Cashing out RRSP | Page 3 | RRSPs and RRIFs | Discussion forum

mordko said

Good question. It might not be the optimal strategy for maximizing lifetime spending but people seem to be driven by a) maximizing use of government benefits and b) keeping accounts full for as long as possible, aka until death.

I don’t agree with this approach. Maximizing OAS… I can see the arguments for and against. Maximizing benefits meant for the poor just because the system has loopholes seems wrong.  

Totally agree with it. Structuring one's asset / income mix just to try to max government handout is just wrong no matter how one tries to justify it. Lots of financial advisors seem to justify their fee by juggling to help a client max govt benefit tho. Loophole or not, it's just morally wrong in my mind.

CAD said
But then you are pushing your luck to lose all RRSP in case you leave early...

As long as I have enough money to cover my living expenses, I don't care what happens with unused funds after I am dead.

Here is an example to help understand my way of thinking.

Suppose, you need $5,000/month to live in retirement, modestly but comfortably. Suppose, some NGO promises to pay you that amount monthly till you die. It is ironclad promise. Suppose, for the sake of example, they do keep their promise and also there is no inflation (to keep math simple).
Finally, suppose you are 70 years old.

With simple math you could figure that this NGO must put aside $3M to fulfill their promise to you. Oldest living person in the world is just under 120 years old, so NGO must have enough funds to pay you for 50 years and that makes exactly $3M.

Now, the question. If you die before hitting 120, will you:

A) Regret that some of $3M left unspent on you and went elsewhere?
or
B) Would not care as long as your needs were met with $5,000/mo payouts while you were living?

My answer is B. My plan for myself is based on that. YMMV.

HermanH said
You sound like the ideal annuity customer.  

True.

IF we were living in a world where one could find an ironclad annuity that will last for the next 60 years. A world with zero inflation. A world were I would not have unexpected out of ordinary expenses till end of my life.
A world where till my last days I would never change my mind on how I want to spend my money or what monthly spend is good enough for me.

If this were that world, I'll give all my money and assets in exchange for an annuity.

We are not living in that world, and my plans are not set in stone.

Structuring one's asset / income mix just to try to max government handout is just wrong no matter how one tries to justify it ... Loophole or not, it's just morally wrong in my mind.  

I told myself I should let it slide, but when I hear that point of view from multiple people who do enjoy (different) preferential financial treatment from the government and believe they deserve it, it does rub me the wrong way.

I can't speak of behalf of everyone else, but here is me: salaried employee at corporate entities (not government) all my life.
I was managing the team responsible for supporting what is called critical infrastructure. The expectation employer has from employee for that job is 24/7 availability, because when piece of critical infrastructure goes down it is all hands on deck.
I was paid really well and company treated me well. I have no complains about what my job demanded from me (everything was spelled in job description), about companies I worked at and about my salary.

So, I take my annual salary I estimate I would be making today, and plug it to Canada tax calculator.
Then, I take that same income and plug it to corporate gains calculator, as if I just sold crypto coins or shares, have to declare profit and it is the same as my salary.

The difference in taxes I would be paying, for one year, is about same I'll be getting in all years of my GIS payments, combined.

Which means, I am really getting back not more than 4% of difference between taxes I paid over my life and what some person pays who pushed "Sell" button (may be) once a year and has rest of their life for themself.

I find that morally wrong: the government through tax system saying some so-called "crypto investor" is more valuable to society than people running critical infrastructure, than people who collect garbage or deliver mail, or steelworkers, or bus drivers, or anyone else doing something that truly benefits society.

Same, in my opinion, goes for people trading stocks, claiming income at very low corporate gain tax plus exemptions plus loss deductions.
Enjoy your lower taxes, but no matter how you justify them I don't agree with this preferential treatment for that type of income.
I still want to stay friends with smart folks frequenting this forum, but please don't take high moral ground if your income was taxed way less than mine and now I can get back a tiny extra portion of my taxes from the government coffers I diligently filled all my employment years.

Alexandre said

Structuring one's asset / income mix just to try to max government handout is just wrong no matter how one tries to justify it ... Loophole or not, it's just morally wrong in my mind.  

I told myself I should let it slide, but when I hear that point of view from multiple people who do enjoy (different) preferential financial treatment from the government and believe they deserve it, it does rub me the wrong way.

