Our early withdrawal strategies – How to keep more money

As many of you know, we have been busy adding new capital and buying dividend paying stocks over the last few years. During the COVID-19-caused short recession last year, our portfolio was down as much as $250,000. We didn’t panic and liquidate our portfolio. Instead, we saw the recession as an opportunity to buy discounted stocks and we added $115k to our dividend portfolio.

I’m a believer in time in the market, rather than timing the market. Therefore, we try to be fully invested in the stock market as much as we can. We use our monthly savings to add new shares and take advantage of any downturns. We also strategically move any long term savings for spending account to buy dividend paying stocks whenever there are enticing buying opportunities. We then “put back” money in the LTSS account over time.

Although we are in the accumulation phase of our financial independence retire early journey, I have done a few calculations and scenarios to plan out our early withdrawal strategies and plans. But they are what the names suggested – strategies and plans. Nothing is written in stone and things can certainly change by the time we decide to live off our dividend portfolio. 

Recently Mark from My Own Advisor appeared on Explore FI Canada to discuss FI Drawdown Strategies. Since Mark is a few years ahead on the FIRE journey than us, or FIWOOT (Financial Independence Working on Own Term) as Mark calls it, it was great to hear about what Mark is thinking and the considerations he has.

Speaking of living off dividends and early withdrawal strategies, it was really awesome to be able to pick on Reader B’s brain on this topic: 

After listening to the Explore FI Canada episode, I thought about our early withdrawal strategies. Are there effective ways to minimize taxes so we get to keep more money in our pocket? 

For Canadians, we can receive CPP and OAS when at age 65. I have not included CPP and OAS in our FIRE number calculation because I always considered them as the extra income and didn’t want to rely on them during retirement. Having said that, are there things we can do to receive the full CPP and OAS amounts without clawbacks? 

A few things to note before I go any further…

  1. We plan to live off dividends and only sell our principal if we absolutely have to.
  2. We plan to pass down our portfolio to our kids, future generations, and leave a lasting legacy.
  3. Ideally it’d be great to be able to pass down our portfolio to future generations. But we also don’t want them to take money for granted. Therefore, we are also not against the idea of not passing anything to future generations. 
  4. I’d love to write a million dollar cheque and donate it to a charity.

Our Investment Accounts

Our dividend portfolio comprises the following accounts:

  • 2x RRSP 
  • 2x TFSA 
  • 2x taxable accounts

I also have an RRSP account through work. Every year I have been moving my contribution portion to my self-directed RRSP at Questrade. I can’t touch my employer’s contribution portion until I leave the company.

Neither Mrs. T nor I have work pensions so that may make the math slightly simpler. 

The only complication I need to consider is what to do with income from this blog. This blog now makes a small amount of money. For tax efficiency, it might make sense to consider incorporating. Many bloggers I know have gone down this route for tax efficiency reasons. This is something I will have to consult with a tax specialist in the near future and crunch out some numbers to see what makes the most sense.

Shortcomings of RRSP 

As the name suggests, RRSP is a great retirement savings vehicle. But there are three important caveats people often skim over:

  1. RRSP must be matured by December 31 of the year you turn 71. You can convert RRSP into RRIF or purchase an annuity. Most people convert their RRPs into RRIFs.
  2. RRIF has a mandatory minimum withdrawal rate each year.
  3. The minimum withdrawal rate increases each year (5.4% at age 72 and jumps to 6.82% at age 80).
  4. RRSP and RRIF withdrawals are counted as normal income and taxed at your marginal tax rate. 

Personally, I don’t like the restrictive nature of RRIF. Imagine having $500,000 in your RRIF and having to withdraw a minimum of $27,000 at 72. If your RRSP/RRIF has a bigger value, it means you are forced to make a bigger withdrawal!

By plugging the amount currently in our RRSPs into a simple RRSP compound calculator, assuming no more contributions and an annualized return of 7%, I discovered that we’d end up with more than $2M in each of our RRSP!

Holy moly! 

At 5.4% minimum withdrawal rate, that means we’d have to withdraw at least $108,0000 each. This would then put both of us into the third federal tax bracket. More importantly, we’d get hit with OAS clawback (more on that shortly).

