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Email this5:42 am
November 15, 2018
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AltaRed said
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.
Thanks for that info AltaRed. For some reason I thought in order to be eligible for the tax credit I needed to also be drawing OAS. I any case I'm not 65 so either way I screwed up lol.
11:09 am
October 21, 2013
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savemoresaveoften said
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.
In that case, it's all about marginal rate, I think. If marginal rate will go up later, then there is advantage to more income now. Could happen due to inheritance, selling real estate or other assets, change in tax code rates or brackets - or winning lottery!
12:26 pm
October 27, 2013
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I have seen enough examples and 'what ifs' to tell me accelerated draw down vs minimum RRIF withdrawals is pretty much a wash on a present value basis. One significant exception is drawing down post-retirement and before collecting CPP and OAS, to for example, 70 years of age. Another significant exception is, of course, longevity. Living beyond one's actuarial age of circa 85 or so (as measured from age 70) makes minimum annual withdrawal a likely winner.
Even then, the variables on one's assumptions, including those mentioned by Loonie, can be so large as to make that 'what if' analysis moot.
I will repeat what I said earlier that too much fuss is made of lump sum taxes on RRIF residual due to the deferred (diminished value) taxes, and what Norman1 said. A considerable portion of those taxes is money that would have otherwise been paid earlier in life had one not contributed to RRSPs, and taxes on the growth of that deferred tax component (taxpayer loan) over that period. People keep forgetting that a considerable portion of their RRIF value is not theirs to begin with.
2:22 pm
October 27, 2013
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Meant to add that we each have to make our own decision as to value of accelerated draw down or not.
I am a believer in not doing so, partly because of my degree of OAS clawback to begin with, and assuming I will reach my actuarial age of 85-87, but not much more. I also may annuitize the whole thing at age 80 and more residual then is better.
5:21 am
October 21, 2018
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All valid points of view. Each to his own. Another reason to have my RRIFs closed by the time I'm 80, which I didn't mention, is that I want to simplify our financial situation as much as possible before either of us reaches our end date. I want as few financial accounts as possible for my executors to deal with when the last of us goes. My plan is to wind down both our RRIFs in the same year, which will be 2030. (If we last that long. Plans could change).
9:33 am
September 11, 2013
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Agree, to each his own, based on the varying priorities expressed on here it's important to find what suits you.
I took a different approach than what I'm reading on here, I spent my working years making as much money as I could and saving/investing everything I didn't need, RRSPs were just part of it, kind of a forced investment pile that couldn't be raided easily. Never did any calculations or other planning, now I'm happy to have the RRSP/RRIF pile, doesn't bother me at all if I've got too much and pay high tax rates, get no OAS due to clawback, lose out on tax credits, etc, it's all good. I kind of always knew in the back of my mind that this might not be the smartest move financially but both the lure of squirreling that RRSP contribution away ever year and the conviction to not view it as a problem if I do end up with too much income (thus too much taxes) in retirement kept me doing it. Works for me, that's all that matters.
I do agree that those whose priorities include maximizing gov't benefits and minimizing taxes in retirement will definitely not do what I did, they do need to do some calculations and planning as best they can given their situation, I agree RRSPs are not at all a guaranteed good idea for those folks.
One of my family members contributes to RRSP but never claims the deductions, keeps building up over the years. Came in handy when a few years ago he made windfall income and was able to use up his accumulated deduction pile in one fell swoop to reduce his taxes when he was at highest tax rates. Just an option to consider, can save deductions to help offset RRIF withdrawals during retirement, though it obviously won't appeal to those who do time value of money calculations, etc.
12:36 pm
March 30, 2017
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Bill said
I took a different approach than what I'm reading on here, I spent my working years making as much money as I could and saving/investing everything I didn't need, RRSPs were just part of it, kind of a forced investment pile that couldn't be raided easily. Never did any calculations or other planning, now I'm happy to have the RRSP/RRIF pile, doesn't bother me at all if I've got too much and pay high tax rates, get no OAS due to clawback, lose out on tax credits, etc, it's all good. I kind of always knew in the back of my mind that this might not be the smartest move financially but both the lure of squirreling that RRSP contribution away ever year and the conviction to not view it as a problem if I do end up with too much income (thus too much taxes) in retirement kept me doing it. Works for me, that's all that matters.
