Variable Percentage Withdrawal (VPW) for Canadians

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
Post Reply
longinvest
Veteran Contributor
Veteran Contributor
Posts: 3956
Joined: 10 Sep 2012 17:26
Location: QC

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by longinvest »

shmenge wrote: 05 Feb 2018 07:19 Does RIFFing mean selling your RSP holdings at 71 upon conversion? Or does it mean just selling off the percentage required under law each year. Specifically, selling off your index portfolio (asking for a friend:) or keeping it through your retirement and just selling units as needed? I don't get it.
Converting an RRSP to an RRIF and then making minimal RRIF withdrawals is a tax management issue, it is a separate concern from portfolio withdrawals. In other words, RRIF withdrawals can be reinvested into one's TFSA and non-registered account; they don't necessarily have to be withdrawn from the portfolio and spent.
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

shmenge wrote: 05 Feb 2018 07:19 Does RIFFing mean selling your RSP holdings at 71 upon conversion? Or does it mean just selling off the percentage required under law each year. Specifically, selling off your index portfolio (asking for a friend:) or keeping it through your retirement and just selling units as needed? I don't get it.
You can convert RRSP to RRIF at any time and you should withdraw at least minimum payment (specific % that depends on your age) . If you want , you can withdraw more.
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

Regarding VPW table...Assume I start at age 55, my% 4.2%, amount $1,500,000, I can withdraw $63,000.
However, at age 60 I start getting $3,000 CPP, at age 65 $5,000 OAS, and at age 57, $10,000 DB..
Thus, by how much I can increase those $63,000 starting 55?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by AltaRed »

I am sure spreadsheet whiz types could come up with a factor by which you could boost the 4.2% for a few years until the DB kicks in, etc. But why do you want to 'fine tune' this very much? These algorithms are based on back testing and are not perfect in any event going forward.

Just pick a slightly higher number for 2 years at 55 and run with it. Perhaps 5% or 5.5% for those first few years. I can't imagine that doing any damage to what will be good future sources of FI from DB, CPP and OAS.

Added: The bigger challenge might be leaving CPP alone until 65 due to the significant discounting applied pre-65.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
longinvest
Veteran Contributor
Veteran Contributor
Posts: 3956
Joined: 10 Sep 2012 17:26
Location: QC

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by longinvest »

Gibor,
gibor wrote: 05 Feb 2018 13:37 Regarding VPW table...Assume I start at age 55, my% 4.2%, amount $1,500,000, I can withdraw $63,000.
However, at age 60 I start getting $3,000 CPP, at age 65 $5,000 OAS, and at age 57, $10,000 DB..
Thus, by how much I can increase those $63,000 starting 55?
First, regarding OAS and CPP:
Delay OAS to 70, spend 8.8% more at 65!
Delay CPP to 70 and safely spend 42% more starting at age 60!

The general idea to deal with a delayed pension is to put (N X pension amount), where N is the number of years until the pension starts after retirement, aside into GICs and high-interest savings account to safely fund the gap.

For the purpose of VPW calculations, any money used to fund the gap shouldn't be taken into account.

Using your scenario, above (not delaying CPP and OAS), I would get:
Pension bridge: 2 X $10,000 = $20,000
CPP bridge: 5 X $3,000 = $15,000
OAS bridge: 10 X $5,000 = $50,000
This is a total of $85,000 that I would put into HISAs and GICs to fund the gaps.

This would leave a portfolio of ($1,500,000 - $85,000) = $1,415,000. At age 55, with a 4.2% percentage, this would indicate a $59,430 withdrawal.

So, in the first year, one would get $10,000 + $3,000 + $5,000 taken from the gap funds, and $59,430 from the remaining portfolio, for a total of $77,430.

Personally, I would delay OAS and CPP to age 70. This would require a larger gap fund, but it would safely increase yearly total income.
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

Thanks for explanation .
Personally, I would delay OAS and CPP to age 70.
I would, but nor sure if I will be alive then, and if by miracle, yes, not sure if I need too much money then :D

So, for now I'm planning to start all benefits as soon as I'm eligible
longinvest
Veteran Contributor
Veteran Contributor
Posts: 3956
Joined: 10 Sep 2012 17:26
Location: QC

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by longinvest »

gibor wrote: 05 Feb 2018 15:47 Thanks for explanation .
Personally, I would delay OAS and CPP to age 70.
I would, but nor sure if I will be alive then, and if by miracle, yes, not sure if I need too much money then :D

