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Tag: RRIFs

  • How to consolidate your registered accounts for retirement income in Canada – MoneySense

    How to consolidate your registered accounts for retirement income in Canada – MoneySense

    There is a spousal attribution rule with spousal RRSPs that applies if you take withdrawals within three years of your spouse contributing. This may result in the withdrawals being taxed back to the contributor.

    When you combine an RRSP and a spousal RRSP, whether you like it or not, the new account must be a spousal RRSP. As a result, you would typically transfer an RRSP into the existing spousal RRSP. 

    There are no tax differences between an RRSP and a spousal RRSP for withdrawals, other than the aforementioned attribution rules. 

    Even if you separate or divorce, your spousal RRSP cannot be converted to a personal RRSP. 

    As a result, Steve, your wife could combine her RRSP and her spousal RRSP by converting them both to a spousal RRIF. I would be inclined to do this. 

    Combining LIRAs with other registered accounts

    Locked-in RRSPs have different withdrawal and consolidation rules than regular and spousal RRSPs. The locking-in provisions of your wife’s locked-in retirement account (LIRA) are meant to prevent large withdrawals. These funds would have come from a pension plan she previously belonged to. Pension money is treated differently from personal retirement savings, such that locked-in accounts have maximum withdrawals as well as minimum withdrawals. 

    In some provinces, an account holder may be able to unlock their locked-in account if the balance is below a certain threshold. This may apply for your wife, Steve, as you mentioned the account is small. Some provinces also allow a one-time unlocking of a portion of the account when you convert a LIRA to a life income fund (LIF), which is essentially a RRIF equivalent for a LIRA. 

    As a result, Steve, your wife may be able to get some or all of her LIRA account transferred to the same RRIF as her RRSP and spousal RRSP. If not, she will have to settle for having a RRIF and a LIF. 

    Jason Heath, CFP

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  • Which savings should retirees draw down first? – MoneySense

    Which savings should retirees draw down first? – MoneySense

    Working as a financial planner, I am often asked, “What is the most tax-efficient way to draw down on investments?” From the outset, I question if a decumulation plan based on tax efficiency is the best use of someone’s money. I wonder whether it is even possible to design “the best” long-term, tax-efficient withdrawal strategy.  

    I have modelled many different combinations of withdrawal strategies, such as RRSP first, non-registered first, blending the two, depleting registered retirement income funds (RRIFs) by age 90, dividends from a holding company, integrating tax-free savings accounts (TFSAs), and so on. In most cases, there is no significant difference to the estate over a 25- or 30-year retirement period, with the odd exception.

    You may have read articles suggesting the right withdrawal strategy can have a major impact on your retirement. The challenge when reading these articles is you don’t know the underlying assumptions. For example, if the planner is using a 5% annual return, is it all interest income and fully taxable? What is the mix of interest, dividends, foreign dividends, capital gains and turnover rate that makes up the 5% return? There is no standard all planners use, which leads to confusion and can make things seem more complicated than they need to be.

    Think spending, not decumulation

    Here is my approach to designing a decumulation plan. First, think about my opening. You have about 20 years of active living left to get the most out of your money. What do you want to do? Twenty years from now, do you want to look back on your life and say, “I sure was tax-efficient,” or would you rather say, “I had a great time, I did this and that and I helped…” I write this because it is not uncommon for me to see people be too restrictive on their spending in the name of tax efficiency, or not wanting or having the confidence to draw down their investments when they could.

    Stop thinking decumulation; that puts the focus on the money. Instead, think spending. How do you want to spend your money? I know you can’t predict over 20 years, so focus on this year. How can you make this a fantastic year while living within your means? Do you even know the limit to your means? 

    Now prepare an expense sheet so you can see where you are spending your money and where you want to spend it. This is where a financial planner with sophisticated software can help. Have your expenses modelled and projected over time. Will your income and assets support your ideal lifestyle or even allow you to enhance your lifestyle?

    Now do the math

    Once you have a spending plan supported by your income and assets, do the projections showing different withdrawal strategies. You need the spending plan first, because the amount and timing of your spending dictates the withdrawal plan. Plus, detailing your spending gives you a better view behind the curtain to see the impact of spending amounts and frequency on tax and capital changes of different withdrawals. What does spending on things like vehicles, special vacations and renovations mean?

    I suspect that as you work through this exercise, ideally with a planner capable of using sophisticated software, you will see that the withdrawal order doesn’t matter too much and can be easily influenced by various assumptions. If that is your result, you are in a good position. It allows you to manage your affairs so you are tax-efficient each year. 