Therefore, it makes sense for Mrs. T and me to consider early RRSP withdrawals and perhaps consider collapsing our RRSP before we turn 71. 

CPP Clawbacks

Contrary to many Canadian beliefs, there are no clawbacks for CPP. 

You pay into the Canada Pension Plan (CPP) with your paycheques. Each year that you contribute to the CPP will increase your retirement income. Therefore, the amount of CPP you will receive at 65 depends on your contributions during your working life.

In 2021, the maximum CPP benefit at age 65 is $14,445.00 annually or $1203.75 monthly. The CPP benefit is taxed at your marginal tax rate. 

But not everyone will get the maximum CPP amount since it is based on how long and how much you pay into the CPP. 

  • You must contribute to CPP for at least 83% of the CPP eligible contribution time to get the maximum benefit. You are eligible to contribute to CPP from 18 to 65, so 83% would mean you need to contribute to CPP for at least 39 years. 
  • In addition, you also need to contribute CPP’s yearly maximum pensionable earnings (YMPE) for 39 years to qualify for the maximum CPP amount. For 2021, the YMPE is $61,600.

Not many people can meet these two requirements, hence the average CPP payment received in 2020 was $689.17 per month or $8,270.04 annually. 

Since we plan to “retire early” eventually, it’s unlikely that we will qualify for the maximum CPP benefits. 

OAS Clawbacks

Unlike the CPP, there are clawbacks or a pension recovery tax for OAS. If your income is over a certain level, the OAS payments are reduced by 15% for every dollar of net income above the threshold. In 2021, the OAS clawback threshold starts at $79,845 and maxes at $129,260. So, if you’re making over $79,845, you will receive reduced OAS payments. And if you’re lucky enough to have a retirement income of over $129,260, you get $0 OAS payments. 

You can start receiving OAS as early as the month following your 65th birthday but you can increase the amount of your benefit if you delay your OAS payment up to age 70. For each month you wait to start your OAS pension, your pension amount will go up by 0.6%. This may not sound a lot, but by delaying OAS by a year, you will increase your OAS payment by 7.2%. If you delay by five years, you’d increase the amount by 36%. 

From April to June 2021, the current maximum OAS amount is $618.45 monthly or $7,421.40 annually. If you delay OAS until age 70, this amount increases to $841.09 monthly or $10,093.08. Therefore, it makes sense to delay OAS until age 70 if you don’t need the money. 

Like CPP, OAS is taxable.

One important thing to note is you need to reside in Canada for at least 40 years after you turn 18 to receive the full OAS amount. If you haven’t lived in Canada for at least 40 years, you are still eligible for partial OAS payments.

Since Mrs. T became a Canadian permanent resident in her late 20s and we plan to live abroad (i.e. geoarbitrage) for several years in the future, it is highly possible we won’t receive the full OAS payments. 

But that’s OK because we have never counted OAS to fund our retirement. 

Our early withdrawal strategies

Here are some early withdrawal strategies I have in mind. While I have done some research, I have not consulted with tax specialists, so I am always open to ideas and suggestions. 

  1. Before age 65, withdraw from RRSPs early. Withdrawals from RRSPs count as working income, so we want to keep the withdrawal amount to less than $15,000 per person if possible. We’d get hit by a 20% withholding tax but we should be able to recover most of that tax when filing tax returns.  
  1. The money from the yearly early RRSP withdrawals can either go into our TFSA for tax-free compounding or buy dividend paying stocks in taxable accounts to take advantage of the favourable dividend income treatment. Since income from RRIF is taxed as working income as your marginal tax rate, by my calculation, it is tax advantageous to collapse our RRSP before age 71 so we are not forced to withdraw a certain percentage from RRIFs each year. 
  1. Before age 65, use dividends from taxable accounts. Dividend income from taxable accounts is very tax efficient as eligible dividend income up to $49,020 is tax free (5.4% up to $42,184 for British Columbians). One thing we need to keep in mind is that eligible dividends are grossed up by 38%. 
  1. To avoid big capital gains when we do eventually pass down our portfolio, in “lower” income years, we may consider selling our dividend stocks in taxable accounts then buy back the stocks. Essentially, spreading capital gains across multiple lower income years and “increase” the adjusted cost basis. This strategy may have significant tax consequences that I may have no considered, so I probably need to consult with a tax specialist. This idea is kind of the opposite of tax loss harvest.
  1. To take advantage of the compound effect, we plan to delay using TFSA for as long as possible. Since withdrawals from TFSA are not taxable income, TFSA is an extremely useful account in retirement years. Check out The Millennial’s Ultimate TFSA Guide
  1. We plan to delay OAS until age 70. We will get partial CPP payments at age 65. 