I do agree that those whose priorities include maximizing gov't benefits and minimizing taxes in retirement will definitely not do what I did, they do need to do some calculations and planning as best they can given their situation, I agree RRSPs are not at all a guaranteed good idea for those folks.
I am in same boat, just lucky to get paid handsomely while working FT to be able to max out all possible RRSP and TFSA etc. It is true that the benefit of RRSP contribution only really benefits the middle class/income group as claimed.
I kind of "dont like" people who are trying to maximize govt benefits / handouts, esp if it involves "working less" or "spend every penny" strategies. It just fail my moral standard to me.
1:52 pm
October 27, 2013
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Interesting income (2020) data for seniors by decile here https://openpolicyontario.s3.amazonaws.com/uploads/2023/12/Canadian-Seniors-Income-type-by-decile.pdf
However, it does not tell us how many seniors are in each decile. https://www.statista.com/statistics/485572/median-income-of-seniors-in-canada-by-age-group/ tells us the 2020 median income of 65+ seniors is $32,020 so half earn less and half earn more.
That would suggest quite a few seniors need full CPP, OAS and some/all GIS. I am not about to judge why so many seniors do not have additional sources of income but from the first link, few appear to be working to supplement income and some, but not a lot, have RPP/RRSP/RRIF and other investment income sources.
4:57 pm
March 30, 2017
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AltaRed said
Interesting income (2020) data for seniors by decile here https://openpolicyontario.s3.amazonaws.com/uploads/2023/12/Canadian-Seniors-Income-type-by-decile.pdfHowever, it does not tell us how many seniors are in each decile. https://www.statista.com/statistics/485572/median-income-of-seniors-in-canada-by-age-group/ tells us the 2020 median income of 65+ seniors is $32,020 so half earn less and half earn more.
That would suggest quite a few seniors need full CPP, OAS and some/all GIS. I am not about to judge why so many seniors do not have additional sources of income but from the first link, few appear to be working to supplement income and some, but not a lot, have RPP/RRSP/RRIF and other investment income sources.
I suspect there are a good percentage of seniors that are the result of family reunion immigrants. They typically come to Canada at an older age and never work much in Canada. As a result they also don’t have much RPP or RRSP either.
As someone who fits the minority classification, there are certainly many that I know of that fits that category.
5:24 pm
April 17, 2024
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Lots of good feedback for a foundation of a plan. Lots of opposing opinions too, to be expected! There’s no correct or incorrect decision….just based on needs and current financial status. Lots of things to take into account for sure.
6:00 pm
April 17, 2024
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savemoresaveoften said
Bill said
I took a different approach than what I'm reading on here, I spent my working years making as much money as I could and saving/investing everything I didn't need, RRSPs were just part of it, kind of a forced investment pile that couldn't be raided easily. Never did any calculations or other planning, now I'm happy to have the RRSP/RRIF pile, doesn't bother me at all if I've got too much and pay high tax rates, get no OAS due to clawback, lose out on tax credits, etc, it's all good. I kind of always knew in the back of my mind that this might not be the smartest move financially but both the lure of squirreling that RRSP contribution away ever year and the conviction to not view it as a problem if I do end up with too much income (thus too much taxes) in retirement kept me doing it. Works for me, that's all that matters.
I do agree that those whose priorities include maximizing gov't benefits and minimizing taxes in retirement will definitely not do what I did, they do need to do some calculations and planning as best they can given their situation, I agree RRSPs are not at all a guaranteed good idea for those folks.I am in same boat, just lucky to get paid handsomely while working FT to be able to max out all possible RRSP and TFSA etc. It is true that the benefit of RRSP contribution only really benefits the middle class/income group as claimed.
I kind of "dont like" people who are trying to maximize govt benefits / handouts, esp if it involves "working less" or "spend every penny" strategies. It just fail my moral standard to me.
@ savemoresaveoften
Not sure if your last point was directed at me or not. I am trying to “manage” my options. And one option that I need to keep in mind is the federal dental plan and possibly a drug plan too. But if my actions make those plans to be ineligible or reduced, it is what it is.
