RRSP to RRIF - Questions

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RRSP to RRIF - Questions

Postby renejashton » 14 Apr 2005 13:25

Hello There:

This is my first posting!!

Has anyone any suggestions as to where a person should invest (approx
$100K) reasonably safe (with a little profit - of course).

Thanks for your ideas.

Rene J.
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Postby Shakespeare » 14 Apr 2005 13:32

A great deal more information will be needed to answer that question, not all of which you might want to reveal on an open financial forum.

"Reasonably safe" is a very individual concept. The investment has to be looked at as part of your overall financial situation, and in context of an overall portfolio. If you are not familiar with financial planning concepts, you may wish to consult a fee-only planner in your area. If you do have such familiarity, your question does not reveal it; please provide more details.

And, as always, take any advice you receive on an internet forum with a liberal dose of salt.
“Never appeal to a man's better nature. He may not have one. Invoking his self-interest gives you more leverage.” -- R.A. Heinlein, Time Enough for Love.
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Converting from Self Dir RRSP to Self Dir RRIF

Postby renejashton » 14 Apr 2005 13:40

I guess my question should have been:

Where would you invest $100K today?

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Postby Brix » 14 Apr 2005 13:57

Where would you invest $100K today?


Me? I'd use it to enlarge (proportionally) my existing balanced low-cost passive portfolio, whose balance is tilted and components are selected according to my particular circumstances, risk tolerance, etc. In other words, pretty much "what Shakespeare said."
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Postby yielder » 14 Apr 2005 14:04

Where would you invest $100K today?


Still an unanswerable question for the reasons that Shakespeare outlined. There isn't enough information to be able to provide an answer.

Reasonably safe is a messy subject affected by your personal risk comfort level tempered by your financial situation.

You can get a feel for your risk comfort level through some of the online questionnaires. They should all produce similar type results. I have four at the bottom of the page here.

This will enable you to, at least, say "my risk profile suggests that I should be 40% equity and 60% bonds."

You'll get tons of advice based on that info. But it won't necessarily be what you need. That's where Shakes' suggestion of a financial planner comes in.

Perhaps Norbert could pick up the thread to talk about what a planner would do?

Mike
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Postby Friendly Dragon » 14 Apr 2005 15:36

If you want to be a do-it-yourself investor, start with a mix of low-fee index mutual funds. Check out Bylo's list at:

http://www.bylo.org/idxfunds.html

The mix you choose depends on your risk level. Choose more bonds for less risk, more equity and foreign securities for more risk.

But this is just a start. You need to start reading a few books, check this and other websites, etc.
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Postby eezee » 14 Apr 2005 20:33

You did say convert from RRSP to RRIF. This implies that you will need to/should keep some amount in a fund which you can readily convert to cash for the required RRIF withdrawal. You don't want to have to redeem at a loss, just because the risky fund you invested in tanked at the wrong tome.
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RRIF vs RRSP

Postby bruceter » 17 Jun 2005 09:56

I have recently retired and am considering moving my RRSPs to RRIFs to facilitate the withdrawal of funds.

I have pension income supplemented by money I withdraw quarterly from registered funds. There are 2 RRSPs and a LIF in my name plus one RRSP in my wife's name (she is 11 years younger than I).

My financial advisor suggests transfering the RRSPs to RRIFs as it would avoid partial de-registration and a $25 fee for each withdrawal from the current RRSPs.

It seems like a good idea to me.

Am I missing any snakes in the grass? :roll:

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Postby Shakespeare » 17 Jun 2005 10:13

Am I missing any snakes in the grass?

What's your age? You are required to make withdrawals from an RRIF. You are not required to make withdrawals from an RRSP.

I'm 56. I intend to keep my RRSP and LRSP in their current form.
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Postby twa2w » 17 Jun 2005 12:44

You are not required to move all your RSP into RIF's until the end of the year you turn 69 so:
If you are under 69 you could transfer a small portion of your RSP into RIF. This way you could avoid the withdrawal fees from the RSP. e.g. you could transfer 12,000 from your RSP to a RIF each year and take 1000 per month income from it. this would keep your minimum withdrawal amount low and if you don't need the strategy anymore you can just let the RIF run out - or -you can also transfer the RIF back to the RSP provided you are under age 69 and have taken your minimum payment for the year.
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Re: RRIF vs RRSP

Postby Springbok » 17 Jun 2005 12:49

bruceter wrote:I have recently retired and am considering moving my RRSPs to RRIFs to facilitate the withdrawal of funds.

I have pension income supplemented by money I withdraw quarterly from registered funds. There are 2 RRSPs and a LIF in my name plus one RRSP in my wife's name (she is 11 years younger than I).

My financial advisor suggests transfering the RRSPs to RRIFs as it would avoid partial de-registration and a $25 fee for each withdrawal from the current RRSPs.