I can't speak of behalf of everyone else, but here is me: salaried employee at corporate entities (not government) all my life.
I was managing the team responsible for supporting what is called critical infrastructure. The expectation employer has from employee for that job is 24/7 availability, because when piece of critical infrastructure goes down it is all hands on deck.
I was paid really well and company treated me well. I have no complains about what my job demanded from me (everything was spelled in job description), about companies I worked at and about my salary.

So, I take my annual salary I estimate I would be making today, and plug it to Canada tax calculator.
Then, I take that same income and plug it to corporate gains calculator, as if I just sold crypto coins or shares, have to declare profit and it is the same as my salary.

The difference in taxes I would be paying, for one year, is about same I'll be getting in all years of my GIS payments, combined.

Which means, I am really getting back not more than 4% of difference between taxes I paid over my life and what some person pays who pushed "Sell" button (may be) once a year and has rest of their life for themself.

I find that morally wrong: the government through tax system saying some so-called "crypto investor" is more valuable to society than people running critical infrastructure, than people who collect garbage or deliver mail, or steelworkers, or bus drivers, or anyone else doing something that truly benefits society.

Same, in my opinion, goes for people trading stocks, claiming income at very low corporate gain tax plus exemptions plus loss deductions.
Enjoy your lower taxes, but no matter how you justify them I don't agree with this preferential treatment for that type of income.
I still want to stay friends with smart folks frequenting this forum, but please don't take high moral ground if your income was taxed way less than mine and now I can get back a tiny extra portion of my taxes from the government coffers I diligently filled all my employment years.  

To me the logic does not work. Extending the same logic and comparing everything to crypto traders, one could justify anything, all the way up to and including stealing.

If the beef is not specifically with crypto but generally with taxes on employees’s salaries vs investment taxation then you are comparing apples and oranges. Lots of issues there, starting with the fact that one needs to earn in employment before investing so the money is already taxed, corporations also pay tax which is effectively a tax on investment, properly accounting for cost of inflation when considering capital gains and practicality of employees having jobs being dependent on ability to attract investments.

Bottom line: ones approach to claiming benefits should be considered on its own merit and the fact that something completely different seems unfair is irrelevant.

Don’t get me wrong, there are logical arguments for maximizing benefits claims out there. For example Ayn Rand was ideologically opposed to governments providing benefits to the poor but once the system was in place her approach was to maximize how much she could claim just to prove how stupid the system was.

I don't have issue with someone risking their capital getting a preferential tax treatment, as that is similar to all the tax break a small business can enjoy that a salaried person can not.
However for a welfare that is collected based entirely on age (aka OAS), it should NOT be income test at all. Every senior should enjoy and those who has a higher income will give "more back" via income tax anyway. GIS with a low income threshold and becomes $0 once income hits $20k, I am ok with.
I know as a fact quite a few stories when immigrants who are asset rich (multi million dollar homes, fancy cars) are collecting welfare, just cuz they declare low/no income. That is wrong to the max.

CAD said

So what from they are living then? Black market? Hard drugs distribution? 'Cash deals only'? Any other criminal activity?
There is no way to collect welfare as recipient has to show where they live, how much they pay for a living and provide a list of all assets they have and $ in the bank.  

You could have a couple of mil in a bank account in Canada, declared Canadian income of under 20K, live in a 5M house and legally claim GIS as long as you are over 65 and claiming OAS. As described above.

HermanH said

Alexandre said

If this were that world, I'll give all my money and assets in exchange for an annuity.

Well, if you decide to go with an annuity to get your $5000/mo, you would need about $810K

$617.34 * 8.099 = $5000/mo
8.099 * 100K = $809900

https://www.cannex.com/public/antc03e.html

  

60K a year on 810K, that is a 7.4% return. Is this variable or a guaranteed return for life?

mordko said
You could have a couple of mil in a bank account in Canada, declared Canadian income of under 20K, live in a 5M house and legally claim GIS as long as you are over 65 and claiming OAS. As described above.  

Some hardcore lefties are pushing for a "wealth tax". They think it is fair to tax your employment income at 53% and then tax the 47% that is left after the income tax as a "wealth" tax.

zgic said

60K a year on 810K, that is a 7.4% return. Is this variable or a guaranteed return for life?

That is a guaranteed monthly payout for life or, for that quote, 10 years, whichever is longer.

As mordko said, it is not a 7.4% annual return. Estate doesn't get the $809,900 back at the end.

Rate of return depends on how long one lives. We did some return calculations previously. Rate of return is decent if the annuitant lives to age 100. Not so much if the annuitant lives to average age expectancy, around the middle age 80's.