Just to let you know. I worked full time since age 18 and never took a government handout other than a BC 5yr $5,000 second mortgage in the 70’s (which I paid off in 2 years), home owner grant (if that’s considered a government benefit) and age deductions on income (if that’s considered a government benefit) and lastly a Family Allowance ($6 per child per month and grew slowly) that most families received, that was used for 14 years of dancing lessons. Still married to same person and brought up 3 children. I have never defaulted or been late on a loan, credit card, mortgage or overdrawn on a bank account. I was given a golden handshake and an early pension (which was reduced vs staying employed til 65) with no options to stay at work, and years later the company went bankrupt and I lost 40% of already reduced pension (but later got 20% back), lost my medical and dental and life insurance policy and had to pay my own BC Medical until it was changed to a no cost by shifting the expense on to businesses. I had to sell a house in Alberta and pay for the moving expenses back to BC and fork out an extra $150,000 more to buy a similar home in a city that I would rather not live in. But that is what it is. I never owned a new car or truck but did buy a new camper and all 4 of our homes over the period of 55 years have been purchased new and well kept up. The company that I was with was similar to the Stelco situation that the Federal govt should not have allowed to repeat by making pension first in bankruptcy vs last. The Feds just won’t step on the toes of big business.
So I don’t feel by “best managing” my expenses is immoral.
Added later:
Knowing what I know now….RRSP is NOT that good of a deal and in many cases the federal government benefits very well if the pensioner exhausts it and more so if the last to die pensioner still has a funded RRIF. And if an RRSP/RRIF is funded at death and is tied up in probate one can expect the FULL amount to be taxed on from 25% to 50%. But it did cause some people to save for retirement that wouldn’t have.
Knowing what I know today if I was younger I would max out on TFSA, then RRSP (not maxed out) and use any RRSP tax savings for TFSA.
Also just to mention.
We weathered out an 18% mortgage.
Me, my wife, my children, my grandchildren, my son in-laws (except the Newfie which is to be expected) have never taken extensive time off work or collected unemployment insurance (or whatever it’s called today).
5:55 am
March 30, 2017
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Not targetting anyone, just that I know some who rather keep their cash in "cash", as in not even GIC. Their main reason being this way they can get their maximum OAS, GIS, and all the other low income govt handout. I just dont agree with people who does that.
Also there are some who choose not to save much if at all, saying 'why bother, govt will look after me'....
7:18 am
November 8, 2018
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AltaRed said
Interesting income (2020) data for seniors by decile here https://openpolicyontario.s3.amazonaws.com/uploads/2023/12/Canadian-Seniors-Income-type-by-decile.pdfHowever, it does not tell us how many seniors are in each decile. https://www.statista.com/statistics/485572/median-income-of-seniors-in-canada-by-age-group/ tells us the 2020 median income of 65+ seniors is $32,020 so half earn less and half earn more.
That would suggest quite a few seniors need full CPP, OAS and some/all GIS. I am not about to judge why so many seniors do not have additional sources of income but from the first link, few appear to be working to supplement income and some, but not a lot, have RPP/RRSP/RRIF and other investment income sources.
Thanks for these charts.
According to them, investment income constitutes 10% or less of total income for seniors except top earners.
According to Financial Post, the share of equities owned by people at or close to retirement age is 80%.
I expected investment income %% to be higher. Either average ROI is not that high, or retirees choose to delay realizing of capital gains.
Either way, when inevitable market correction happens, Canadian seniors won't be substantially impacted by it. Those that will, can afford it.
This is good news.
9:06 am
April 6, 2013
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Alexandre said
According to them, investment income constitutes 10% or less of total income for seniors except top earners.
According to Financial Post, the share of equities owned by people at or close to retirement age is 80%.I expected investment income %% to be higher. Either average ROI is not that high, or retirees choose to delay realizing of capital gains.
…
Investment income percentage is higher.
Contrary to what the graph suggests, investment income received through an RRSP or RRIF is still investment income. Graph suggests that such investment income is "Private Retirement Pensions, RRSP, and RRIF" which is somehow not "Investment & Other Market Income (e.g. alimony)".
