Feds should eliminate mandatory minimum annual RRIF withdrawals: C.D. Howe Institute report | Page 4 | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Feds should eliminate mandatory minimum annual RRIF withdrawals: C.D. Howe Institute report
April 26, 2023
5:47 am
cgouimet
Member
Members
Forum Posts: 1448
Member Since:
February 7, 2019
sp_UserOfflineSmall Offline

mordko said

And you want the government to tell you what to do and when every step of the way. Smart people in Ottawa know better. That makes sense.  

I knew the LIRA/LIF and RSP/RIF rules going in and I'm living by them. If you didn't like the rules going in, you should have stayed out. If you didn't know the rules going in, there is only you to blame for that ...

CGO
April 26, 2023
6:13 am
Bill
Member
Members
Forum Posts: 3890
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

What's wrong with "personal choice"? You're right, I can't rebut an argument that it's really all about my personal choice.

So if we change the system and give the option to tax it all at time of death, how do Canadian taxpayers make up the revenue shortfalls over the next 25 years or so until the next generation pays the taxes on these assets?

April 26, 2023
6:18 am
mordko
Member
Members
Forum Posts: 690
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

Government’s cash flow impact might be insignificant. Particularly if OAS is means tested across owned assets (which would make sense anyway) so there is no incentive to not withdraw. And its not like budgets are designed to be balanced or even pretend to try that so its a moot point.

April 26, 2023
6:26 am
cgouimet
Member
Members
Forum Posts: 1448
Member Since:
February 7, 2019
sp_UserOfflineSmall Offline

Bill said
What's wrong with "personal choice"? You're right, I can't rebut an argument that it's really all about my personal choice.

So if we change the system and give the option to tax it all at time of death, how do Canadian taxpayers make up the revenue shortfalls over the next 25 years or so until the next generation pays the taxes on these assets?  

In addition to everything else we're leaving the next generation ...

CGO
April 26, 2023
6:28 am
savemoresaveoften
Member
Members
Forum Posts: 2748
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Bill said
What's wrong with "personal choice"? You're right, I can't rebut an argument that it's really all about my personal choice.

So if we change the system and give the option to tax it all at time of death, how do Canadian taxpayers make up the revenue shortfalls over the next 25 years or so until the next generation pays the taxes on these assets?  

  

Only if u believe the taxation at withdrawal of registered account is a significant revenue source, which I highly doubt (I would love to be proven wrong if there is data to support it.)
If that is the case, and to effectively avoid "not waiting", then the tax system should be taxed at a lower rate upfront and eliminate any registered account tax savings. If unwilling to waiting another 25 years, should not wait the first 50 years either (assume one starts working at 21 and retire at 65, with mandatory withdrawal at 71)

April 26, 2023
6:29 am
mordko
Member
Members
Forum Posts: 690
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

cgouimet said

I knew the LIRA/LIF and RSP/RIF rules going in and I'm living by them. If you didn't like the rules going in, you should have stayed out. If you didn't know the rules going in, there is only you to blame for that ...  

You are confusing this with a contract. If our Tax Act were a contract, then taxes wouldn’t be changing every single year. “Because you knew what the gas tax was when you bought a car”, etc.

This is an issue of policy and whether voters want someone in Ottawa to micromanage, remove agency from individuals and disincentivize personal responsibility for own well being. And voters probably do want that.

April 26, 2023
6:41 am
cgouimet
Member
Members
Forum Posts: 1448
Member Since:
February 7, 2019
sp_UserOfflineSmall Offline

mordko said

You are confusing this with a contract. If our Tax Act were a contract, then taxes wouldn’t be changing every single year. “Because you knew what the gas tax was when you bought a car”, etc.

This is an issue of policy and whether voters want someone in Ottawa to micromanage, remove agency from individuals and disincentivize personal responsibility for own well being. And voters probably do want that.  

LOL. Enjoy the rest of your life ...

CGO
April 26, 2023
7:55 am
pwm
Headingley MB
Member
Members
Forum Posts: 98
Member Since:
October 21, 2018
sp_UserOfflineSmall Offline

That C.D. Howe article is the stupidest I've seen from them. There is no reason to alter the existing rules regarding RRIF withdrawals. RRSPs were meant to be a personal pension plan through buying an annuity in retirement. RRIFs were invented to add some flexibility. Anyone who entered into this plan understood the rules going in. The current withdrawal rates are perfectly reasonable. I've been winding down my RRIFs at an aggressive rate to be able to close them in 6 more years at age 79. My MTR on RRIF income is 46%, and my wife's is 49%. Funny that her rate is higher than mine even though she is in the 2'nd tax bracket and I'm in the 3'rd. The reason for that is my OAS is completely eliminated, but she still gets some and is subject to the 15% social benefit repayment.

I cannot understand why anyone would NOT want to wind down their RRIFs before death. Why would anyone want to leave a huge tax burden for their estate? I consider RRIF wind-downs to just be part of responsible estate planning that a thoughtful person would do, just like wills, POAs and funeral planning.

