My retirement plan...would like to read feedbacks!

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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gibor
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My retirement plan...would like to read feedbacks!

Post by gibor »

Genaral info:
I'm 51 , next year will be fully retired.
My wife 42, working income 200K+.

Assets: in total around 1.5M , split 54% equities, 46% fixed income. my SRRSP, 2 RRSPs(my and wife's), 2 TFSAs, 2 LIRAs, small non-reg (my wife). No debt. Own small detached house in Mississauga.

The plan:
I'm planning to convert my SRRSP to SRRIF in 2019 (so should start process this year) and maybe in 2020 convert my ind RRSP to RRIF, in 4 years to break up my LIRA (I think I can 50% of it to transfer to RRIF, right?).

The reasons:
I want to switch SRRSP to SRRIF, because:
- no attribution rules on SRRIFs, if I take minimum payment (and I intend to take only minimum payments)
- proceeds from SRRIF payments to invest into TFSA and back to SRRSP, thus my wife gonna get 50% tax break (she's obvioulsy in the highest tax bracket).
- deplete value of registered accounts, to avoid higher taxation when I will be in my 60's and start getting OAS and CPP.
- avoid possible OAS clawback.

Starting 2019, my only taxable income will come from HISA/GIC and will be around 9-12K (depends on promo rates). SRRIF payments will be around 7.5K. So, in the worst case, my average tax will be 8.76 %.

How is my plan sound? Any suggestions and comments are welcome!

Some questions, may be you know the answer...

1. Can I make partial transfer from SRRSP to SRRIF? (the problem is that I need to pay admin fee if my SRRSP will have balance less than 25K)
2. Can my wife continue to contribute into SRRSP when SRRIF will be open?
3. In several years can I again transfer portion of SRRSP to SRRIF (same ones)
4. Can I withdraw funds first from CAD cash and if not enough from US cash portion of SRRIF? (we are in CIBC IE).

P.S. i don't have DB pension, my wife has. if she continue working until age 55 (I hope very much she won't ), her income will be estimated 24K (have no idea how to calculate est income if she retires earlier)
chufinora
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Re: My retirement plan...would like to read feedbacks!

Post by chufinora »

I assume SRRSP means spousal RRSP (if it doesn't then you can ignore the rest.) You have a spousal RRSP that your wife is contributing to. I am pretty sure you cannot avoid the 3 year attribution rule by converting the SRRSP to a SRRIF.

Regarding 1. Yes you can convert part of any RRSP to a RIF spousal or otherwise - i have done this to avoid paying $25 withdrawal fee from RRSP, and each year I transfer over the amount I want to withdraw.
2. I am pretty sure if your wife contributes to an SRRSP and you withdraw from an SDRIF you will be offside for attribution.
gibor
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Re: My retirement plan...would like to read feedbacks!

Post by gibor »

I checked it, if I withdraw minimum payment from RRIF, there is no attribution rule
longinvest
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Re: My retirement plan...would like to read feedbacks!

Post by longinvest »

I'm continuing a discussion about RRIF withdrawals started on the VPW thread.
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 just want to say that I wouldn't convert an RRSP or SRRSP into an RRIF or SRRIF and start depleting it before having completely depleted my non-registered investment accounts. The main benefit of registered accounts (RRSP, TFSA, etc.) is the tax-free growth they provide.

I would, in fact, try to completely use up all the contribution space of registered accounts and keep the money invested in them as long as possible. In other words, I would accelerate the depletion of my non-registered investment accounts by contributing to my TFSA every year, for example.
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gaspr
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Re: My retirement plan...would like to read feedbacks!

Post by gaspr »

[/quote]

I just want to say that I wouldn't convert an RRSP or SRRSP into an RRIF or SRRIF and start depleting it before having completely depleted my non-registered investment accounts. The main benefit of registered accounts (RRSP, TFSA, etc.) is the tax-free growth they provide.

I would, in fact, try to completely use up all the contribution space of registered accounts and keep the money invested in them as long as possible. In other words, I would accelerate the depletion of my non-registered investment accounts by contributing to my TFSA every year, for example.
[/quote]

A retired aged 65 couple can easily earn a combined 40k in income before paying any tax. Would you not deplete registered money if you could do so tax free?
gibor
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Re: My retirement plan...would like to read feedbacks!

Post by gibor »

I just want to say that I wouldn't convert an RRSP or SRRSP into an RRIF or SRRIF and start depleting it before having completely depleted my non-registered investment accounts. The main benefit of registered accounts (RRSP, TFSA, etc.) is the tax-free growth they provide.
I don't have any non-reg investment account, except HISA/GICs (majority of cash in our 50/50 allocation), My wife has non-reg investment account, but with her income there is no point in depleting.
A retired aged 65 couple can easily earn a combined 40k in income before paying any tax. Would you not deplete registered money if you could do so tax free?
The point is, that only I'm retired, my wife earns 200K. Thus, I can withdraw from RRIF and pay 0 taxes. Money can be invested into my TFSA, so they will stay tax-free.