I also don't consider alimony to be investment and other market income.
9:24 am
October 27, 2013
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I suspect the FP article saying people close to, or into, retirement own 80% of equities. The bulk of the US (and likely Canadian) equity market is owned by institutional investors such as pension funds and endowments with the rest by individuals of all ages: 1) indirectly through portfolio managers of mutual funds and ETFs that are in IRAs, 401(k)s, etc., and 2) retail investors directly who stock pick.
The article may actually mean that folks close to, or at, retirement age have an 80% allocation of their portfolio in equities with 20% in fixed income. That would make more sense to me especially until the last 2 years when interest rates were so terribly low. I am an example of one who has close to 90% allocation to equities, mostly in ETF products.
Still, most senior households (or boomers who are now 60+ years of age) apparently have a median net worth of just over $1M, slightly lower than that of Gen-X households. If so, that likely means seniors are asset rich (mostly in their homes) and may be cash flow poor. This OSC PDF https://www.osc.ca/sites/default/files/2021-01/inv_research_20170926_investing-as-we-age.pdf suggests Ontarians are counting on their homes as a major part of their retirement plan.
9:32 am
November 8, 2018
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AltaRed said
I suspect the FP article saying people close to, or into, retirement own 80% of equities. The bulk of the US (and likely Canadian) equity market is owned by institutional investors such as pension funds and endowments with the rest by individuals of all ages: 1) indirectly through portfolio managers of mutual funds and ETFs that are in IRAs, 401(k)s, etc., and 2) retail investors directly who stock pick.The article may actually mean that folks close to, or at, retirement age have an 80% allocation of their portfolio in equities with 20% in fixed income.
I didn't put the link to the article I quoted from. Fixing that: https://financialpost.com/investing/retirees-never-owned-so-many-equities-market-risk
10:20 am
April 27, 2017
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Alexandre said
AltaRed said
I suspect the FP article saying people close to, or into, retirement own 80% of equities. The bulk of the US (and likely Canadian) equity market is owned by institutional investors such as pension funds and endowments with the rest by individuals of all ages: 1) indirectly through portfolio managers of mutual funds and ETFs that are in IRAs, 401(k)s, etc., and 2) retail investors directly who stock pick.The article may actually mean that folks close to, or at, retirement age have an 80% allocation of their portfolio in equities with 20% in fixed income.
I didn't put the link to the article I quoted from. Fixing that: https://financialpost.com/investing/retirees-never-owned-so-many-equities-market-risk
That article was authored by Rosenberg Research & Associates. They have been cherry picking numbers to predict doom and gloom for a very long time. Every few years they get it right. Like a broken clock but not as often.
12:36 pm
October 27, 2013
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I agree almost anything out of Rosenberg has been doom and gloom for years, if not decades. The problem with a lot of data out there is data mining by those with an agenda for their own POV. I am not sure how one deals with that other than looking at different viewpoints and trying to get to source data to begin with.
Common sense would tell me equity ownership has not changed over time, but the way it is held has changed somewhat. Perhaps a higher percentage by retail investors directly with: 1) the surge in discount brokerages over the last 20 years in many OECD countries, and 2) the trend to Group RRSPs and DC pension plans over DB pension plans, but both of those items would surely trend more to the younger Gen-X and Millennial generations than Boomers, recognizing the majority of Gen-Xers are now in their 50s and starting to retire as well.
My view is none of this makes any difference in how seniors, and/or those near retirement, should manage their portfolios. Those who are biased towards a hefty percentage in fixed income are likely going to stay the course, and those of us who want the equity risk premium of ~3 percentage points or so over fixed income for at least a portion of their portfolio will continue on their path.
12:56 pm
November 8, 2018
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I can provide link to another article, this one from Forbes: Millennials And Gen Z Moving Away From Stock Market Investment.
1:27 pm
October 27, 2013
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I have no idea what Gen-Zers (ages 12-27) are doing so cannot comment. AFAIK, few could/would have the resources to invest and are generally not yet on the radar screen from an investment portfolio perspective. At best, they are boomers' grandchildren.
Please write your comments in the forum.