Cashing out RRSP | Page 4 | RRSPs and RRIFs | Discussion forum

savemoresaveoften said

Having been a high tax payer my entire work career, I am just sour when the time for me to collect OAS, I will be turned away by the excuse "Cuz you have done too well and a good saver/invetor, even tho you paid a boat load amount of tax, you wont be entitled to any OAS"

OAS is not funded. There's no pool of money set aside for OAS like there is with CPP. Taxes would have to be even higher if government started setting money aside.

Government started the OAS clawback in 1989 to reduce the cost of OAS. This is from Budget in Brief, 1989:

Repayment of Social Transfers: Individuals with net incomes exceeding $50,000 will repay, through the tax system, old age security and family allowance benefits. This measure will be phased in over three years. It will affect only about 4 per cent of the 3 million seniors who receive old age security pensions and about 14 per cent of the 3.8 million family allowance recipients. The measure maintains the universal character of these transfer programs. Everyone eligible will continue to receive benefits.

Alexandre said

Even when HISA is just at 2% it would be hard to declare Canadian income of under 20K, for someone who has a couple of million dollars in HISA bank account in Canada.

Correct me if I am wrong, but to park substantial funds in RRSP one must have had employment income (or equivalent to it), as it defines RRSP contribution threshold for an individual.

Total amount of TFSA contributions one can make is just under $100,000. One can't transfer couple of million dollars from non-registered savings into tax exempt TFSA.

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You could bring a few million from China, UAE or Russia, buy an expensive house and put $2M cash in a standard chequing account and claim GIS. As I understand it, you only have to spend 10 years in Canada. And the individual would be getting a bunch of other benefits you described.

Alternatively one could have worked in Canada, have a house and lots in a TFSA/RRSP/chequing/HISA account and also fiddle the system to maximize GIS and related benefits until mandatory RRIF withdrawal kicks in. At least thats how I understood it from this thread.

To me, GIS and related housing benefits are clearly meant for the poor and thats why its called “income support”. Its obviously what you call “a benefit”. OAS isn’t quite as straightforward.

Alexandre said
I do appreciate what someone like me can achieve in Canada, through their lifetime, by just having employment and following the rules, including tax rules.
I looked back at when I got my first job, and this is when I had under $5,000 in the bank and also used car - all my assets. No support from anyone, family or else. Had to share apartment with someone, to split rent.

Look at me now, after I exited workforce. Doing well: homeowner, debt free, can afford not to work for 10 years without collecting any government benefits, and everything I've got before my early retirement came from employment income.

Now that I am looking forward to reaching 'official' retirement age of 65, I also do appreciate Canadian safety net for seniors, which allows to live modest but decent life in retirement by complementing government support with own savings.  

You can certainly be proud of your accomplishments. Not many would have put in that degree of effort and discipline to accomplish what you have done.

mordko said

While I am not an expert, Alexandre claims that GIS comes with lots of other valuable benefits and tax advantages. For example, Alexandre’s municipality offers noticeable reduction of property tax for seniors receiving GIS (could be worth tens of thousands over 6 years) and there is more. Also note that GIS is non-taxable, guaranteed, inflation linked and does not tie in your capital like GIC. And they could still put half the cash in a HISA as long as the interest is under 22K. I think maths works out.  

@mordko: I am not sure that math works out. I think Norman1 has taken a lower end 2.5% cashable GIC (funds not locked) and it also provides 25K, almost double the GIS. Also he left another 1 mil just like that in a chequing. Why not take 50K and let go of the GIS, I fail to understand. Is that a choice which someone will really opt for, I am not talking hypothetical here. I think we need to be practical and think If really I would opt for GIS in this scenario.
Also if Inflation goes up, that means higher rates for GICs too.

mordko said

While I am not an expert, Alexandre claims that GIS comes with lots of other valuable benefits and tax advantages. For example, Alexandre’s municipality offers noticeable reduction of property tax for seniors receiving GIS (could be worth tens of thousands over 6 years) and there is more. …

The property tax reduction was not that generous in one BC city I looked into for a relative. There was a grant around $800 - $1,000 per year for seniors with $32,000 or less income. The grant wasn't 100% of the property taxes unless the taxes were $800 - $1,000 per year.

It would be a while before a CPI-indexed $13,000/year in GIS catches up to a non-indexed $45,000+/year of interest.

What will you do with your $1M or $6M house before die? If you sell it, you have Capital Gain, that is income too.

Unearned income can be taxable. OAS and CPP are taxable; GIS is not. Make sure to include that in your computations.

CAD said
As I understand anybody age 65 to 74 and income below $142,609 will receive OAS. More for age >=75.
HELLOOOOO?!?!? 142K income!!!!! Will $8K matter for somebody who has RETIREMENT income of 140K?????
Do I read table at https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/benefit-amount.html
correctly?  

For someone over the age of 65 and still pull in >$140k income, chances are they also paid a lot of tax over their work years.
It remains to me OAS should not be income tax tested, since it is a taxable income anyway. The difference is collect $0 vs collecting $8k which prob net to $4-5k after tax to the "high income" senior. Does that person need that extra $4-5k, thats not relevant.
To me, its fair for the "high income" senior to be eligibale collect and pay tax, especially one has been funding the OAS of all the seniors before oneself.

Rightly or wrongly, the government makes a distinction between OAS and CPP.

You get CPP because you directly contributed CPP premiums. You don't get OAS if your income exceeds the threshold amount because there is no direct OAS contributions. That is the government's logic.

zgic said

$1M over 6 years, even if I take the lowest withdrawal it is an average of 167K, so what does that mean? I am UNABLE to do the math. Am I missing something  

Not quite sure what your issue is with the maths. Withdrawing $167K per year in cash plus benefits means that you’d be spending many times what an average Canadian can.