When we live off dividends initially (i.e. 40s and/or 50s), it is most likely that we will have income from either part-time jobs and/or our side hustles. So further calculations are required to determine maximum tax efficiency. And since our tax situations will probably change, we need to remain flexible with our early withdrawal plans

If I decide to incorporate this blog and open a corporate investment account, I’d fully invest the income. Later on, I’d pay myself dividends rather than salaries to avoid dealing with CPP and EI payments. This would also avoid creating RRSP contribution rooms and potentially creating more headaches down the road. Overall, dividends from a corporation appear to be more tax efficient than salaries.

But since the blog income is not a guarantee, I might just leave the blog as a sole proprietor and file everything under personal income for simplicity sake.

Things to work on

We plan to split income equally when we live off our investments. But a 50-50 split may not be possible because Mrs. T is currently not working full time. With that in mind, here are a few things we can work on to try to split income equally in the future:

  1. Continue to maximize both of our TFSAs each year. Mrs. T had contributed $10k less in her TFSA because she didn’t become a Canadian permanent resident until 2011.
  1. After working for 15 years at the company, I have a head start in RRSP compared to Mrs. T. A few years ago, we opened a spousal RRSP and stopped contributing to my self-directed RRSP (I still contribute to my work RRSP though). Right now, my RRSP is about three times the value of Mrs. T’s spousal RRSP. The goal is to have our RRSPs at roughly the same value so we can make withdrawals about the same dollar amount each year. 
  1. Since I’m in a higher tax bracket than Mrs. T, I can loan money to Mrs. T to invest in her taxable account. The prescribed interest rate for spousal loans is 1%. The loan method may allow us to have a roughly equal taxable account portfolio value. 
  1. For my work RRSP, when I can touch my employer’s portion, I may decide to withdraw the full amount over a number of years and loan that money to Mrs. T for her taxable account (need to consult with a tax specialist about this). 

The goal is to split our income in the future to minimize taxes and keep more money in our pocket. As you can see, more tweaks are needed.

Summary – Our Early Withdrawal Strategies

When it comes to our early withdrawal strategies, there are a lot of numbers, factors, and scenarios to consider. Our early withdrawal strategies aren’t 100% firm because we know things can change. We can always change our strategies and plans as we see fit. After all, having plans and strategies is a lot better than having nothing at all. 

Dear readers, do you have any suggestions for our early withdrawal strategies? Did I overlook anything? 

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63 thoughts on “Our early withdrawal strategies – How to keep more money”

  1. Everyone’s situation is different – an approach working well for me….. I am 67 and my wife 64 – I have both a RRIF and RRSPs – gradually moving the RRSP money into the RRIF. I will have withdrawn all money from the RRIF by age 71 with the added bonus of being able to pension split RRIF withdrawals with my wife each year who is in a lower tax bracket. Neither of us will take CPP or OAS until age 71.

    Reply
  2. Hi Bob ,
    I am USA citizen live in USA past few years started in Dividend Stocks / ETFs in cash 10k & ROTH IRA 10k account (no tax of any kind on withdraw) but money must be withdraw only after 5 years .
    I am little confused to select stocks need help there, i do try to find stocks with growth rate 4.75% or higher, vol. 1 millions + Historical Divid. increase 9 ~ 11 % Y/Y.
    Can you please share more detail i should add to search , also it will be nice if you can share your portfolio usa stocks tickers + Canadian which are traded on usa stock exchanges.
    My greatest drawback to find free spread sheet Templets ready to use , am not spread sheet or computer viz to create one, us brokers don’t support such, any help from you or your readers is welcome.

