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How to structure RRIFs
January 2, 2014
2:26 am
Loonie
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I am confused about how to do GICs in RRIF so that the mandatory withdrawals can still be done.
I understand the laddering concept, and I suppose one could ladder several GICs within one RRIF at one institution in order to meet the withdrawal requirement, redeeming whichever one matured in the given year and taking out what you needed to meet the minimum withdrawal, assuming it was large enough to meet that requirement, and then reinvesting whatever remained, assuming the latter was large enough to meet the minimum investment requirement of the financial institution in question.
But doesn't this mean that you are more or less forced to put all of your RRIF money into one financial institution?
Is there are other way to make sure you have the required amount available to withdraw annually and yet still get the best possible returns?
All of this seems very tricky to me. Seems like it would be very easy to do it wrong or not to best advantage.
Any ideas?

January 2, 2014
11:01 am
kanaka
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I am in the midst of what you are talking about.

If you have more than one RIF account each financial institution must do the minimum withdrawal. Unfortunately, you cannot control it your self, which in a way is wrong. And that is why your financial adviser, if you have one, is rubbing his hands waiting for you to consolidate all of your investments. Well mine will have a long wait!!

Keep in in mind:
You don't have to wait til you are 71 for a RIF,
You don't have to put all your RRSP's in a RIF
You must take the minimum out of a RIF no matter how old you are when you start it
You don't have to ladder a GIC to set up the withdrawal as the financial must do a partial withdrawal and they will tell you what their rule of thumb is for which GIC they will withdraw the minimum from and they will let you know how much more they will allow you to withdraw without incurring any fees to do so and they will tell you what interest rate the withdrawals will make and the remaining balance.
Based on your age, your current income tax rate, and your total RRSP balance you could then determine when you should start withdrawals of your RRSP's while keeping in the lowest tax rate possible. Then determine where to invest for best return, easy access and with minimal income tax.

Keep in mind you have to withdraw your RRSP funds and be taxed, although you can buy an annuity (of which I have no idea how that is taxed). Let it be taxed at the lowest rate possible, avoid clawbacks later on in life, minimize availability of income tested programs by transforming your RRSP funds to something else that will no longer show your RRSP withdrawal as income. Ie if you withdraw $15000 RRSP at age 65 and add that to your pension income...wow...but if you withdrew the $15000 (tax withheld at 20%) beforehand you would only have to report the interest on $12000 in addition to your pension income.

You CAN develop your own plan. Any questions??

January 2, 2014
12:32 pm
SD2013
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Loonie, Fiscal Agents has a minimum withdrawal calculator on their website. Their website is http://www.fiscalagents.com.

You go and click on financial tools and then click on retirement planning calculators. You click on their RRIF withdrawal schedule calculator.

You plug in 4 entries of information, the amount of the RRIF, average rate of return, the RRIF is created before 1993 or on or after 1993 and your current age you will have this RRIF.

For example, a 71 year old with a $100,000 RRIF earning a 3.00% 5 year GIC created in 2014 would pay a minimum required by law RRIF payment of $7,380.

Their chart shows clearly from whatever age you choose until 100 or whenever age your RRIF depletes having no more money to generate RRIF income.

The above example, in the first year, the interest earned is $3,000 and the principal payment is $4,380.

The problem is each year the principal declines more and more and RRIF payments will too after as well because the 3.00% interest rate is much less than the minimum annual withdrawals.

This is because in 1993 to 1994, the federal Liberal government increased the minimum annual RRIF withdrawal rates to get more income taxes from seniors and retirees by increasing their 100% taxable RRIF income annually.

I remember that they also cut the minimum RRIF withdrawing age to 69 but the federal conservative government increased it back to 71 a few years back.

In 1993 to 1994, 5 year GIC rates and 6 to 30 year Canada, provincial bonds were paying, yielding 8.75% to 9.375%.

In 1993 and 1994, the increased annual minimum RRIF payments from 5.26% to 7.38% and more every year did not decrease retirees and seniors income because GIC rates, government bond yields were double to triple today's rates, yields.

Annuities from RRSP's converted to RRIF's are taxed just as RRIF's with any other investments because all RRIF income is 100% taxable no matter what investment you have.

Most people don't realize that capital losses can't be claimed in any registered accounts, RRSP's, RRIF's, RESP's, TFSA's etc. as well.

