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Excel - principal plus interest minus mandatory RRIF withdrawal calculation
August 1, 2014
8:17 pm
kanaka
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I am looking for an easy out as likely someone here has or knows where to obtain a simple Excel program that will allow you to enter principal plus compounding interest minus mandatory RRIF annual withdrawal. I do have the calculation for compound interest and it works perfect. Here is what I am up to. I am 65 and don't need to do RRIF withdrawals. So I plan to put money into RRSP GIC at Oaken for a 5 yr term and that will take me to 70. The amounts plus interest will not exceed 100000. Then renew for another 5 but as a RRIF and want to see what my gain is after mandatory withdrawal.
Any one have a excel solution?

Any suggestions .... Maybe only 95000 and not 100000?

I know where to find the minimum withdrawal percentages but do not know the rules of when the mandatory withdrawal is done....assume it is at anniversary of deposit??

August 1, 2014
8:35 pm
Loonie
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I can't help you with the mysteries of Excel.
You can set the withdrawal date for whenever you like, in my experience, but it might be to your advantage to set it for the anniversary date if that gets you better return. It depends on the policy of the financial institution as to how they treat the interest on the portion subject to mandatory withdrawal.
No harm in planning ahead, but there is always the possibility that the rules could change between now and then.

August 2, 2014
11:08 am
kanaka
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Thanks Loomie

Just wondering. If you buy a 5 year GIC to obtain the highest rate but you ask for the interest to be paid out annually....have you not just bought 5 one year terms in succession? And you just lost compounding?

If that is the case then the RRIF would be same but more would be paid out annually than the accumulated interest for the year.

If that is the case....can any one confirm?

August 2, 2014
4:45 pm
Loonie
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In a sense, what you are saying is true, I think, kanaka, because in the current environment the mandatory withdrawal at age 70+ will always be higher than the interest earned annually.
However, I think the issue then becomes, what do you do with the money that you have withdrawn? If you need it for expenses, then of course it is gone. If not, you can reinvest it in non-registered allocation or move it to tax-free savings and perhaps not miss a beat with your compounding. Given that you would likely get a lower rate of interest in a series of 1 yr investments, you're probably still better off with the longer term, even though it goes in one hand and out the other - that is, unless interest rates go up over the next few years. I'm not betting on it. The pundits keep saying "next year", but they've been saying that for a few years now. I honestly don't think "the economy" can afford higher rates, even though I'd like to be receiving them. With the price of houses in the big cities in this country, you could cause economic collapse by raising the rates a couple of per cent, just through the effect on mortgages alone, which would almost double many people's interest payments on their loans! This would especially affect homeowners in the early years of their mortgages when the interest is the biggest chunk of the payment. I doubt any central banker wants to take that risk. But I digress.

August 2, 2014
5:11 pm
kanaka
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Unless I get a buyout of insurance or benefits from my pension, I take out 12500 to 15000 x 2 per year. It keeps us in our lowest tax bracket. Lets face it.....it will be taxed no matter what, so slowly removing it has some benefits. So 15000 nets 12000 and 5500 goes right into TFSA and balance goes to GIC but also reallocates funds from RRSP to TFSA's purchased before I came up with the idea. That reallocation will end in a couple of years. The con is that interest in the non TFSA gets a 20%+ tax hit.....but only the interest portion. So at this point I don't need the money. If TFSA goes up to 10000 as suggested by the late Mr Flaherty all the better. I know I need to consider dividend products to reduce income tax, but have yet to figure out due to the rounding up income thing. Now that we are both 65 we lose our CPP bridge that was income split-able but now we have our CPP bridge replaced with OAS .... OAS is not split-able. So onto RRSP to RRIF to gain more income splitting.

To me the pros to dissolve RRSP is.
Avoid higher income to prevent clawbacks ( not likely to happen for most of us including me )
Avoid higher income to enable income assistance for other provincial and federal programs as an RRSP withdrawal is considered income vs interest only by dissolving and reinvesting RRSP funds
Avoid full taxation if both husband and wife die ( I know who cares, but is a shame for the tax man to get it vs your estate)

I know there might be some cons and I would like to hear what they are.

Ps I can't wait for the rates to back to 18%. sf-smile

August 2, 2014
5:24 pm
Loonie
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I can't think of any reason not to do this, and have already started although I am not yet in the mandatory withdrawal age group.
Your decision could be influenced, I suppose, by your sense of your own longevity. If you're going to live past 84, then Gordon Pape says you should turn your Rif into an annuity because the payouts are less than the mandatory withdrawals and thus you pay less tax annually. Some people think you should do this a bit earlier. It can help with the clawbacks.
If TFSA contribs are allowed to increase significantly, which they might be, I would wonder if they might decide to ding RRSPs/RIFs a bit more somehow. This, I think, was Flaherty's idea, to encourage people to use TFSAs more than RRSPs, because it was widely recognized that most people weren't contributing to RRSPs, and the ones that were often had pension plans as well. So, if that line of thought is followed, it's logical to think that RRSPs could be phased out in future. I don't know, however, how that would impact withdrawals or taxation on withdrawals. I suppose that, for now at least, the government appreciates the extra tax it gets to take from the mandatory withdrawals. I can't see them giving that up.

August 2, 2014
5:41 pm
kanaka
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I am 65 and no mandatory RRIF withdrawal. I will feed the RRIF only to meet my annual needs till,we are 71. But the big BUT is RRSP withdrawals are not eligible for income splitting while RRIF is. Should have started when I retired at 56 but have to live and learn because no one ever mentioned the idea to me.

I think RRSP's are here to stay. Maybe the eligible contribution could change or spousal amounts. The only thing that I would stress, something that I don't remember if I did, is to invest your income tax refund into RRSP as well as a result of contributing. That was free money!!

And if you have more go to TFSA.

Then it is a must to know how to control your RRSP funds at retirement and according to Diamond there are not many advisors that know how to.

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