Feds should eliminate mandatory minimum annual RRIF withdrawals: C.D. Howe Institute report | Page 4 | General financial discussion | Discussion forum

What's wrong with "personal choice"? You're right, I can't rebut an argument that it's really all about my personal choice.

So if we change the system and give the option to tax it all at time of death, how do Canadian taxpayers make up the revenue shortfalls over the next 25 years or so until the next generation pays the taxes on these assets?

Bill said
What's wrong with "personal choice"? You're right, I can't rebut an argument that it's really all about my personal choice.

So if we change the system and give the option to tax it all at time of death, how do Canadian taxpayers make up the revenue shortfalls over the next 25 years or so until the next generation pays the taxes on these assets?  

In addition to everything else we're leaving the next generation ...

cgouimet said

I knew the LIRA/LIF and RSP/RIF rules going in and I'm living by them. If you didn't like the rules going in, you should have stayed out. If you didn't know the rules going in, there is only you to blame for that ...  

You are confusing this with a contract. If our Tax Act were a contract, then taxes wouldn’t be changing every single year. “Because you knew what the gas tax was when you bought a car”, etc.

This is an issue of policy and whether voters want someone in Ottawa to micromanage, remove agency from individuals and disincentivize personal responsibility for own well being. And voters probably do want that.

That C.D. Howe article is the stupidest I've seen from them. There is no reason to alter the existing rules regarding RRIF withdrawals. RRSPs were meant to be a personal pension plan through buying an annuity in retirement. RRIFs were invented to add some flexibility. Anyone who entered into this plan understood the rules going in. The current withdrawal rates are perfectly reasonable. I've been winding down my RRIFs at an aggressive rate to be able to close them in 6 more years at age 79. My MTR on RRIF income is 46%, and my wife's is 49%. Funny that her rate is higher than mine even though she is in the 2'nd tax bracket and I'm in the 3'rd. The reason for that is my OAS is completely eliminated, but she still gets some and is subject to the 15% social benefit repayment.

I cannot understand why anyone would NOT want to wind down their RRIFs before death. Why would anyone want to leave a huge tax burden for their estate? I consider RRIF wind-downs to just be part of responsible estate planning that a thoughtful person would do, just like wills, POAs and funeral planning.

pwm, I get the impression that some folks don't want RRIF income if it impacts their GIS or other senior benefits/deductions/credits, i.e. I want to maximize my take from taxpayers and save my own money as much as possible.

So maybe we could eliminate mandatory RRIF withdrawals if we somehow take into account the size of one's RRSPs or RRIFs in determining the eligibility for GIS, etc.

Bill said
pwm, I get the impression that some folks don't want RRIF income if it impacts their GIS or other senior benefits/deductions/credits, i.e. I want to maximize my take from taxpayers and save my own money as much as possible.

So maybe we could eliminate mandatory RRIF withdrawals if we somehow take into account the size of one's RRSPs or RRIFs in determining the eligibility for GIS, etc.  

Need the funds for the Escalade fuel...

The argument that the gov't has arranged things so that it will get the taxes from RIF/RSPs in a timely manner doesn't make much sense to me.
It can take up to 50 years for govt to start getting money back from deferred tax if contributor starts at 22 yrs. If contributor lives to age 100 and only makes mandatory withdrawals, gov't will be waiting up to 78 yrs to get it all. This can be massaged further by marrying a younger spouse and/or converting to an RIF life annuity.

This is well beyond the budgeting process of any gov't.
Alternatively, one might die at 50, unmarried, and the gov't takes about half of it, early.

I suspect it all averages out,
particularly with the windfalls from people who dutifully only withdrew the mandatory amount and, often without realizing it and to the dismay of their heirs, left behind a good profit for gov't coffers.

A more reasonable interpretation would be that RSPs were invented simply to ensure a better self-generated retirement income for more people, thus reducing dependency on GIS and other taxpayer-funded benefits.

Wow! If nothing else, this thread's flood of posts demonstrates that Canadians are pretty much at sea with respect to Registered Plan rules.

Keep in mind that RRSPs were designed to provide benefits similar to those already had by those with company pension plans. Note how there are tax advantages to those, and how company plans reduce RRSP eligibility as they are intended to serve a similar purpose.

Another intention was to encourage saving as opposed to constantly inflating the housing market with the capital gains exemption on principal homes. I still think the capital gains exemption on principal homes is an inexcusable gift to the wealthy. And yes, many homeowners are house-poor but they are more than compensated by the massive capital gains AND tax break! Both savers and home investors are foregoing the spending of their money on life to have more cash later.

When I was young, I dutifully bought RRSPs to the max every year, and got almost no tax break because I earned so little. I expected to have low taxation on retirement but nobody was talking about losing government benefits back then. I paid much higher tax rates when I needed money at the end of years when I'd earned a lot of money early in the year.

The TFSA was a welcome opportunity to grow money without tax complications or real-estate risks. In the end, I estimated I lost about $300 overall because of my use of RRSPs. I still have about $2500 in one maturing this year, when I reach 70. I have been as unable to make sense of my best path forward as this thread has. I plan to visit as many financial institutions and community resources on the matter as I can over this summer.

Anyone have any suggestions for community advice resources to contact? Old folks' groups, tax helpers, government documents or the like?
RetirEd

I think most of us didn't think hard enough back when RSPs were new and innovative.

My advice now, to people who can control their spending habits, is to avoid them, although they probably still serve a function for some middle income people who can't save otherwise. As I've probably said before, they only work well for a limited number of people in a specific income range, and nobody knows in advance whether they will be in that range. For the low income group and those who will get OAS clawback as a result, they're not worth it. Loss or reduction in age credit can also be an issue, but is compounded by the OAS clawback.
When I realized RSPs were not good for me, I stopped contributing.
We are on track to have our RIFs completely liquidated by 2027 or 2028 - if we are still living at that point. I will be very relieved to be done with them!

"Most people" rely on OAS as an essential brick in their retirement income planning because most people have very modest incomes in retirement.
Median income for those over 65 was just over $32,000 in 2020. Without OAS, there would be more pressure on other social programmes to fill the gap to a livable income.

If OAS were to be significantly reformed, eligibility would have to be related to wealth or assets, not just income. This would impede the various methods used by people with significant assets to minimize "income" and thus avoid taxes and clawbacks. However, from what I've seen, no government or political party is willing to do this, so we are limited to tweaking the clawback.

https://www.statista.com/statistics/485572/median-income-of-seniors-in-canada-by-age-group/