So, for now I'm planning to start all benefits as soon as I'm eligible
Delaying CPP and OAS to age 70 allows for safely spending more now. Taking them earlier leads one safely spend less; that's what the posts I linked to explain.
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
User avatar
shmenge
Contributor
Contributor
Posts: 295
Joined: 28 Jun 2008 06:17
Location: Ontario

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by shmenge »

longinvest wrote: 05 Feb 2018 07:26 Converting an RRSP to an RRIF and then making minimal RRIF withdrawals is a tax management issue, it is a separate concern from portfolio withdrawals. In other words, RRIF withdrawals can be reinvested into one's TFSA and non-registered account; they don't necessarily have to be withdrawn from the portfolio and spent.
:thumbsup:
If you want to buy stocks why would you want them to rise in price? - Warren Buffett
The Stock Market Speculator
User avatar
shmenge
Contributor
Contributor
Posts: 295
Joined: 28 Jun 2008 06:17
Location: Ontario

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by shmenge »

gibor wrote: 05 Feb 2018 13:35 You can convert RRSP to RRIF at any time and you should withdraw at least minimum payment (specific % that depends on your age) . If you want , you can withdraw more.
Yabbut, what do you most investors do that let's say have nothing but a couch potato portfolio when they turn 71. Do they keep the same investments and just sell units of their ETFs to meet the minimum withdrawal requirements?
If you want to buy stocks why would you want them to rise in price? - Warren Buffett
The Stock Market Speculator
User avatar
adrian2
Veteran Contributor
Veteran Contributor
Posts: 13333
Joined: 19 Feb 2005 08:42
Location: Greater Toronto Area

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by adrian2 »

longinvest wrote: 05 Feb 2018 15:54
gibor wrote: 05 Feb 2018 15:47 Thanks for explanation .
Personally, I would delay OAS and CPP to age 70.
I would, but nor sure if I will be alive then, and if by miracle, yes, not sure if I need too much money then :D

So, for now I'm planning to start all benefits as soon as I'm eligible
Delaying CPP and OAS to age 70 allows for safely spending more now. Taking them earlier leads one safely spend less; that's what the posts I linked to explain.
:thumbsup:
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

shmenge wrote: 05 Feb 2018 16:42
gibor wrote: 05 Feb 2018 13:35 You can convert RRSP to RRIF at any time and you should withdraw at least minimum payment (specific % that depends on your age) . If you want , you can withdraw more.
Yabbut, what do you most investors do that let's say have nothing but a couch potato portfolio when they turn 71. Do they keep the same investments and just sell units of their ETFs to meet the minimum withdrawal requirements?
Yeap, pretty much
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by AltaRed »

gibor wrote: 05 Feb 2018 17:13
shmenge wrote: 05 Feb 2018 16:42 Yabbut, what do you most investors do that let's say have nothing but a couch potato portfolio when they turn 71. Do they keep the same investments and just sell units of their ETFs to meet the minimum withdrawal requirements?
Yeap, pretty much
I agree. Why not? It is the same process as in accumulation, just the inverse. Sell units in one (or two) that are out of whack on the high side which also helps to re-balance.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

AltaRed wrote: 05 Feb 2018 22:44
gibor wrote: 05 Feb 2018 17:13
shmenge wrote: 05 Feb 2018 16:42 Yabbut, what do you most investors do that let's say have nothing but a couch potato portfolio when they turn 71. Do they keep the same investments and just sell units of their ETFs to meet the minimum withdrawal requirements?
Yeap, pretty much
I agree. Why not? It is the same process as in accumulation, just the inverse. Sell units in one (or two) that are out of whack on the high side which also helps to re-balance.
I don't know if it gonna work, but I'm not planning to sell (from RRIFs) any units, just stop DRIPing dividends and withdraw them as min payment, and if I have excess of cash, to invest into TFSA and back to SRRSP (from SRRIF)
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by AltaRed »

It would be rare* that distribution/dividend payments would be enough to meet minimum withdrawals on any ETF or group of stocks I know, but yes, they will meet part of the need.