    Allan Norman, MSc, CFP, CIM

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  • “We’re set for life. Should we cash out an RRSP?” – MoneySense

    “We’re set for life. Should we cash out an RRSP?” – MoneySense

    Withdrawing from an RRSP before age 70

    Are you thinking you’d like to withdraw everything from your RRSP before starting your OAS or age 70? This way, if you die after age 70, there’s no RRSP/RRIF to transfer to your wife, no resulting income increase for her, and therefore no OAS clawback. This sounds like a good idea; let’s play it out and see. Start by converting your RRSP to a RRIF (registered retirement income fund) so you can split your pension income with your wife; you cannot split RRSP withdrawals.

    To deplete your RRIF of $200,000 plus investment growth within five years, draw out about $45,000 a year and, at the same time, delay your OAS pension until age 70. The OAS pension increases by 0.6% per month for every month you delay beyond age 65 and if you delay until age 70 it will increase by 36%, guaranteed, and it is an indexed pension that will last a lifetime under current legislation.

    What may have been a little better is delaying your CPP as it increases by 0.7%/month and the initial pension amount is based off the YMPE (yearly maximum pensionable earnings) which has historically increased faster than the rate of inflation, meaning that by delaying CPP to age 70 it may increase by more than 42%. 

    With your RRIF depleted, your wife will not experience an OAS clawback if you die before she does. Mission accomplished, but we should question the strategy. What are you going to do with the money you take out of your RRIF and how much money will you have after tax? 

    Consequences of accelerated withdrawals from a RRIF

    I estimate that, in Ontario, your $45,000 after-tax RRIF withdrawal will leave you with $28,451 to invest. So, rather than having $45,000 growing and compounding tax sheltered you will have $28,451 growing and compounding. Ideally, if you have the room, you will invest this money in a tax-free savings account (TFSA), where it will also be tax sheltered, otherwise, you will invest in a non-registered account. A non-registered account means paying tax on interest, dividends and/or capital gains as they are earned, probate and no pension income splitting. 

    I should acknowledge that, if your intention is to spend the RRSP and have fun that is a perfectly suitable strategy, especially when you know the income, you need is $147,000 per year and you have indexed pensions to support that income. The problem for me is it makes for a short article, so let’s continue the analysis. 

    What would happen if, instead of drawing everything from your RRIF, you drew just enough to supplement your OAS pension while delaying it to age 70? What if, at age 72, your RRIF remains at about $200,000 and the mandatory minimum withdrawal is $10,800. You could split that $10,800 with your wife and not be subject to OAS clawback. Of course, when you die the RRIF will transfer to your wife, who will no longer be able to pension split and her OAS pension will likely be impacted.

    Stop trying to predict the future and enjoy your money

    Randy, I think you can see there is no clear-cut winning strategy here. Either draw RRSP/RRIF early or leave it to grow. You may read about strategies involving income averaging or early RRIF withdrawals to minimize tax, but often I find these to be more smart-sounding strategies rather than winning strategies. There are so many variables to account for, the analysis must be done using sophisticated planning software in conjunction with your life plan.

    Allan Norman, MSc, CFP, CIM

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  • RRIF withdrawal rates chart 2024 – MoneySense

    RRIF withdrawal rates chart 2024 – MoneySense

    The minimum age at which you can convert a registered retirement savings plan (RRSP) to a registered retirement income fund (RRIF) varies by province: it’s 50 in some, and 55 in others. But starting the year after conversion, you must begin to make minimum withdrawals from your RRIF. The table below includes the minimum withdrawal rates for all RRIFs set up after 1992. It shows the percentage of the account balance (at the previous year-end) that must be paid out in the current year.

    How to use the table: Slide the columns right or left using your fingers or mouse to see even more data, including returns and strategy. You can download the data to your device in Excel, CSV and PDF formats. 

    wdt_ID Age at end of previous year Withdrawal rate for current year Age at end of previous year Withdrawal rate for current year
    1 55 2.86% 76 5.98%
    2 56 2.94% 77 6.17%
    3 57 3.03% 78 6.36%
    4 58 3.13% 79 6.58%
    5 59 3.23% 80 6.82%
    6 60 3.33% 81 7.08%
    7 61 3.45% 82 7.38%
    8 62 3.57% 83 7.71%
    9 63 3.70% 84 8.08%
    10 64 3.85% 85 8.51%
    11 65 4.00% 86 8.99%
    12 66 4.17% 87 9.55%
    13 67 4.35% 88 10.21%
    14 68 4.55% 89 10.99%
    15 69 4.76% 90 11.92%
    16 70 5.00% 91 13.06%
    17 71 5.28% 92 14.49%
    18 72 5.40% 93 16.34%
    19 73 5.53% 94 18.79%
    20 74 5.67% 95+ 20.00%
    21 75 5.82%
    Age at end of previous year Withdrawal rate for current year Age at end of previous year Withdrawal rate for current year

    table.wpDataTable td.numdata { text-align: right !important; }

    Source: Rates calculated using the CRA’s prescribed factors formulas.

    This was excerpted from RRIF and LIF withdrawal rates: Everything you need to know by Jason Heath, CFP.


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    MoneySense Editors

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