The major reason I want to convert SRRSP into SRRIF - the biggest possible difference in tax brackets between me and my wife and my future taxes . For example, typical scenario:
- my wife contribute into SRRSP 10K, she gets 54% tax credit (highest tax bracket).
- I withdraw min payment from SRRIF, it will be about $7,500 . Also I have about $8,000 interesr from HISA/GIC. So, on $15,500 income , my average tax will be 5.5%
- from those $15,500, my wife contributes $10K back to SRRSP (again, she gets 54% tax credit) and 5.5K into my TFSA, cash excess I deposit to HISA (in any case, I'm in the lowest posible tax braket). My wife can contribute to SRRSP every year and I can take min payment from SRRIF same years, as there is no attribution rules on Spousal)
- So, total value of SRRSP+SRRIF is increasing , but much less then it would increase if my wife just contribute 10K into my SRRSP. Thus, I will pay less tax when RRIF min % will increase + CPP/OAS, I;d never go to 2nd tax bracket 42K+
- in future, SRRSP can be converted again to SRRIF and proces will repeat

I'd like to hear what is cons of such plan
Spudd
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Re: My retirement plan...would like to read feedbacks!

Post by Spudd »

One thing you are not taking into account is the spousal tax credit. If you make <11k, your spouse gets a tax credit equal to the difference of what you made, and 11k. So for example, if your income was 0, she would get 11k tax credit. If your income was 10k she would get 1k tax credit. Since she makes 200k, the family tax savings by having you take nothing from RRIF would be higher than if you took out 11k. Yes, you would not pay tax personally on the 11k, but effectively your wife is paying tax on that 11k (because she misses the 11k tax credit).

https://www.taxtips.ca/filing/spousal-a ... credit.htm
gibor
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Re: My retirement plan...would like to read feedbacks!

Post by gibor »

Spudd wrote: 07 Feb 2018 14:13 One thing you are not taking into account is the spousal tax credit. If you make <11k, your spouse gets a tax credit equal to the difference of what you made, and 11k. So for example, if your income was 0, she would get 11k tax credit. If your income was 10k she would get 1k tax credit. Since she makes 200k, the family tax savings by having you take nothing from RRIF would be higher than if you took out 11k. Yes, you would not pay tax personally on the 11k, but effectively your wife is paying tax on that 11k (because she misses the 11k tax credit).

https://www.taxtips.ca/filing/spousal-a ... credit.htm
I see.... so the major advantage of coverting SRRRP to SRRIF, that potentially I will be paying less tax whem together with RRIF income I will start getting CPP/OAS?
Spudd
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Post by Spudd »

Yes, if you expect to make >75k/year once your CPP/OAS are coming, then taking some out now might save you some taxes. It is pretty complicated to figure out, though.
gibor
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Post by gibor »

Spudd wrote: 07 Feb 2018 16:19 Yes, if you expect to make >75k/year once your CPP/OAS are coming, then taking some out now might save you some taxes. It is pretty complicated to figure out, though.
Why 75K?! 2nd tax bracket in Ontario starts from 42K
hamor
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Re: My retirement plan...would like to read feedbacks!

Post by hamor »

gibor wrote: 07 Feb 2018 16:43
Spudd wrote: 07 Feb 2018 16:19 Yes, if you expect to make >75k/year once your CPP/OAS are coming, then taking some out now might save you some taxes. It is pretty complicated to figure out, though.
Why 75K?! 2nd tax bracket in Ontario starts from 42K
He means OAS clawback.

BTW, the spousal tax credit on the 11K is only 15%
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longinvest
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Re: My retirement plan...would like to read feedbacks!

Post by longinvest »

The OP might want to give a look at the RRIFmetic software (the author is a member of FWF). This is a pretty complex situation which can be difficult to investigate without doing multiple simulations with various hypotheses.
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gibor
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Re: My retirement plan...would like to read feedbacks!

Post by gibor »

hamor wrote: 07 Feb 2018 17:10
gibor wrote: 07 Feb 2018 16:43
Spudd wrote: 07 Feb 2018 16:19 Yes, if you expect to make >75k/year once your CPP/OAS are coming, then taking some out now might save you some taxes. It is pretty complicated to figure out, though.
Why 75K?! 2nd tax bracket in Ontario starts from 42K
He means OAS clawback.

BTW, the spousal tax credit on the 11K is only 15%
So won't be SRRSP contribution better?! My wife is in 54% tax bracket...
Spudd
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Post by Spudd »

But she can still do both, no? Or can she not afford to do spousal RRSP contribution if you don't withdraw?
gibor
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Post by gibor »

Spudd wrote: 09 Feb 2018 18:28 But she can still do both, no? Or can she not afford to do spousal RRSP contribution if you don't withdraw?
It maybe the case, as if I substract my income from 2017 balance sheet, we get just about 45K. And we need to max up TFSAs, out daughter will start University and we planning to travel more than now ..

Again, the major reason why I want SRRIF, to decrease its value , so I won't jump to highers bracket after start getting OAS/CPP
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