It seems like a good idea to me.

Am I missing any snakes in the grass? :roll:


I am sure many people do this - convert to RRIF and use income to supplement pension income when they retire early. Some factors that may be worth thinking about:

- If you withdraw from your RSP, there is withholding tax - Don't know the numbers, but I think about 10% for up to $5000 and higher % thereafter. If you take teh minimum from a RRIF, there is no withholding tax, but there is on the excess, if you draw more.

-The minimum amount is apparently calculated as follows:
"For years before age 71, the minimum amount is computed by dividing the opening RRIF balance by 90 minus the taxpayer's age." But, you can, I believe use your wifes age in determining the minimum amount if you wish.

- I think that you can also just convert part of your RSP to a RIF - just enough so the minimum withdrawal matches your needs.

Interested in discussion, because we too have a dilemma: My wife and I have enough income from all of our investments, but about 2/3 of this is inside the RSP,s. With CPP/etc we have just about enough to live on, but not for extras like home renovations, trips, cars etc.

If I don't draw on the RSP,s we will have to sell some of our unregistered investments. When we do this, we upset our Portfolio allocation and earn even less outside our RSP.

Perhaps we should also look at a partial conversion to a RRIF and get some income. I was thinking of making a small draw - say $5k each from RSP each year, but don't like teh taxaman to keep 10% of it for a year!

Because almost all our income (except for CPP/OAS) is in dividends & CG,s our tax rate is low, so adding some income may not hurt much.
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Postby Shakespeare » 17 Jun 2005 12:54

Because almost all our income (except for CPP/OAS) is in dividends & CG,s our tax rate is low, so adding some income may not hurt much.

Be careful not to push yourself up into the next bracket: your taxable income is based on grossed-up dividends.

I have a small pension which, with other income, doesn't leave me much room for RRIF withdrawals in the bottom bracket. So I keep my RRSP as-is to get more flexibility and defer taxes.
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Postby Springbok » 17 Jun 2005 23:19

Shakespeare wrote:
Because almost all our income (except for CPP/OAS) is in dividends & CG,s our tax rate is low, so adding some income may not hurt much.

Be careful not to push yourself up into the next bracket: your taxable income is based on grossed-up dividends.

I have a small pension which, with other income, doesn't leave me much room for RRIF withdrawals in the bottom bracket. So I keep my RRSP as-is to get more flexibility and defer taxes.


Because there are two of us, we would split our income almost down the middle. Our problem is that we have enough income but too much of it is inside the RSPs!

We would like to draw 4% of our total portfolio value on a regular basis, but income from unregistered part (which I have maximized by moving most higher yield trusts and stocks into it) is only 1.7% of the total. So, I either have to sell off our unregistered investments (pay brokerage fees & reduce income further), withdraw from our RSP,s or open RRIFs and have them pay us income.

Seems that if we want the income, we will have to pay the taxes now or later and perhaps by withdrawing at a modest rate, we will pay less tax now than once the forced RRIF draw kicks in.

It's not easy to figure out the best route that would minimize overall taxes and fees.
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Postby Shakespeare » 17 Jun 2005 23:27

It's not easy to figure out the best route that would minimize overall taxes and fees.

A good general rule is to defer drawing on the RRSP's until you need to. One way to access RRSP cash flow on a low-tax basis is to transfer non-registered assets periodically, as long as they are suitable RRSP investments (some trusts should be held outside the RRSP for tax deferral.) For suitable equities, transferring assets has the effect of converting fully-taxable cash flow to partial capital gains, with the ACB portion tax-free.
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Postby Springbok » 17 Jun 2005 23:40

Shakespeare wrote:
It's not easy to figure out the best route that would minimize overall taxes and fees.

A good general rule is to defer drawing on the RRSP's until you need to. One way to access RRSP cash flow on a low-tax basis is to transfer non-registered assets periodically, as long as they are suitable RRSP investments (some trusts should be held outside the RRSP for tax deferral.) For suitable equities, transferring assets has the effect of converting fully-taxable cash flow to partial capital gains, with the ACB portion tax-free.


Sorry - I didn't understand - If I "transfer" non-registered assets (presumably into RSP), how does this increase my cash flow outside of the RSP?

Do you mean swapping interest earners in the non-registered account with dividend/CG earning equities in Registered account? I have done this and now all bonds & bond funds are in registered accounts, most trusts are in unregistered account and there are div paying equities in both.
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Postby Shakespeare » 18 Jun 2005 09:08

If I "transfer" non-registered assets (presumably into RSP), how does this increase my cash flow outside of the RSP?

It changes the cash flow in the RRSP to capital gains and return of capital outside, thus reducing the tax hit.

Suppose you have $10K inside the RRSP. If you withdraw it you have $10K in income.