* For example, an RRIF with a 5% minimum withdrawal would need assets delivering collectively, a 5% yield, to meet minimum withdrawals. I do not know any diversified portfolio that would provide that kind of yield unless possibily one of those high yield income funds with ROC part of the distribution.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
User avatar
Shakespeare
Veteran Contributor
Veteran Contributor
Posts: 23396
Joined: 15 Feb 2005 23:25
Location: Calgary, AB

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by Shakespeare »

FWIW, my portfolio yield after today's additions is 3.1%. Since the low interest rate environment began, about 3% has been common for a balanced portfolio.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by AltaRed »

Shakespeare wrote: 06 Feb 2018 12:50 FWIW, my portfolio yield after today's additions is 3.1%. Since the low interest rate environment began, about 3% has been common for a balanced portfolio.
I believe mine is just at/under 3% as measured many months ago. Getting to 5% would be a major skew, never mind 7% or more as withdrawal percentages increase with age.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

AltaRed wrote: 06 Feb 2018 13:31
Shakespeare wrote: 06 Feb 2018 12:50 FWIW, my portfolio yield after today's additions is 3.1%. Since the low interest rate environment began, about 3% has been common for a balanced portfolio.
I believe mine is just at/under 3% as measured many months ago. Getting to 5% would be a major skew, never mind 7% or more as withdrawal percentages increase with age.
It all depends at what age you convert RRSP to RRIF. I'm planning to do it with SRRSP at 52, so min RRIF payment will start from 2.63%, 2017 yield on SRRSP was 4.2% , so it's more than enough to cover.
Later, maybe when I'm 54-55, I'm planning to convert to RRIF my personal RRSP that yielded in 2017 3.3%, so again , it should be enough to cover RRIF minimums.

btw, my total yield that include equities and HISA/GIC is about 3%.

P.S. It also depends on portfolio performance, more appreciation, less yield....
longinvest
Veteran Contributor
Veteran Contributor
Posts: 3956
Joined: 10 Sep 2012 17:26
Location: QC

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by longinvest »

gibor wrote: 06 Feb 2018 14:23
AltaRed wrote: 06 Feb 2018 13:31
Shakespeare wrote: 06 Feb 2018 12:50 FWIW, my portfolio yield after today's additions is 3.1%. Since the low interest rate environment began, about 3% has been common for a balanced portfolio.
I believe mine is just at/under 3% as measured many months ago. Getting to 5% would be a major skew, never mind 7% or more as withdrawal percentages increase with age.
It all depends at what age you convert RRSP to RRIF. I'm planning to do it with SRRSP at 52, so min RRIF payment will start from 2.63%, 2017 yield on SRRSP was 4.2% , so it's more than enough to cover.
Later, maybe when I'm 54-55, I'm planning to convert to RRIF my personal RRSP that yielded in 2017 3.3%, so again , it should be enough to cover RRIF minimums.

btw, my total yield that include equities and HISA/GIC is about 3%.

P.S. It also depends on portfolio performance, more appreciation, less yield....
I suggest to move this very interesting discussion about RRIF withdrawals into its own topic. I'd like to comment, too, but my comments have nothing to do with the VPW topic.
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

longinvest wrote: 06 Feb 2018 14:31
gibor wrote: 06 Feb 2018 14:23
AltaRed wrote: 06 Feb 2018 13:31

I believe mine is just at/under 3% as measured many months ago. Getting to 5% would be a major skew, never mind 7% or more as withdrawal percentages increase with age.
It all depends at what age you convert RRSP to RRIF. I'm planning to do it with SRRSP at 52, so min RRIF payment will start from 2.63%, 2017 yield on SRRSP was 4.2% , so it's more than enough to cover.
Later, maybe when I'm 54-55, I'm planning to convert to RRIF my personal RRSP that yielded in 2017 3.3%, so again , it should be enough to cover RRIF minimums.

btw, my total yield that include equities and HISA/GIC is about 3%.

P.S. It also depends on portfolio performance, more appreciation, less yield....
I suggest to move this very interesting discussion about RRIF withdrawals into its own topic. I'd like to comment, too, but my comments have nothing to do with the VPW topic.
I opened such thread yesterday
http://www.financialwisdomforum.org/for ... 0&t=120846
It's about my retiment planning, but the major point - it's converting SRRSP and RRSP to SRRIF and RRIF.
User avatar
GreatLaker
Contributor
Contributor
Posts: 662
Joined: 16 Dec 2014 13:02
Location: Toronto

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by GreatLaker »

longinvest wrote: 05 Feb 2018 14:24 Gibor,
gibor wrote: 05 Feb 2018 13:37 Regarding VPW table...Assume I start at age 55, my% 4.2%, amount $1,500,000, I can withdraw $63,000.
However, at age 60 I start getting $3,000 CPP, at age 65 $5,000 OAS, and at age 57, $10,000 DB..
Thus, by how much I can increase those $63,000 starting 55?
First, regarding OAS and CPP:
Delay OAS to 70, spend 8.8% more at 65!
Delay CPP to 70 and safely spend 42% more starting at age 60!

The general idea to deal with a delayed pension is to put (N X pension amount), where N is the number of years until the pension starts after retirement, aside into GICs and high-interest savings account to safely fund the gap.