April 26, 2023
9:10 am
mordko
Member
Members
Forum Posts: 690
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

pwm said
That C.D. Howe article is the stupidest…

I cannot understand why anyone would NOT want to wind down their RRIFs before death. Why would anyone want to leave a huge tax burden for their estate? I consider RRIF wind-downs to just be part of responsible estate planning that a thoughtful person would do, just like wills, POAs and funeral planning.  

Because circumstances vary and other peoples tax planning does not have to be exactly the same as yours. And if someone wants to pick an inefficient strategy, its ok too.

April 26, 2023
10:22 am
Bill
Member
Members
Forum Posts: 3890
Member Since:
September 11, 2013
sp_UserOfflineSmall Offline

pwm, I get the impression that some folks don't want RRIF income if it impacts their GIS or other senior benefits/deductions/credits, i.e. I want to maximize my take from taxpayers and save my own money as much as possible.

So maybe we could eliminate mandatory RRIF withdrawals if we somehow take into account the size of one's RRSPs or RRIFs in determining the eligibility for GIS, etc.

April 26, 2023
10:32 am
savemoresaveoften
Member
Members
Forum Posts: 2748
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

Bill said
pwm, I get the impression that some folks don't want RRIF income if it impacts their GIS or other senior benefits/deductions/credits, i.e. I want to maximize my take from taxpayers and save my own money as much as possible.
 

In my case I dont see why I should be forced to withdraw at a certain age if I dont need the money. I have complete freedom in how I manage my finances and investments, what makes it so special that the govt needs to dictate part of it at age 71. If I am stupid enough to leave it all at the end and get massively taxed as a lump sum, its my decision too.

I wont qualify for GIS, or any senior credits etc. I will be even lucky if OAS is not clawed back completely.

I am purely against the mandatory withdrawal as it simply does not make much sense. Most dont think it matters cuz whether its mandatory or not, the average public will indeed draw it down due to financial needs anyway. That does not make it a proper policy tho.

But I do agree GIS and other "low income type" senior subsidy should be based on total assets, not just income. If anything THAT group does milk the rest of the taxpayers shamelessly.

April 26, 2023
10:39 am
cgouimet
Member
Members
Forum Posts: 1448
Member Since:
February 7, 2019
sp_UserOfflineSmall Offline

Bill said
pwm, I get the impression that some folks don't want RRIF income if it impacts their GIS or other senior benefits/deductions/credits, i.e. I want to maximize my take from taxpayers and save my own money as much as possible.

So maybe we could eliminate mandatory RRIF withdrawals if we somehow take into account the size of one's RRSPs or RRIFs in determining the eligibility for GIS, etc.  

Need the funds for the Escalade fuel...

CGO
April 26, 2023
10:50 am
Norman1
Member
Members
Forum Posts: 6679
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Alexandre said

My parents contributed to RRSP at their time. Currently, they are doing just fine on combination of CPP+OAS+GIS and do not need extra money. They are forced by RRIF rules to make minimum withdrawal which, in turn, reduces their GIS.
That RRIF withdrawal generates what in fact is extra income tax for them.

I would not call people who are eligible for GIS "wealthy."

Yes, they are wealthy if they are living in a major city with a low income that qualifies them for GIS.

GIS cuts out for a single person around $20,000/year. A person can't do fine on a $20,000/year income in many cities, with rent over $1,500/month. Such a person would be drawing on money that isn't taxable income.

GIS and OAS are income tested, not means tested. One can have a $20 million nest egg in a holding company and still collect GIS.

Just declare oneself a $500,000 dividend from the holding company every five years instead of $100,000 dividend every year. One will lose GIS and OAS just once every five years. The other four years, one would have little income and qualify for OAS and GIS. Meanwhile, an extra $100,000 each year will be available from the last $500,000 dividend.

April 26, 2023
11:07 am
Loonie
Member
Members
Forum Posts: 9214
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

The argument that the gov't has arranged things so that it will get the taxes from RIF/RSPs in a timely manner doesn't make much sense to me.
It can take up to 50 years for govt to start getting money back from deferred tax if contributor starts at 22 yrs. If contributor lives to age 100 and only makes mandatory withdrawals, gov't will be waiting up to 78 yrs to get it all. This can be massaged further by marrying a younger spouse and/or converting to an RIF life annuity.

This is well beyond the budgeting process of any gov't.
Alternatively, one might die at 50, unmarried, and the gov't takes about half of it, early.

I suspect it all averages out,
particularly with the windfalls from people who dutifully only withdrew the mandatory amount and, often without realizing it and to the dismay of their heirs, left behind a good profit for gov't coffers.

A more reasonable interpretation would be that RSPs were invented simply to ensure a better self-generated retirement income for more people, thus reducing dependency on GIS and other taxpayer-funded benefits.

April 26, 2023
12:05 pm
pwm
Headingley MB
Member
Members
Forum Posts: 98
Member Since:
October 21, 2018
sp_UserOfflineSmall Offline

pwm, I get the impression that some folks don't want RRIF income if it impacts their GIS or other senior benefits/deductions/credits, i.e. I want to maximize my take from taxpayers and save my own money as much as possible.