    Thanks
    Kanu

    Reply
  3. Great stuff buddy and thanks for the mention.

    A few things from me!

    1. I get a lot of rap (sometimes) from some why I report my dividend income updates on my site only from taxable and TFSAs. I actually do that for the primary reason that I don’t have to consider the tax consequences of “living off dividends” very much. TFSA = tax-free. Taxable = tax-efficient. While you can “live off dividends” from RRSP account per se, as you know, RRSP is not all your money. It includes a government loan. So, you can’t really “live off dividends” from RRSP for the most part since it’s not all your money.

    2. Most successful retirees I know, take the following approach to withdrawals, in general:

    “NTR” or “NRT”.

    That is, wind down non-registered (N) then TFSA (T) then RRSP (R) in that order. It’s the most tax-efficient sequence for many.

    Depending on your volume of assets, other income streams, etc. “NRT” could work.

    So, while “living off dividends” is great in theory, I plan to do some of that myself, the reality is that it becomes more tax efficient (and you can likely spend more $$$ in retirement!) when you kill off the taxable income stream first.

    3. As you also know, something to consider but didn’t see it called out in your post, you do not have to RIF all RRSP assets. You can decide to turn only some of your RRSP assets into a RRIF. Personally, I might not do any of that and instead, spend/consume all RRSP assets in my 60s and by my early 70s, leaving only my workplace pension + CPP + OAS + TFSAs “until the end”. That seems to be more tax efficient for me.

    As always, personal finance is personal!

    All the best, and thanks very much for the mention. More to come on my site my friend!
    Mark

    Reply
    • Hi Mark,

      Good point about not reporting RRSP dividend income. As you know, we do include RRSP dividend income. 🙂

      Agree that withdrawing from non-registered first is the best approach. Whether to withdrawal from TFSA or RRSP one would have to do some calculation and find out what the most efficient approach is.

      Yes I realized that you do not have to RRIF all RRSP assets. This is something I need to look into a bit more. Unfortunately neither of us have workplace pension. 🙂

      Reply
    • Hi MOA

      This is not about retirees, it is about the most efficient way of drawing down your RRSP before you start collecting a pension.
      We have been FI for the better part of 10 years and am currently drawing down our RRSPs and yes it is ALL OUR money, there is no governemnt loan. We draw out enough every year to pay zero taxes on that money and we also have the dividend tax credits to boot.
      We take advantage of tax loss sells and buy back when the month is past or as need be.
      I have toyed with the idea of starting our RRIFs early, but the disadvantage to doing this, is the fact, that you are now locked in and those funds do need tobe taken every year.
      We have a vast amount of liquidity available to us, which some might not.
      Before we went FI, we decided on a home equity line of credit or HELOC for two reason
      1) it was cheap, use $30,000 for 3 months, pay it back, no setup fees, no admin fees no nothing and
      it is in place for perpetuity
      2) if we need a large amount of funds for what have you, it is there and living in Vancouver it is a sizable amount.
      Personally, we will drawdown our RRSP and even after 10 years, by my calculations, unless the market takes a nosedive as in March 2020, there will still be a sizable amount of funds in our RRSP.
      I for one, do not see us changing our lifestyles just because more funds become available as our children’s needs get smaller.
      We grew up in a generation where if you needed a new baseball glove, ballet slippers or hockey stick, it was usually found under the Christmas tree. We lived well without cellphones and the internet, spent most days after school fishing in the Capilano River till suppertime. I do not begrudge modernization, but I do have a low regard for societies, me me attitude of today.
      See our parents taught us one thing, never talk about money, politics or religion, BE SATISFIED with what you have and our children have learned that also..

      Reply
  4. Excellent post, Bob! Thanks for much for mentioning our episode. Mark did a great job of helping us share the many withdrawal strategies that are out there.

    As evidenced in your post and on our interview with Mark, retirement withdrawals are VERY complex. There’s no one plan or order of operations that will work for everyone.

    In fact, what works one year for a retiree may not work the next year! It’s a constantly-evolving planning process.

