Depleting RRIFs Wisely. | Investing | Discussion forum

It's often a big shock to people when they realize what their RIF could cost in the long run. They never gave it much thought when making RSP contributions and taking the income deduction and resulting tax reduction. Nobody ever suggests this when you buy, and that's a mistake.

I have been doing these withdrawals for several years, and believe it's the best thing for our situation when all is said and done. There are pros and cons.

Honestly, it really does matter what your specific situation is. So it may be good for me but not for you etc.

As has been said, there are a lot of variables that enter into this decision. I have tried to explain it several times and I don't have the energy to go through it all again.

In asking this question on a forum, you are likely to get partial answers and personal anecdotes, which are inadequate and can be misleading.

Hire yourself a Certified Financial Planner or accountant with experience in Retirement Income Planning and get them to do the work for you.

A great deal depends on various aspects of your personal financial situation and your goals for that money other than tax avoidance.

Some things to consider:
Your age.
Your marital status.
Who will inherit what's left and how important is it to you to leave them the maximum?
Your marginal tax rate, and how far along you are in that bracket now.
Threshold for reduction of Age Amount" on tax return.
Life Expectancy.
Threshold for Old Age Security clawback, currently about 91,000. (Try to keep below that.)
Anticipated changes in future income and expenses, e.g. stop working, receive inheritance, no kids to help you in old age so must hire etc.

These are just basic starting questions which you should have answers to before you spend money on advice.
A good planner will ask you these and more, and will map out an income strategy for your remaining years which will be tax efficient.
One way or another, the RIF money is going to be taxed at your marginal rate. So it's a question of managing that rate, the clawbacks and possible disentitlements in order for you to get the best and most appropriate outcome.

It can be hard to find a competent person who will do this job. If you belong to a bricks and mortar credit union, I would ask there. One of the ones I belong to has a CFP on staff whom I can consult for free although he probably wouldn't do an entire plan. I don't find bankers very good at this, but it's up to you.

We met with a CFP about 15 years ago who was provided by employer, but we did not find him helpful as he was focused on investing and tried to tell us we would be in penury if we didn't invest in the stock market! This has proven completely untrue, and I am now 77. You need someone who understands Retirement Income Planning, even better if they understand Alternative GIC investing, which most don't seem to, although it's a simple concept.

We decided to work out our own plan based on OUR priorities, and it has more than met our expectations. We set our main priority as making sure we always had "enough" at every stage of retirement, taken in five year stages. That was a higher priority for us than annual income or taxes per se. Works well for us, we don't worry, and we always seem to have more than expected. My RIF will be completely empty this year; spouse's will take about 8 years (although may have to be extended as circumstances are likely to change). Plans can always be change, and should be revisited regularly.

I must add that taking some extra out of the RIF whenever you feel you need it is not a plan. You can get into a lot of trouble doing it this way. Read Frank Vettese's book on retirement planning for details.

BarbM said

To date I have don’t need my RRIF $. But I can see in the next couple of years the need will come!
Should I worry about taxation after death?

Why should you? Whatever afterlife you'll have, the one thing you would not need to worry for sure there is money and taxes.

Those who will inherit your assets should worry about taxation on inheritance.

Does any one have a plan?

You can't have one long term plan. To put it in prospective, suppose you plan to live another 30 years. It is 2024, scroll 30 years back to 1994 and ask yourself which personal financial plans that have been made in 1994 did not require adjustments by 2024?

That means, whatever you decide, don't stick to it if you see circumstances changing, be flexible.

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Speaking about myself.

I don't need funds from RRSP at present day.

My plan is to hold with RRSP/RRIF withdrawals till I am 71, when government mandates minimum RRIF withdrawal. Then, only take minimum.

If my situation changes and I need money before 71, over what interest income from my Savings and CPP+OAS could cover, I'll start taking from Savings and RRSP to cover the difference.

If I die before I deplete my funds in RRSP/RRIF/Savings, I don't care what happens with that money next.

It is a simple plan, I don't like complex scenario.

Alexandre said
I don't need funds from RRSP at present day.

My plan is to hold with RRSP/RRIF withdrawals till I am 71, when government mandates minimum RRIF withdrawal. Then, only take minimum. 

There are some tax advantages with taking some RRIF income before age 71 that may benefit you. The Pension Income Amount tax credit and Pension splitting. Not too complex. If you use tax software you should be able to calculate your potential benefits.

Wrayzor said

Alexandre said
I don't need funds from RRSP at present day.

My plan is to hold with RRSP/RRIF withdrawals till I am 71, when government mandates minimum RRIF withdrawal. Then, only take minimum. 

There are some tax advantages with taking some RRIF income before age 71 that may benefit you. The Pension Income Amount tax credit and Pension splitting. Not too complex. If you use tax software you should be able to calculate your potential benefits.  

I do use tax software and this is good recommendation overall. Will see if that makes sense for me personally, when I am eligible to claim that tax credit. Pension Income Amount tax credit is quite a small amount, so I am not sure yet.

If income before RRSP / RRIF withdrawal is already at 40%+ marginal bracket, which already trigger 100% OAS clawback and such, is there still any minimize tax preferred strategies for withdrawal ?

savemoresaveoften said
If income before RRSP / RRIF withdrawal is already at 40%+ marginal bracket, which already trigger 100% OAS clawback and such, is there still any minimize tax preferred strategies for withdrawal ?  

Not that I can think of.
The only other option I can think of that might benefit you is if you buy a life annuity with the RIF funds and live to be very very old. The annuity will pay longer than the RIF will at mandatory amounts as the latter leads to a natural depletion in your 90s. But you are gambling on longevity and estate would lose if you die younger. This MAY mean you get more net out of the RIF in the end but I have not done that calculation so I don't know if it's beneficial.

In your situation, it is perhaps best to just take mandatory amount unless you have a spending plan that requires more money.

There is a pension income credit of $2000 for age 65+. RRIF withdrawals qualify for this pension income credit BUT only if you are 65+. It has nothing to do with OAS.

Loonie said

Not that I can think of.
The only other option I can think of that might benefit you is if you buy a life annuity with the RIF funds and live to be very very old. The annuity will pay longer than the RIF will at mandatory amounts as the latter leads to a natural depletion in your 90s. But you are gambling on longevity and estate would lose if you die younger. This MAY mean you get more net out of the RIF in the end but I have not done that calculation so I don't know if it's beneficial.

In your situation, it is perhaps best to just take mandatory amount unless you have a spending plan that requires more money.  

Yeah thought of annuity too but the income from annuity is also taxable, so like you said, it’s a pure gamble on longevity. Annuity does bring insurance against outlive the money or lose money management mental ability at some point.

Re people convert RRSP into RRIF before 71, I don’t see real benefit from a tax perspective. Both withdrawal are taxable anyway, and one can replicate the withdrawal 100% in either.