For the purpose of VPW calculations, any money used to fund the gap shouldn't be taken into account.

Using your scenario, above (not delaying CPP and OAS), I would get:
Pension bridge: 2 X $10,000 = $20,000
CPP bridge: 5 X $3,000 = $15,000
OAS bridge: 10 X $5,000 = $50,000
This is a total of $85,000 that I would put into HISAs and GICs to fund the gaps.

This would leave a portfolio of ($1,500,000 - $85,000) = $1,415,000. At age 55, with a 4.2% percentage, this would indicate a $59,430 withdrawal.

So, in the first year, one would get $10,000 + $3,000 + $5,000 taken from the gap funds, and $59,430 from the remaining portfolio, for a total of $77,430.

Personally, I would delay OAS and CPP to age 70. This would require a larger gap fund, but it would safely increase yearly total income.
Pretty much the same answer I gave over on CMF yesterday.
http://canadianmoneyforum.com/showthrea ... ost1851537
http://canadianmoneyforum.com/showthrea ... ost1851665

I also plan to delay CPP to 70. Not sure of OAS since the increase for deferring is not as large for CPP. Also CPP is separately funded from employee and employer contributions, not from general government revenues. OAS is funded from general tax revenues, so possibly more of a target for govt cutbacks, but still probably unlikely since seniors are voters that like their pensions. Decision still TBD.
When I was young, I was poor. Now, after years of hard work, I am no longer young.
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

GL, from your reply on CMF, I didn't realize point below
in the first year, one would get $10,000 + $3,000 + $5,000 taken from the gap funds, and $59,430 from the remaining portfolio, for a total of $77,430.
I also plan to delay CPP to 70
I'm not sure yet... canot say my health is perfec and I;m not sure if I gonna make to 70+.
Need to do more calcs, for example , if you live to 75, does it worth to delay to 70? or better to get it in 60 and for 10 additional years to get CPP (even smaller amount)?
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by AltaRed »

All this stuff is based on actuarial ages and break even is somewhere circa age 83. If you live longer, deferment to age 70 is likely better. No doubt Dogger, Longinvest or others may have more accurate dates.

Added: one thought about gambling..... If you defer to 70 and die prematurely, you personally won't care if you lost out. You mostly care if you beat the odds.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
longinvest
Veteran Contributor
Veteran Contributor
Posts: 3956
Joined: 10 Sep 2012 17:26
Location: QC

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by longinvest »

AltaRed wrote: 06 Feb 2018 19:28 If you defer to 70 and die prematurely, you personally won't care if you lost out. You mostly care if you beat the odds.
:thumbsup:

Exactly. It's not a contest about increasing the probability to extract more money from the government. It's about making sure we live decently, no matter how long we live. We don't want to end up eating cat food under a bridge just because we were "unlucky" to live a long time!

But, we're still way off topic. (e.g. VPW)
Last edited by longinvest on 06 Feb 2018 20:12, edited 1 time in total.
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)
gibor
Contributor
Contributor
Posts: 236
Joined: 01 Mar 2015 17:44

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by gibor »

longinvest wrote: 06 Feb 2018 19:44
AltaRed wrote: 06 Feb 2018 19:28 If you defer to 70 and die prematurely, you personally won't care if you lost out. You mostly care if you beat the odds.
:thumbsup:

Exactly. It's not a contest about increasing the probability to extract more money from the government. It's about making sure one lives decently, no matter how long we live. We don't want to end up eating cat food under a bridge just because we were "unlucky" to live a long time!

But, we're still way off topic. (e.g. VPW)
Not true for me :), I'd die more peacefully if I know that I took back from the government someting back :).
and I'd live more decently if I have more cash starting age 60, than potentially bigger amount if I gonna live to 80+...

about "eating cat food under a bridge "....no chance, as we have decent cash/TFSA/registered accounts/DB pension that right now totals 1.5M, and we gave to our kids good education with good potential.
P.S. My son at last year double degree in UoW/laurier and just got 65K starting full time offer :)
P.P.S. andin very, very worst case - there is still GIS :)
User avatar
AltaRed
Veteran Contributor
Veteran Contributor
Posts: 33398
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Variable Percentage Withdrawal (VPW) for Canadians

Post by AltaRed »

longinvest wrote: 06 Feb 2018 19:44 But, we're still way off topic. (e.g. VPW)
Yeppers. More difficult to get the car out of the ditch than into it. Folks, let's try to get this thread back on topic. It's an important subject.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom
Post Reply