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Strategies for Decumulating in Retirement
May 20, 2022
5:28 am
bhuc
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Strategies for Decumulating in Retirement
My thinking is if I knew my best before date this would be a simple exercise but alas it is not !

My motivation is to pay the taxman the least as I start my retirement.
My current thoughts are to keep my net income to below the starting OAS clawback amount thus maximizing the OAS income.

But doing this will reduce my RSP/RIF withdrawal income to near zero and maybe leaving the taxman near 50% of my sheltered assets.

Dividend income unlikely to change much going forward and CPP and OAS incomes are fairly static.

Bank and GIC interest are the only variables to work with.
As I see it, the question is, do I chase interest rates to reduce the effect of inflation on my cash, or not, which may increase the amount to pull out of my RSP's ?

Or should I let my net income rise to the next tax tier of $150,000 and pay the taxman dearly and have my RSP's wound down in 10 Years ?

At best I'm indecisive about the best course of action !

May 20, 2022
7:02 am
2of3aintbad
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What is your age and your spouse's age, if you have one?

May 20, 2022
8:20 am
AltaRed
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The OP may wish to consider the Retirement sections of a few other forums that are broader in content, focus and context for retirement planning and decumulation strategies. Especially if the OP has an investment portfolio including equities and bonds.

https://www.financialwisdomforum.org/ and the finiki associated with FWF.

https://www.canadianmoneyforum.com/forums/

May 20, 2022
9:17 am
Loonie
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Not an easy question.
Yes, your ages are important for this.
Have you already applied for, or are you already receiving, OAS ad CPP? Also, if you have a spouse, do you do CPP pension sharing or is it worthwhile for you to do so?
And, again, if you have a spouse, are your incomes about the same or is there a discrepancy? If a discrepancy, how big is it (percentage)?
do you have enough income, without RSP/RIFs, to support the lifestyle you want?
Is it important to you to maximize your estate value?

In my opinion, the answers to these questions affect how bet to proceed.

May 20, 2022
10:45 am
bhuc
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The OP may wish to consider the Retirement sections of a few other forums that are broader in content, focus and context for retirement planning and decumulation strategies. Especially if the OP has an investment portfolio including equities and bonds.

https://www.financialwisdomforum.org/ and the finiki associated with FWF.

https://www.canadianmoneyforum.com/forums/

thanks AltaRed for the links I will check them out
It's clear now, there are many other factors to consider .

May 20, 2022
11:11 am
turquoise
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bhuc said
My current thoughts are to keep my net income to below the starting OAS clawback amount thus maximizing the OAS income. But doing this will reduce my RSP/RIF withdrawal income to near zero and maybe leaving the taxman near 50% of my sheltered assets.  

Hi there -- yes, the part bolded above is a big deal. You may even want to talk to someone about the potential benefits of making a significant RSP withdrawal before you roll over into an RRIF and have to deal with mandatory withdrawals. Those can be irritating.

May 20, 2022
11:35 am
Norman1
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Have a look at the latest edition of the book Retirement Income for Life: Getting more without saving more. It is written by Fred Vettese, a former chief actuary of Morneau Shepell.

The book explores decumulation strategies. The best strategy is not the most intuitive one: Draw down one's own savings first to defer CPP. Deferred CPP will be higher, be guaranteed for life, be indexed, and make up a higher portion of one's retirement income.

May 20, 2022
12:09 pm
savemoresaveoften
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Norman1 said
Have a look at the latest edition of the book Retirement Income for Life: Getting more without saving more. It is written by Fred Vettese, a former chief actuary of Morneau Shepell.

The book explores decumulation strategies. The best strategy is not the most intuitive one: Draw down one's own savings first to defer CPP. Deferred CPP will be higher, be guaranteed for life, be indexed, and make up a higher portion of one's retirement income.  

That wont work for someone who has significant RRSP and also a meaningful non-registered asset. Taxman will get you one way or the other IF you are rich enuf.

May 20, 2022
12:51 pm
AltaRed
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savemoresaveoften said

That wont work for someone who has significant RRSP and also a meaningful non-registered asset. Taxman will get you one way or the other IF you are rich enuf.  

Actually it does work. There will always be lots of taxes to pay with large portfolios in decumulation but the challenge is to mitigate taxation to the degree that is practical. Fred Vettese comes highly recommended.

May 20, 2022
2:02 pm
savemoresaveoften
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AltaRed said

Actually it does work. There will always be lots of taxes to pay with large portfolios in decumulation but the challenge is to mitigate taxation to the degree that is practical. Fred Vettese comes highly recommended.  