Loonie, Basically, if you are trying to boost your RRIF income and make your RRIF last as long as possible, 5 to 7 year GIC's paying 3.00% to 3.20%.

The highest other fixed guaranteed interest rate out there is a 15 year 3.525% RRIF or LIF from Equitable Life of Canada that pays 3.525%.

Sun Life Assurance Company pays $534.01 for a $100,000 25 year fixed term certain annuity that is guaranteed for each spouse and any beneficiaries paid in a lump sum.

This is a $6,408.12 annually or a 6.408% annual payout but after 300 months, there is no more money.

There are advantages and disadvantages to all of these options so be careful what you choose.

If you think GIC rates will rise, then stick with laddered GIC's for the next few years and then lock in for 10, 15 years etc.

I hope this information is useful and helpful. Thank you for reading and showing interest, patience in my posts, from SD2013.sf-cool

January 2, 2014
1:09 pm
AltaRed
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Loonie said

I am confused about how to do GICs in RRIF so that the mandatory withdrawals can still be done.
I understand the laddering concept, and I suppose one could ladder several GICs within one RRIF at one institution in order to meet the withdrawal requirement, redeeming whichever one matured in the given year and taking out what you needed to meet the minimum withdrawal, assuming it was large enough to meet that requirement, and then reinvesting whatever remained, assuming the latter was large enough to meet the minimum investment requirement of the financial institution in question.
But doesn't this mean that you are more or less forced to put all of your RRIF money into one financial institution?

It has already been mentioned that each institution is required to ensure a minimum withdrawal and that would happen whether you initiate it or not. The key is for you to be in control of what you want withdrawn. Multiple GICs with at least one maturity each year would be most ideal. If that is difficult because of limited funds in individual RRIFs, then consolidate accounts into fewer RRIFs. No reason to have multiple RRIFs unless there are large sums of money involved. I would have no aversion to having one RRIF even if at $1million.... at one discount brokerage.

January 2, 2014
2:26 pm
ValueTime
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Put whatever RSP funds you want into a RIF. Get the highest GIC rate you can find at your bank. I got a 10yr GIC at something like 3.5% with RBC then tell them to withdraw from that GIC whatever amount you wish and THEY MUST COMPLY WITHOUT PENALTY because the GIC is held withing a RRIF and not an RRSP.
I turned 65 last month and my RIF will be empty as at the end of Jan. I don't really give a s$%t because the majority of my savings is held within my company and I will pay the tax on it when I withdraw (sort of like an RSP). And I have total control on what products I invest with.
RSP, RIF & TFSA all have restrictions on what can be held for investing within them. I don't like it but there are work arounds.

January 2, 2014
5:30 pm
SD2013
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ValueTime, GIC's that are more than 5 years are not CDIC insured but GIC's from Canadian insurance companies called GIA's are guaranteed by Assuris with no term limit 5, 10, 15 years etc.

Each provincial deposit insurance has their own specific limit or no limit for the term, amount and type of currencies, TFSA's, RRSP's,RRIF's, RESP's, LIRA's meaning registered money.

Also, non-registered money in trust accounts, joint accounts, single accounts etc. which is covered by deposit insurance by DGCM, DICO, CUDIC etc. and many others across Canada.

Most people are not aware of this and I just wanted to make sure they know about this important information.

Thanks, from SD2013.sf-cool

January 2, 2014
5:50 pm
Loonie
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Thanks, people.
Maybe you can tell me if my conclusions from what has been said are correct.

Scenario one: I invest in 5 or 6 laddered GICs at one institution in a single RRIF plan. Each year, regardless of the fact that these are in non-cashable GICs, the institution will, because it is obligated by law, withdraw the required minimum from one or more of these GICs without penalizing me in terms of interest earned to date, according to whatever their stated policy is as to which one they would withdraw from.

Scenario two: I invest in 5 or 6 laddered GICs. I spread these investments among several institutions in order to get the best rates. I must get stung for fees for transferring them out of one institution and into another in order to accomplish this, so that it may not be worthwhile. Each institution will then withdraw the legally mandated minimum annually, and this will not negatively affect the interest I can earn.

In both scenarios, the actual amount withdrawn will be the same, assuming the principal and interest are identical in total.

