well $850k - $1 million), and if I am close to being right -then

All of that which is invested, just make sure it is invested safely and has a return over and above inflation.

Use the money as you need it & pay the tax

No worries, simply enjoy your retirement - you have deserved it


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## gemma119 (Apr 6, 2009)

Thanks ethos1
We have gone to a couple of advisor's and they want to sell you something and we have been down that road before and regretted it. Our account tries to help but sometimes we wonder if he knows investing tax laws. To your questions I will try and answer 
1. Yes we are starting to draw our cpp(advised by accountant)$10,000 / year
2.Yes but this was added in to our non-registered funds
3.Very little part time work
4.I get a small company pension. $1750.00 / year
5.No severance packages
6. Mainly depend on savings for income starting next year
7. Spend 3 months in Florida
8.No second home
Our investment our about 70% fixed income (GIC and bonds), 20% can equities,6% us and foreign equities, 4% gold. We are trying to achieve a 6% return. As far as our expenses I think it takes about $70,000 .00 per year to live. Our home is valued about $400,000
Again thanks as I believe there are alot of us baby boomers that have similar situations and wonder if we are doing the right things.


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## FrugalTrader (Oct 13, 2008)

lb71 said:


> OAS benefits start at 65 and are income dependent (the less income you have, the higher the OAS benefit). So you may want to start with your RRSPs now since you will have no other income (other than possibly CPP) and stop at 65 when OAS starts at which point you would draw on your savings if necessary. You could dip into your RRSP too if needed before you convert to a RRIF.


I believe the OAS clawback starts at incomes over ~$63,000 / year.


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## ethos1 (Apr 4, 2009)

*gemma119 Post 3 update*



gemma119 said:


> Again thanks as I believe there are alot of us baby boomers that have similar situations and wonder if we are doing the right things.


You have a solid fixed asset - the home that is currently worth $400k. That in itself is a back-up or inheritance for someone

Based on the info that you have provided in the first post, you have close to a Million bucks

If the combined million was invested at 5% that is $50k/yr & its possible (knowing boomers lifestyles) they wouldn't spend that kind of money. 

Therefore its possible 10-years from now the million will still be intact, then half needs to be RRIF'd or spent (RRSP's totally melted down)

I say take out of the RRSP's to a level which will minimize the tax, the rest can come from the savings

You could consider starting to put money into TFSA's, that way (I know it will take forever) the income from investments in the TFSA's will be tax free.

You could also if you have kids to start to give them some of the capital that you know 100% for sure that you wont need, or as some say - 'give some to the needy'

Have a long a wonderful retirement


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## lazy cdn (Apr 3, 2009)

*charitable foundation*

i would like to know if anyone of you'll have started a small charitable trust or foundation in your name. how does one go about it.


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## ethos1 (Apr 4, 2009)

lazy cdn said:


> i would like to know if anyone of you'll have started a small charitable trust or foundation in your name. how does one go about it.


http://www.cra-arc.gc.ca/tx/chrts/menu-eng.html

http://www.cra-arc.gc.ca/tx/chrts/pplyng/menu-eng.html


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## lb71 (Apr 3, 2009)

FrugalTrader said:


> I believe the OAS clawback starts at incomes over ~$63,000 / year.


That's about right. However, the GIS is scaled back right away with any income.


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## OhGreatGuru (May 24, 2009)

gemma119 said:


> Thanks ethos1
> We have gone to a couple of advisor's and they want to sell you something and we have been down that road before and regretted it. Our account tries to help but sometimes we wonder if he knows investing tax laws. To your questions I will try and answer
> 1. Yes we are starting to draw our cpp(advised by accountant)$10,000 / year
> 2.Yes but this was added in to our non-registered funds
> ...



You might have trouble squeezing $70k/yr out of your investments and CPP before OAS kicks in. Afterwards it shouldn't be a problem because OAS is currently ~$6200/person/year

The theory behind drawing down RRSP first is that all RRSP earnings will ultimately be taxed on withdrawal as straight income - no capital gains or dividend credits. On the other hand you are not being taxed until you do withdraw.

Since you have a high percentage of fixed income anyway it is not going to make a lot of difference. But perhaps what you should do is move all the equity into the non-registered account because of the favourable tax treatment of capital gains. (There is another thread about looking at overall asset allocation, rather than trying to balance each account separately) When equity has a bad year, take more of your income from the RRSP; when it has a great year, take more from the non-registered account; and in average years take some from each.

PS - I don't advise treating the equity in your home as money you can spend or invest. You still have to live in it - hopefully for another 20 years or so based on statistics. The current fad of encouraging retired people to borrow against their home equity is a chicken that is going to come home to roost one day with our increasingly long life spans and health care costs for seniors.


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## steve41 (Apr 18, 2009)

Do not, I repeat, do not fall for this "RRSP meltdown" garbage.

When you run the numbers, your combined net income comes in at 65116 annually (dying broke at 95, 5%, rate, 2% cpi) (sheltering your rrsp)

When you start bringing down your rrsp preferentially, the result is a 64453 combined ATI... That's a 663 net advantage for the "continue to shelter your RRSP" strategy.