    As a client of the incomparable Ed Rempel, it boggles my mind to chat with him to try and understand even a fraction of what he knows.

    Some of the more unconventional withdrawal ideas he’s shared include:

    – NOT melting down RRSPs early (he’d rather leave the money to grow and pay taxes in 20 years than pay them now).

    – Base your CPP withdrawal timing on how you invest (more equities = take CPP early; less equities = delay CPP).

    All I can say is I’m glad we won’t have to do this in our own! Even if a retiree chooses to DIY everything else on their own, getting a pro to help with their withdrawal plan is money will spent.

    However, the first step is to first understand your options and the tactics that are out there. This post is an excellent way to help people do that. Great job laying it out and making it easy to understand!

    Reply
    • Hi Chrissy,

      Yup this topic is very complex and is very personal. Things can also change depending on new regulations.

      Interesting point about not melting down RRSPs early. I guess one needs to do a lot of number crunching to figure out what’s the best approach.

      Reply
  5. I sure am glad that I do not have all your problems about how not to pay tax or try to minimize to the enth degree.
    I make money, file taxes and do not look back.

    Reply
  6. I really don’t like how early withdrawal penalties exist. But alas, they are a necessary evil and it’s been keeping me out of trouble to withdraw as early as I possibly could.

    Good strategies, a writeup on 401(k) and Roth IRA strategies would also be helpful 🙂

    Reply
  7. In order to preserve your cost basis on RRSP dividend stocks, what about an in-kind transfer to your taxable accounts instead of selling and buying the same stocks at a higher price? You would still pay tax on the capital gain and the “in-kind” transfer value of the stocks would get added to your income for that year.

    Reply
    • That’s certainly an option. When you transfer stocks from RRSP to taxable, you are effectively making an withdrawal and must have the withholding tax accordingly.

      Reply
    • Umm… how would an in-kind transfer work if it’s coming from RRSP to non-reg account?

      The entire RRSP amount that is being transferred over will be taxed at the marginal rate. So why would you want to “preserve the cost basis” as it’s fully taxed already??

      Maybe I’m missing something here but I don’t think that an in-kind transfer will allow you to retain the cost basis as that would be akin to double taxation.

      Something to ponder.

      Reply
    • Hi V

      If you do an “in-kind” transfer out of your RRSP, you also have to have funds available to pay the withholdings tax in the RRSP account.
      The only problem you get with doing such a transfer is that the withholdings portion since it also comes from your RRSP will also be taxed. Where this becomes a problem is say
      RRSP in-kind withdrawal of $15k say Royal Bank shares are @$75 and you take 200 shares out
      The withholdings tax which would be $3000 is now also going to come out of the RRSP giving you a total of $18k that was transferred.
      Better to sell shares, transfer out and buy back said shares.

      Reply
  8. “ Before age 65, withdraw from RRSPs early. Withdrawals from RRSPs count as working income, so we want to keep the withdrawal amount to less than $15,000 per person if possible. We’d get hit by a 20% withholding tax but we should be able to recover most of that tax when filing tax returns.”

    If you withdraw from your RRSP in increments of 5000 or less they will not charge a withholding tax.

    So if you want 15k ask for 3 separate withdrawals of 5k. They will look at you with googly eyes, and say things like “you know you will still have to pay tax on that later right?” But it can be done in separate transactions and then you’re not letting the government hold onto your money for potentially 12 months until you get it back at tax time.

    Cheers!

    Reply
      • Check with your broker, some charge $50-$150 per RRSP withdrawal. If you set up a RRIF and transfer to the RRIF first you may be able to avoid these fees. $150 on $5000 is a 3% fee. I wouldn’t be too concerned with tax withholding as it will all work out come tax time.

        Also, another thing to consider is income splitting of RRSP’s at age 65. If you and your spouse have unequal RRSP balances, you don’t have to necessarily contribute more to your spouse’s RRSP pre-retirement, especially if you get a matching amount from your employer. Instead, you can still withdrawal equal amounts pre-65 and even completely drain your wife’s RRSP by 65. After that double up your withdrawals from your RRSP and income split it.