I did not know that the institutions could make these withdrawals from GICs and was afraid of getting stuck in a GIC that I could not withdraw from in order to meet the minimum withdrawal.

Are these summaries correct?

January 2, 2014
6:39 pm
kanaka
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ValueTime said

Put whatever RSP funds you want into a RIF. Get the highest GIC rate you can find at your bank. I got a 10yr GIC at something like 3.5% with RBC then tell them to withdraw from that GIC whatever amount you wish and THEY MUST COMPLY WITHOUT PENALTY because the GIC is held withing a RRIF and not an RRSP.
I turned 65 last month and my RIF will be empty as at the end of Jan. I don't really give a s$%t because the majority of my savings is held within my company and I will pay the tax on it when I withdraw (sort of like an RSP). And I have total control on what products I invest with.
RSP, RIF & TFSA all have restrictions on what can be held for investing within them. I don't like it but there are work arounds.

While it makes sense to ladder the GIC portion of your nest egg I would not recommend a 10 year GIC at 3.5% as you may be short changing your self "if" rates went up and you can, today, obtain 3.1% for a 5 year GIC. https://www.implicity.ca/Rates/
The laddering concept is good and takes 5 years to attain and just to explain to any newbies here it is:
Using the example of $50000.
You first invest $10000 in a 1, 2, 3, 4, and 5 year GIC. You will have 5 different interest rates.
Each year re-invest in a 5 year GIC.
In 5 years time you will have $10000 plus at the highest 5 year interest rate.
Continue to reinvest every year for 5 years.
So a fifth of your money will become available to you every year to use or reinvest all or part.
You may also set up to not compound and begin to use the interest to supplement your pension income from annual interest payments.
You may also not want to be restricted by only having a fifth available so take a look at GIC's that can be redeemed early but with an interest rafts penalty.
You may also want some of that ladder to be in a RIF and be allowed the minimum withdrawal without penalty and an additional allowable amount redeemed again without penalty.

And make use of your TFSA for your ladder also.

January 3, 2014
4:08 pm
AltaRed
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Loonie said
I did not know that the institutions could make these withdrawals from GICs and was afraid of getting stuck in a GIC that I could not withdraw from in order to meet the minimum withdrawal.

I would ask each institution you have a RRIF with to confirm that is the case (that they will extract the minimum each year without penalty from a GIC notwithstanding it does not mature in the year required. However, I do not see why you would not do as has already been suggested, i.e. have at least one 5 year GIC mature each year, which will fund the annual minimum RRIF withdrawal each year. It will take a few years to get the 5 year GIC ladder working, but nothing wrong with that.

And as already suggested, have the GICs provide annual interest rather than compound interest (paying only at maturity). That is exactly what my bro and I have done for our elderly mother. It works like a charm.

You have not yet mentioned what kind of institutions you are looking at for holding your RRIF(s) but I think it is folly to be with multiple institutions. Collect everything together with a discount broker (one that allows you to do GICs online such as BMO Investorline or RBC Direct Investing, and your worries are gone. You may miss out on 'maximum' interest rates here and there but how much is that worth to you?

January 3, 2014
4:23 pm
ValueTime
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SD2013 said

ValueTime, GIC's that are more than 5 years are not CDIC insured but GIC's from Canadian insurance companies called GIA's are guaranteed by Assuris with no term limit 5, 10, 15 years etc.

Each provincial deposit insurance has their own specific limit or no limit for the term, amount and type of currencies, TFSA's, RRSP's,RRIF's, RESP's, LIRA's meaning registered money.

Also, non-registered money in trust accounts, joint accounts, single accounts etc. which is covered by deposit insurance by DGCM, DICO, CUDIC etc. and many others across Canada.

Most people are not aware of this and I just wanted to make sure they know about this important information.

Thanks, from SD2013.sf-cool

SD2013 et al,
Our situation is not like most. Between my wife and I there was maybe $250K total in our RIF / RSP in mid-2012 and together we have been withdrawing about 90K / year from the 10yr GIC so the funds are all gone this year! I don't care because I have a company wither cash assets to last us the rest of our lives. Yes it will be dividends and yes I will be careful not to trigger OAS claw back but if I do one year I don't really give a crap ... you can't take it with you. We've collected CPP since turning 60 and I just ask all of you to keep working and paying so we can collect CPP & OAS as long as we're here.