It is a complex determination, however I have seen virtually no plan in which "the RRSP got too big and invoked high taxes on withdrawal". Virtually none.


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## leslie (May 25, 2009)

I would recommend what I do myself. 

1) Run some number on this spreadsheet that is the only one I know of to factor into the input/draw decision the value of income protection until age 100. You will probably find no benefit from early withdrawals. Too many people are now advising you to make the decision based solely on tax rates, without measuring the benefits lost of income protection from tax.

2) Live off your income from non-RSP investments and CPP until you are forced to withdraw from the RRIF. (I would think it unlikely you will have to touch the principal.)

3) Since the taxable income from investments can vary widely from yr to yr, in early December total up what you think your tax position will be. If it has unused dividend tax credits, or does not use up the first tax bracket, then withdraw from the RRSP to top-up your taxable income. (With CPP I doubt you will have to do this.)


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## cardhu (May 26, 2009)

gemma119 said:


> What led me to write this thread was the article on melting down your RRSP before your regular savings.


Can’t comment on the article you read, since you didn’t give a reference ... but if you’re referring to the scheme whereby you borrow to create a leveraged portfolio, and then use the interest deduction to offset the tax arising from a corresponding RRSP withdrawal, then forget it ... that so-called “meltdown” is nonsense ... its not real ... it doesn’t do what its promoters claim even if you are willing to engage in massive leveraging, and since you’re not interested in leveraging anyway, it’s a moot point. 

If what you’re referring to is simply the question of whether to draw from RRSP/RRIF investments first, or delay those draws until after the non-registered funds are used up, that is not a “meltdown” scenario at all ... it is merely “retirement” ... for many people, it will make most sense to begin drawing from RRSP immediately upon retirement, and for others, it will make more sense to delay the draw as long as possible ... there are many variables affecting that decision, and there is no across-the-board right answer.

You can safely ignore the OAS clawback ... with your assets, there is little chance it will affect you unless (a) they change the law, or (b) you decide you need more than about $130k/yr retirement income (assuming effective income splitting) ... the OAS clawback starts at incomes over $66,300/yr, per individual, and you may not have that amount combined. 



johnsazzr said:


> I strongly recommend that you have an accountant review your numbers ....not only will the fee be money well spent..it will be tax deductible..call it income tax preparation!...because it truly is preparing for income tax!


It wouldn’t be tax deductible.


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## gemma119 (Apr 6, 2009)

Thanks cardhu for reading my thread. Yes your right we are not into leveraging. We just wanted to know because next year we will offically retired and our income from working basically comes to an end. It is really a question about taxes as we move forward. We are trying to get most of our registered money into fixed income and our non-registered into equities. Our total savings are split between registered and non-registered.
Thanks again


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## steve41 (Apr 18, 2009)

You can get slightly creative if you have money outside your RRSP at retirement... move as much of it out to your TFSA as you can over time. This will result in a modest improvement to your bottom line (spending). The TFSA isn't just for those starting out, it can be used in retirement as well.


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## ethos1 (Apr 4, 2009)

gemma119 said:


> Thanks cardhu for reading my thread. Yes your right we are not into leveraging. We just wanted to know because next year we will offically retired and our income from working basically comes to an end. It is really a question about taxes as we move forward. We are trying to get most of our registered money into fixed income and our non-registered into equities. Our total savings are split between registered and non-registered.
> Thanks again


recapping - in the OP you said

*What led me to write this thread was the article on melting down your RRSP before your regular savings. We really don’t have a company pension but have about $425,000 in RRSP’s and a bit more than this saved in non-registered savings. We have no debts at all and own our own home.*

The value (approximately) of cash/investments is about $500k in each of RRSP and non registered investments totalling about $1,000,000

You said that you're aged 62 & 60 respectively and are about to drop out & retire this fall as well as informed us that you live modestly

From the input for your consideration of what others have provided in this thread, my snap analysis of this if it were my situation would be something like this

Calculate what you need on a monthly basis, factor in the travel expenses
Draw the CPP now
Any shortfall can come out of investments, RRSP's, investment income, or a combination

& take into consideration that OAS for the first person kicks in 3-years

For the situation that you have described I see nothing wrong with having all that you have invested in a laddered GIC or something as safe as that (non agressive investing)
Draw down the RRSP if need be at a level that minimizes the tax


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## Bullseye (Apr 5, 2009)

Glad to see Cardhu posting here! A very knowledgable and helpful poster from other financial forums.


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## cannon_fodder (Apr 3, 2009)

lb71 said:


> That's about right. However, the GIS is scaled back right away with any income.


Actually, GIS is scaled back $1 for every $2 in income that doesn't include OAS or GIS payments or TFSA withdrawals or return of capital payments (e.g. from mutual funds, certain stocks or annuities) for an individual. In addition, recent government legislation has upped the amount a person can earn through a job before that is counted. It is now at $3,500.

Your GIS payments can be affected if you have a spouse and that spouse has taxable income.


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