Thanks Bill. Now I understand. They want to maximize their government handouts without paying the taxes they owe. They are entitled to their entitlements. Got it.

Those same benefits that I don't get, but I pay for in my taxes, like OAS, GIS, GST refund, Ontario Trillium Benefit, age exemption etc.

April 26, 2023
1:39 pm
RetirEd
Member
Members
Forum Posts: 976
Member Since:
November 18, 2017
sp_UserOfflineSmall Offline

Wow! If nothing else, this thread's flood of posts demonstrates that Canadians are pretty much at sea with respect to Registered Plan rules.

Keep in mind that RRSPs were designed to provide benefits similar to those already had by those with company pension plans. Note how there are tax advantages to those, and how company plans reduce RRSP eligibility as they are intended to serve a similar purpose.

Another intention was to encourage saving as opposed to constantly inflating the housing market with the capital gains exemption on principal homes. I still think the capital gains exemption on principal homes is an inexcusable gift to the wealthy. And yes, many homeowners are house-poor but they are more than compensated by the massive capital gains AND tax break! Both savers and home investors are foregoing the spending of their money on life to have more cash later.

When I was young, I dutifully bought RRSPs to the max every year, and got almost no tax break because I earned so little. I expected to have low taxation on retirement but nobody was talking about losing government benefits back then. I paid much higher tax rates when I needed money at the end of years when I'd earned a lot of money early in the year.

The TFSA was a welcome opportunity to grow money without tax complications or real-estate risks. In the end, I estimated I lost about $300 overall because of my use of RRSPs. I still have about $2500 in one maturing this year, when I reach 70. I have been as unable to make sense of my best path forward as this thread has. I plan to visit as many financial institutions and community resources on the matter as I can over this summer.

Anyone have any suggestions for community advice resources to contact? Old folks' groups, tax helpers, government documents or the like?
RetirEd

RetirEd

April 26, 2023
3:21 pm
AltaRed
BC Interior
Member
Members
Forum Posts: 2786
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

RetirEd said
When I was young, I dutifully bought RRSPs to the max every year, and got almost no tax break because I earned so little. I expected to have low taxation on retirement but nobody was talking about losing government benefits back then. I paid much higher tax rates when I needed money at the end of years when I'd earned a lot of money early in the year.

As did many folk. It was designed for the middle income masses who will struggle to fill RRSP contribution room over the years and have spent so much money as consumers during their consumption years that all they have at retirement IS their RRSP. At the level of the average middle income earner, none of them are at risk of losing income tested clawbacks on OAS or possibly even the Age Credit.

There is at least some messaging now about still making RRSP contributions while young and at low(er) income BUT to defer taking the actual tax deductions until they are at least in the 2nd tax bracket. This is all in the attempt to help ensure the withdrawal tax rate is lower, or no more than, contribution tax credit rate during contribution years.

April 26, 2023
5:20 pm
Loonie
Member
Members
Forum Posts: 9214
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

I think most of us didn't think hard enough back when RSPs were new and innovative.

My advice now, to people who can control their spending habits, is to avoid them, although they probably still serve a function for some middle income people who can't save otherwise. As I've probably said before, they only work well for a limited number of people in a specific income range, and nobody knows in advance whether they will be in that range. For the low income group and those who will get OAS clawback as a result, they're not worth it. Loss or reduction in age credit can also be an issue, but is compounded by the OAS clawback.
When I realized RSPs were not good for me, I stopped contributing.
We are on track to have our RIFs completely liquidated by 2027 or 2028 - if we are still living at that point. I will be very relieved to be done with them!

April 26, 2023
6:44 pm
mordko
Member
Members
Forum Posts: 690
Member Since:
April 27, 2017
sp_UserOfflineSmall Offline

The fact people without workplace pensions are saying “rrsp is a bad idea because I will be subject to OAS clawback” talks to perverse incentives and the need to make RRSPs more attractive while eliminating OAS for most people.

Still, even today my suspicion is that telling people to avoid RRSPs = bad advice.

April 26, 2023
10:06 pm
Loonie
Member
Members
Forum Posts: 9214
Member Since:
October 21, 2013
sp_UserOfflineSmall Offline

"Most people" rely on OAS as an essential brick in their retirement income planning because most people have very modest incomes in retirement.
Median income for those over 65 was just over $32,000 in 2020. Without OAS, there would be more pressure on other social programmes to fill the gap to a livable income.

If OAS were to be significantly reformed, eligibility would have to be related to wealth or assets, not just income. This would impede the various methods used by people with significant assets to minimize "income" and thus avoid taxes and clawbacks. However, from what I've seen, no government or political party is willing to do this, so we are limited to tweaking the clawback.

https://www.statista.com/statistics/485572/median-income-of-seniors-in-canada-by-age-group/

No permission to create posts

Please write your comments in the forum.