Outside the RRSP you have a trust worth $10K that you paid $7.5K for. It yields 7.5%.

You transfer it to your RRSP, getting the full $10K in cash. You pay tax on only half of (10-7.5) - so your income only increased by $1.25K instead of $10K. But you got $10K in cash flow.

You lose the advantage of any tax deferral on the trust yield, since when you withdraw any income when you run out of things to swap in the income would at that point be fully taxed. But you save considerable tax now, so you must decide if the current value of the tax deferral is worth the swap. If you are relatively young, a good rule of thumb is to defer the tax. The older you get, the less important the deferral becomes.
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Postby Springbok » 18 Jun 2005 09:43

Shakespeare wrote:Suppose you have $10K inside the RRSP. If you withdraw it you have $10K in income.

Outside the RRSP you have a trust worth $10K that you paid $7.5K for. It yields 7.5%.

You transfer it to your RRSP, getting the full $10K in cash. You pay tax on only half of (10-7.5) - so your income only increased by $1.25K instead of $10K. But you got $10K in cash flow.



Ok, I see what you are getting at. It's really the same as if I sell the unregistered security to generate some unregistered cash and then rebuy same security with the cash in the registered account. Difference would be lower brokerage fees. If it was a trust, it would reduce income from unregistered account.

I am thinking of using line of credit to buy a high yield trust at prime + 0.5%. For example OGF.UN which yields 12+%. If I bought say $150k, it would yield a difference of about 8% for net cash flow of $12k, and interest would be tax deductible. We would initially just pay the interest for the next 5 years, after which we would be into a RRIF and have sufficient cash flow to pay down the loan.

Would this make sense? - I realise that this would be same as buying on margin and there is a risk of lower oil prices if I buy ogf.un.
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Postby Shakespeare » 18 Jun 2005 09:50

I realise that this would be same as buying on margin and there is a risk of lower oil prices if I buy ogf.un.

That would stop me from doing it. YMMV.
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Postby Springbok » 18 Jun 2005 22:25

Shakespeare wrote:
I realise that this would be same as buying on margin and there is a risk of lower oil prices if I buy ogf.un.

That would stop me from doing it. YMMV.


Buying on margin or buying o&g?

After thinking about it, our current LOC limit of $150k would not really generate enough income using this tactic - Probably just swap out cash as bonds mature as you suggested.

Will have to rebalance once in a while.
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Postby like_to_retire » 18 Jun 2005 22:48

Buying on margin or buying o&g?


Borrowing to purchase a high risk investment for cash flow........ :cry:
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Postby iluvnascar » 19 Jun 2005 11:46

With regard to withdrawals from a RRIF.......my wife has a small (about $35,000 now) locked-in RRSP which arose from a Company pension transfer (Ontario) when she was laid-off a few years ago. I am planning to transfer the RRSP to a RRIF and start withdrawing funds to provide her with some monthly income.

She is presently 44 years old......and I understand that there may be some regulation that precludes any withdrawals whatsoever until she is 50 years old (or perhaps even 55)? Can anyone shed any light on the subject and whether or not she can begin monthly withdrawals immediately (even if they have to be small)??
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Postby Shakespeare » 19 Jun 2005 12:01

Under what laws - federal or provincial - is the RRIF governed? IIRC she probably can't withdraw any earlier than the originating plan will allow retirement, usually 55.
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Postby Springbok » 19 Jun 2005 14:11

like_to_retire wrote:
Buying on margin or buying o&g?


Borrowing to purchase a high risk investment for cash flow........ :cry:


ltr - there is always a risk when investing, but do you consider a diversified O&G trust like ogf.un a High Risk investment?
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Postby Shakespeare » 19 Jun 2005 14:48

a diversified O&G trust

is a contradiction in terms. If the oil price drops, so does both the value and income.
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Postby Springbok » 19 Jun 2005 20:27

Shakespeare wrote:
a diversified O&G trust


is a contradiction in terms.


Which part of "a diversified O&G trust" is contradictory?

This phrase simply describes a trust of trusts that holds a number of O&G trusts. OGF.UN is one such trust of trusts.

If the oil price drops, so does both the value and income.


The market prices of O&G trusts do fluctuate with the price of oil
- but not directly and not as much as oil fluctuates. The unit price of a diversified like OGF.UN correlates with the NAV of the underlying trusts.

Distributions (income) from O&G trusts and therefore also diversifieds, have been very stable - In recent years, only one O&G trust that I know of has ever reduced it's distribution (with good reasons) and most have increased distributions on a regular basis.

For Distribution & NAV History of OGF.UN see :

http://www.bromptongroup.com/
"Equal Weight Oil & Gas Income Fund"

I own this and find it a good way of investing in a basket of the larger O&G trusts - Pays out about 12+% in distributions with beneficial tax treatment.
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