January 4, 2014
3:00 am
SD2013
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ValueTime, you are missing my point why I want people to know this information. When people think GIC's, they think guaranteed, safety and this is why they buy GIC's.

If a GIC is not guaranteed or protected by CDIC or some other government sponsored, backed deposit insurance then what is the point of buying them.

The fact remains that if a financial institution fails and a person has money deposited in that specific financial institution then they will lose money.

There are better alternatives that are guaranteed or safe as GIC's that a person can invest for more than 5 years and get even much better fixed guaranteed interest rates.

There is no point of putting money in a GIC or similar investment that pays a low return and risk ones principal and capital. This makes no financial sense.

As for you can't bring money with you. I have a family and they will get my money while I'm alive and after when My wife and I are deceased.

I am not going to leave it to a bank, financial institution, insurance company etc. and like in the U.S. and other countries, there is a reason why they have a limit on deposit insurance.

People learned the hard way in the last 6 years or so losing a lot of money doing this.

They are giving everyone a warning that they will not pay you more than that insured, guaranteed amount if something goes wrong.

Thanks, from SD2013.sf-cool

January 6, 2014
8:21 am
ValueTime
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SD2013,
My apologies yes I did miss your point (actually I just didn't acknowledge your point) about GICs over 5yr not being guaranteed. I have to wonder if a 10yr product with RBC is not guaranteed and RBC goes kaput then how is the rest of the financial world doing at that moment.

Would you mind sharing what financial products are 100% guaranteed and match or better a long term GIC rate. I have a million $ earning 8% (mortgages etc) but it is not guaranteed.

I also agree with you regarding your estate will benefit whoever you bequeath it to but I don't feel I have responsibility to them. I told my son (37 year old) a while back that if we died now he could quit and never work again. He kind of freaked out because he like his work.

Look, there is no perfect formula of products to invest in and we all have different choices we've made and will make. What is important:
1. Health
2. Someone to be with in life.
3. Time to spend.
4. Money and it does not have to be a lot. "Value time over money as time can not be replenished."

It's all luck in the end.

VT

January 6, 2014
10:35 am
SD2013
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ValueTime, in today's lower interest rate, government bond yield environment 5 to 7 year GIC's are paying at most 3.00% to 3.20% that have CDIC protection or some other deposit insurance backed or sponsored by a province.

They usually have $100,000 or more in maximum limits of protection by CDIC or some other deposit insurance.

A 10 year GIC from BMO Advisor Advantage Trust is paying 3.50% and as you said RBC has the same type of GIC paying 3.50% for 10 years.

There are other options that pay just as much or better and does not have this lack of protection, guarantee for depositors, investors.

I agree that it is not likely that people will lose all their money but it is possible that even a 5% to 10% loss may happen.

I see it this way, there is a reason for why they put deposit insurance in place and for those that have limits like CDIC, DICO etc. because that is a bear minimum to protect depositors from panic and loss and from starting a bank run which nobody wants.

Safety is the main reason most people have money in the bank, credit union, trust company etc. or other financial institutions that have some sort of deposit insurance or protection from failure or financial trouble.

There are similar investments to GIC's called GIA's, that are paying at most 3.275% to 3.525% from 10 to 15 year rates that are available in RRIF's, LIF's as well.

For those that want to have something similar to a fixed, guaranteed monthly payment that will pay for 25 years, 300 monthly payments no matter what happens to a spouse and the remaining money goes to other beneficiaries like children, grandchildren, brothers, sisters, nieces, nephews etc. there is 25 year term certain annuities that per $100,000 policy today is paying at most $534.37 per month.

This makes more sense for RRSP's converted to RRIF's or annuities or both as they are fully taxable either way and must be withdrawn gradually for each year mandated by the income tax act, CRA.

I mentioned this before that these life insurance products in this case GIA's, annuities are guaranteed by Assuris for $100,000 and $2,000 monthly payments respectively.

Our family will only buy government bonds, government strip bonds, GIC's and other guaranteed fixed rate investments because that is what our risk tolerance is and what we our comfortable with.

Today, longer term provincial bonds are paying between 3.50% to 4.25% net yields and similar provincial strip bonds are yielding between 4.00% to 4.35%.