        Reply
      • If you’re making multiple small RRSP withdrawals from the same institution, they can, and may even have to, impose the withholding of tax (CRA have clearly thought of this workaround). Also, if when you file your taxes , you consistently owe more than $3K, CRA will require you to start paying quarterly throughout the tax year i.e. in advance!

        Our process is to withdraw the funds in December and file our taxes ASAP the following year to recover any withheld taxes.

        Reply
  9. Hi Bob
    I really do love this, FIWOOT (Financial Independence Working on Own Term), that is a good one, ROFLOL
    It reminds me of when acronyms started entering day to day living like, YUPPIE;GUPPIE; PUPPIE;SPUPPIE or LUPPIE and all the other terms that people needed to describe themselves because Guppy wasn’t good enough.
    See the concept of FIRE was actually born in Canada when London Life ran the “Freedom 55″ commercial and it was a huge hit. Since then all of you,”Young Urban Professionals With Children or Without”, sorry no acronym for it, have decided that just RETIRING isn’t good enough, you all want to keep working.
    From FIRE, you decided to shorten it to FI, and then Mark decide no, I want to keep on working so I will use the term FIWOOT.
    Funny thing is, we achieved FIRE 10 years ago at 49 and we have not looked back.
    As far as the WOOT, I will leave out the FI, I have always done that, say I because, my wife was a home technician incharge of day to day running of the household. If my job became too mundane, I quit and found somewhere else to work. If the boss was getting to me, I told him that I need a reference and left,on my terms. Started a business and when the kids came along, wife was not impressed with the long hours, no time for holidays or weekends installations, so went back to working for someone.
    Working is working, does not matter how you want to colour it, you can put a cherry on it for all I care.
    FIRE is EXACTLY what it says, Financial Independence Retire Early, RETIRE means no workie, no job or blog to sell items for money or gaining income from abos. It means, you have left and are living off your gains.
    Mr. B, 360k in dividends per year knows that, did exactly that, but all you wannabe FIREs seem to think you need to supplement. Supplements are what you take when you get older and are constipated, not something you attach to FIRE.

    Reply
  10. Also consider that when eligible Canadian dividends are “Grossed Up”, this increases your taxable income and could result in an increased clawback of your OAS.

    Reply
  11. “We’d get hit by a 20% withholding tax but we should be able to recover most of that tax when filing tax returns.”

    Can you please explain how will you recover it? Would not that increase your tax obligations as that is increasing your total income in that year?

    Reply
  12. We are fortunate to have a sizeable DCPP which I will be “forced” to turn into a RRIF and pay full taxes on. Hence the reason to withdraw from RRSPs early.
    If there are no benefits to creating a RRIF with the smaller RRSP balance, we might as well simply withdraw it as we go.
    Retiring at the end of this year and my thought is to do a check each Fall to determine approximately how much taxes we will pay and withdraw an amount from RRSPs to bump us up to just below the next tax bracket.
    Thanks again Bob and Michael for your replies

    Reply
  13. Hi Bob. Insightful article as always. If we plan to spend our RRSP funds in early retirement I’m unsure what benefit there is to setting up a RRIF? What is the drawback of simply cashing the RRSP money?
    Thank you

    Reply
    • The only drawback of simply cashing the RRSP money rather than convert all to RRIF is that you need to watch out for how much money you withdraw and the effective tax rate. A bit more planning basically.

      Reply
    • There’s no benefit other than automated payments, but there’s a minimum amount that you are forced to take out each year.

      So if your RRSP rolled over to RRIF is a small amount, then you should be fine, but if you have accumulated a large RRSP and it rolls over to RRIF, then you could be looking at large tax consequences combined with your other incomes.

      Which is why if you can reduce your RRSP value tax-efficiently before it rolls over to RRIF, then you’ve got more control over how much taxes you pay.

      Reply
      • Good point Michael. I think there are benefits to have a small RRIF. The big problem is when you have a significant RRSP and you’re forced to roll everything over to RRIF and have to make withdrawals each year. Flexibility is important. 🙂

        Making some early RRSP withdrawals during your early retirement might be quite beneficial.

        Reply
  14. Thanks for sharing your thoughts on how to withdraw money, Bob. I’m in the same boat and will probably start spending my RRSP before the traditional retirement date.

