Oaken - No associated savings accounts for registered accounts | Oaken Financial | Discussion forum

Cranston said
I would like to see for TFSA as when we get older some will begin to use the interest portion to beef up annual spending ability. And in turn this would allow non registered money to go into TFSA the next year.
ANY OTHER GOOD IDEAS?  

I'm wondering the situation in which you would take tax-sheltered money out and replace it later with non-registered funds? I mean, that's sort of my plan, but won't be touching the TFSA's until all non-registered funds are used up, and as it sits now, I don't think we'll get to that point for years, if not decades. Still working for another year, so liquid cash will be growing until then, TFSAs and RSPs are maxed out, so nowhere left to stash it tax-free. Downsizing will add a few 100G more so not seeing taking ANY out for a long time. I suggested to the wife that, after I die, the TFSA's should be the last money spent. By then, there should be a couple of nice GIC ladders paying out twice a year. If she/we need it, it's there. Otherwise, kids' inheritance.

Cranston said
I have non registered funds, TFSA and RRSP. I am have been retired for twelve years. I received a golden handshake. As of November 2016 I no longer have mutual funds, stocks or ETFs....only GICs. To this date I have not touched any severance pay or paid out pension funds (for some reason not all my pension contributions were included in my defined benefit pension). I continue to convert RRSP $ to TFSA. So both TFSA and RRSP remain untouchable. I have turned on some of my non registered money to pay out interest annually to provide for annual expenses. So before I touch any principal I will firstly turn on all non registered GICs to pay interest annually then the TFSA. In the interim I will continue to convert RRSP to TFSA and turn on TFSA interest to pay annually if I am at that point. So I would still have non registered GICs that I could put into TFSA.

Sounds like you have pretty much the same plan I am on, just 13 years ahead of me. All my investments are now in GICs or cash. The issue I haven't calculated yet is making sure our income level doesn't kick in any claw-backs by converting RSPs to TFSAs, but won't be doing that for a few years.

Cranston said
Ps. So with taking TFSA interest annually would give me more contribution room for the next year. Keeping in mind I control our RRSP withdrawals to not exceed the current $5500 limit (x2) and also not put either of us into the next tax bracket. That leaves me with unused TFSA room. Also make use out of income splitting and moving RRSP money out by flushing through a RRIF account.  

Still not sure why you would take out of the TFSA and replenish with RSP funds. Why not leave the funds compounding in your TFSA and use RSP withdrawals to beef up annual spending? You are paying tax on RSP withdrawals no matter what you do with the money. Would eliminate the need to keep track of TFSA contribution room changing every year due to withdrawals and annual government increases, not to mention loss of tax free interest on the TFSA funds before you re-deposit your RSP funds. As your maximum contribution limit (should you withdraw any or all of it) is increased by your interest, you are actually losing contribution room by the amount of interest NOT earned by withdrawing any funds. Is it a timing thing?

Other than having an emergency fund on hand, non-registered interest earning cash will always be the first to go. Govt and private pensions are the base for monthly expenses, any non-registered funds I have after max TFSA and/or RSP contributions, RSP/RIF withdrawals to beef up annual spending, and any income room left before clawbacks kick in top up TFSA until no RSPs are left. THEN start drawing on TFSA interest. Hopefully, by the time I need to take out TFSA funds, the RSPs will be gone and my income will be low enough to avoid clawbacks. That's my plan. Hope they don't change the rules by the time I implement it.

PS... not all "registered" money is equal. They tax RSP withdrawals and TFSA income is tax free. I would not consider using TFSA ahead of RSP unless takinbg out RSP funds put me in the next tax bracxket.

I've enjoyed reading your posts, Cranston and Rick, on this subject, but have to admit I can't quite understand all of it. Can you (or anyone else), recommend any reading material that might help me?

JenE, I would recommend Daryl Diamond's book, Your retirement income blueprint: a six-step plan to design and build a secure retirement.

It's the most useful tool I have found so far on retirement income planning, and I would recommend it to anyone.

Rick, there is never any tax on TFSA. With the proper beneficiary designation, they transfer intact to spouse. When spouse dies, they become non-registered but there is no tax on interest to date of death. I am not sure, but I don't think there is even probate tax on them. The latter may depend on whether there is a TFSA designated beneficiary..

Cranston, sounds like you are on the right track. I was just trying to flag the fact that people sometimes look on RIFs as strictly a retirement thing, something that needs to be preserved longer than is sometimes wise. It's been marketed that way, but in reality it's only a tax deferral system.

You definitely want to stay within your tax bracket and avoid OAS clawback if possible. Sometimes this leads one to consider Cdn dividend stocks... In this circumstance, stocks might, depending on your perspective, be worth the risk as there is the lower tax rate on the dividends and cap gains, the avoidance of what is effectively a surcharge in OAS clawback, and the avoidance of entering a higher marginal rate - these all add up and might offset the stock market risk, especially considering that the dividends are fairly reliable and will likely exceed the interest on GICs for a while. I haven't done this yet; just thinking about it.

In your 10% at-a-time withdrawal system, be aware of the likelihood of mandatory quarterly payments to CRA. If you owe them more than $3000 on your tax return, then, after a couple of years (I think it's 2, but would have to check), they will require you to pay them their estimated tax quarterly, and you reconcile at the end of the year. If you don't pay up, they fine you. I find this a nuisance and am hoping to avoid it as long as possible, so I actually prefer the 30% holdback as it may "cover" some of the tax owing on my other investment income where there is no holdback. If you take your big lump and pay the 30%, you are less likely to run into this problem of quarterly payments. And if you take your lump towards the end of the year, when you are more certain of how much you need to take out to meet needs for the next year and also to top up tax bracket, your money (should it be owed back to you) is not tied up for as long as if you'd had to pay it starting in March.

Laddering will be part of the solution. You will need to start with an assortment of 1, 2, 3, 4, and 5 yr GICs and renew them all for five years as they mature. In a rising interest environment, this may actually help you.

The problem I'm struggling with right now is the limitations of GICs. They are not flexible. The only opportunity you have to adjust your income is when they mature. I don't like this. What happens if you have some huge medical costs in one year? or get told you only have a year to live, and you want to live it up for that time? You are very stuck. I am just starting to look at other options to avoid some of these problems if possible.