Lets say one is lucky enuf to have 1MM+ in RRSP, and non registered investable asset 2-3 times that.
In other words, the portfolio is generating enuf annual income that no draw down of principal is required (for cash flow purpose, not tax reason) for the foreseeable future.
I dont see any effective strategy that can be employed to "minimize" tax esp when RRIF withdrawal starts kicking in, and OAS and CPP income stream comes online too (can delay but not indefinitely).

May 20, 2022
2:42 pm
AltaRed
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Convert at least some of RRSP to RRIF before age 70. If it is RRIF withdrawal, it qualifies for a $2000 pension income credit starting age 65. Depending on spouse, also do pension income splitting. It especially makes a difference if one keep more income in lower MTR brackets as well, lower or eliminate OAS clawback, etc.

May 20, 2022
3:30 pm
Loonie
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I also recommend Vettee's book. As Norman said, be sure to get the second edition as there are significant updates. (I've read both.)

It's true that he is primarily addressing people of middle incomes - those who are at risk of potentially running out of money but who don't realize it yet or don't know what to do about it.

I can recommend additional books if anyone wants to know more.

May 20, 2022
3:47 pm
Loonie
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savemoresaveoften said

Lets say one is lucky enuf to have 1MM+ in RRSP, and non registered investable asset 2-3 times that.
In other words, the portfolio is generating enuf annual income that no draw down of principal is required (for cash flow purpose, not tax reason) for the foreseeable future.
I dont see any effective strategy that can be employed to "minimize" tax esp when RRIF withdrawal starts kicking in, and OAS and CPP income stream comes online too (can delay but not indefinitely).  

It depends on what the income works out to be and whether there are two of you sharing these assets. There are circumstances where you might be better off to cash in all or a significant amount of RSP/RIF, annually or even in one year. This sort of thing really requires more detailed calculations.

I recommend reading Daryl Diamond's book on retirement income planning for this, bearing in mind that it is dated in parts. It may well be worth your while to hire someone who specializes in retirement income planning to work it out for you. It can get complicated.

May 20, 2022
7:20 pm
AltaRed
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May 21, 2022
9:42 am
dougjp
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I saw the subject, and came to suggest not buying backup things/two of things for the house, and also where to get rid of the clutter of unused things in the basement!

Seriously though, there is one way so far unmentioned to decumulate, which can also help lower taxes. Gifting, give money with no (formal) strings attached to future beneficiaries or whoever, which is tax free. They get to use it earlier. Reducing cash by giving it as gifts leads to lower investment interest income, meaning increased RRSP/RRIF withdrawals are possible to stay below OAS clawback for example.

The obvious assumption I'm making is there is too much money for you to likely be spent in future.

Why is 'abbreviation' such a long word?

May 21, 2022
11:04 am
Loonie
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Excellent idea, dougjp. Similarly, you can contribute to grandchildren's RESPs, donate to charity, set up a charitable remainder annuity, endow a professorship, lectureship or scholarship in your name, set up a foundation, etc.
Some will object for various reasons, but the real question in the end is, what do you have all this money for anyway if you are not going to use it?

You can also set up small foundation through some Community Foundations. You can donate a larger amount when it would be advantageous tax-wise and award gifts from it annually.

It's what most of the super-rich do, and you can downscale it according to your situation.

May 21, 2022
7:27 pm
RetirEd
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dougjp: There is - or at least was not long ago - a $10K limit on non-taxable gifts per person per year.

But you can employ people with low incomes and pay them if it doesn't make them too taxable, or not at all. Then the gift may become a deductible expense for you in some circumstances. (If you have a business, for example)

Lots of folks hire their kids for their small business. If they pay for work-related courses for the kids, who are their employees, it's a legitimate deduction. Accounting, computer skills, certification for some jobs...
RetirEd

May 21, 2022
7:33 pm
AltaRed
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There are no monetary limits on gifting (spouse and minor children excluded of course). Family gifting is good and so is 'in kind' gifting to foundations, endowments, etc. It is especially attractive to gift highly appreciated stock as one escapes the cap gain and gets tax credit for the full FMV.

May 22, 2022
4:58 am
savemoresaveoften
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RetirEd said
dougjp: There is - or at least was not long ago - a $10K limit on non-taxable gifts per person per year.
RetirEd  

Is that still doable ? My daughter will thank you 🙂

May 22, 2022
5:23 am
Alexandre
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If you want to give your children a lump sum of money as a gift, it’s completely tax free. In other words, you don’t have to pay taxes on gifted money, no matter who you receive it from. This is true regardless of whether the giver and the receiver are related or not.

How Much of a Cash Gift is Tax Free in Canada?

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