    I wonder how flexible a RRIF is. Like if I convert my RRSP to a RRIF at age 40, do I need to withdraw a minimum amount starting at 41?

    This all makes me really glad we have the TFSA and other income options. Retirement planning must have looked different for baby boomers compared to our generation. 🙂

    Reply
  15. Hi Bob
    Interesting read. I have to say that we have not though too deeply on our withdrawal strategy. We are in the accumulation phase, targeting FI by 2024 with a stock portfolio of roughly Swiss franc 1.25 Mio.
    It makes a lot of sense to think of the time after we hit FI, so thanks for sharing your article.
    All the best
    MyFinancialShape

    Reply
      • In general I think it is best to defer paying taxes as long as possible. That is one of the often overlooked benefits of RRSPs. You are putting in before-tax dollars. Whereas TFSAs use after-tax dollars. For the same reason I would not be selling stocks in taxable accounts in order to reset the capital gains. In effect you are paying taxes before it is necessary, reducing your growth.

        You suggest that you will take CPP at 65 but oas at 70. Oas grows at .6% per month for each month of deferral but CPP grows at .7%. Therefore it would be better to delay CPP over oas.

        Finally you seem overly concerned with the min. withdrawal rates from a rrif. The entire purpose of the min. rates is to ensure you do not die
        and leave a large amount still to be withdrawn, which will be taxed heavily. It is there to protect your heirs, not penalize you. In order to collapse your rrsp before age 71, you will likely find you will have to withdraw at a faster rate than prescribed by the min. rrif withdrawal rate. It likely would be better to convert early and withdraw over your entire life at the min. rate, bumping up withdrawals where possible to meet your income requirements for that particular year. Again doing so defers paying taxes as long as possible. Also withdrawals from from RRSPs are subject to withholding tax but min. withdrawals from rrifs are not. This is another nice advantage to converting to a rrif. Again, why prepay taxes when it is not necessary. You are only loaning the government money early and then asking for it back when you file your return.

        Reply
        • Your advice seems to be conflicting. Initially, you recommend deferring paying taxes as long as possible. Later on, you recommend early withdrawal of the RRSP. Wouldn’t only taking minimum RRIF withdrawals be deferring paying taxes as long as possible?

          Reply
  16. Thanks for another insightful article Bob!

    After reading your interview with Mr B, i plan to follow the same path of getting rid of our RRSPs earlier. There are too many moving parts and it is quite complex to understand what exactly my CPP, OAS and Pension would look like though.

    Reply
  17. If you convert your RRSP early to RIF you don’t pay withholding taxes on the min withdrawal rate (99% sure, but I am not an accountant); only pay withholding tax on the money over the min. Plus you don’t get dinged with admin fees from your brokerage. Plus you want to make sure you claim the pension tax credit at age 65 to 71 (2k a piece).
    Handy website that shows rates pre age 65.

    https://www.laurentianbank.ca/en/personal_banking_services/my_futur/registered_retirement_income_fund.html

    If you have no income from 65 to 71 you can claim GIS (live off of your TFSA) for those years and make no extra money.

    Reply
      • You don’t have to convert it all. You can convert some of your RRSP to a RIF. Better to take it out during the lowest tax years. The min withdrawal rate at your age is extremely low.
        Plus you don’t have to take any out the year you start your RIF, it is the following tax year. Also you can use your age or your spouse’s whomever is younger for the formula.

        Reply
  18. Good call on drawing down your RRSP before your start collecting OAS (and / or CPP).

    Our goal is similar to that of yours: make sure that the RRSP balance is $0 before we start collecting on CPP and OAS.

    Thanks for sharing that link; it was super helpful in figuring out how much we need to contribute in order to hit our milestone.

    Reply
  19. Hi,

    Good read on drawdown principles, have you gave any consideration to taking CPP at age 60, although the CPP is reduced in payment compared to say 65 or of course 70, by taking CPP “early” there will be 5 less “0 years” added to the calculation with the drop out rule, thereby increasing the monthly amount at age 60 compared to age 65 from that part of the calculation at least.

    Reply

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