GIC's, GIA's, Canada bonds, Canada strip bonds, provincial bonds, provincial strip bonds are the lowest risk or safest investments that exist in the current market place.

On a side note, we only buy these investments and hold them until their maturity date. We do not trade, buy and sell, speculate with any investments.

We have instilled in our children that hard work, saving, investing, maximizing TFSA's, RRSP's, RESP's for tax free and tax deferral of interest, compound interest and making sure debt is not in their lives.

They also know that we never win financially as a family when we do not do these things which is especially true taking more risk for returns that look great today but have some possible factors that can really set us back many years, maybe 5 to 7 years at least.

Our family spends plenty of time with each other when we have it available and we don't need to make a large return relative to safer investments as a benchmark with our investments like 7% to 10% for us to live well as we do and be happy.

We tried many of the other types of investments from mutual funds, REIT's to all types of equities, shares, indexes, ETF's, precious metals etc. in the past and we never had any great experiences with them.

We are current earning close to 5.00% with a combination of term deposits, GIC's, cashable GIC's, Canada bonds, Canada strip bonds, provincial bonds, provincial strip bonds.

We have no debts of any type and have a paid off house with a $400,000 current market value. We are saving thousands a month while enjoying our life with balance.

Everyone is different and will make different choices but we never felt comfortable taking more risk as it never seemed to payoff for us and as we heard in the last 13 years for many others as well.

Thanks to ValueTime and anyone else for reading, showing, patience in my posts and I hope this post and others have helped someone, from SD2013.sf-cool

January 6, 2014
11:42 am
ValueTime
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SD2013, Great post, thanks. Good to see you and your family are on the same page and you have a positive outlook on life. I'm not perfect and I've made mistakes in financial planning too and like you my risk tolerance is low. I'll do some research on the products you mentioned. I'm looking forward to my first OAS deposit this month but right now I'm really waiting to head south by Fri for 9 weeks away from this ugly mess outside my window.
Take care,
ValueTime

January 6, 2014
1:38 pm
SD2013
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ValueTime, it is good to get some sun and warmth in January to March as we in Canada lack this a lot in the winter months.

I'm sure you probably know this already what I already am going to say but make sure that you and anyone else that comes with you has an adequate amount of health travel insurance for any other out of country health insurance for your stay down south.

It is not worth saving maybe $500 to $1,200 and taking a huge gamble on ones health and finances.

One bad accident, injury or health problem can cost $30,000, $50,000 or more so it is better to be safe and not sorry.

Thanks, take care, from SD2013.sf-cool

February 1, 2014
8:03 pm
Loonie
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Getting back to my original question, I perceive a new wrinkle and have not yet made the investment in question.
The wrinkle is this: The RRIF in question is relatively small. I don't have the figures in front of me but it is perhaps 13,000. The reason I switched the RRSP into an RRIF at this time was so that I could take advantage of the 2000/yr pension credit on income tax, which I believe is my best deal, all finances considered. If I were to invest in, for example, a 5yr GIC, the financial institution would make the mandatory withdrawal, but it would not be large enough to satisfy my intention to withdraw 2000/yr. I think that I would not be able to take out the difference needed to make up the 2000 because of it being a non-redeemable GIC.
So, what do you think is the best product for investing this money?

February 1, 2014
10:31 pm
Rick
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Loonie: I am still trying to figure the RSP/RIF situation as well, but I still have another 5 years before retirement and 8 before I hit 65. From what I gather from posts on this site, the 2000.00 is available to everyone for 5 years between 66 and 71 years of age, before any left MUST be converted to RIFS, with another 1000.00 available if you also have pension income. Is your intent to put the funds in a RIF so you also have pension income? I think that CPP qualifies as such. So why wouldn't you (we) just withdraw the 2 or 3,000.00 from the RSP? They would still deduct the minimum tax but it would be refunded at tax time. My plan is similar to yours. Once I retire I hope to convert most of my RSPs into RIFs, but plan to hold back enough in my and my wifes RSPs to make the withdrawals from 66 to 71 and use them as TFSA contributions. As noted above, you can have both RSPs and RIFs at the same time, BUT: can you still contribute to a RSP if you are collecting income from a RIF at the same time?

February 1, 2014
10:40 pm
Rick
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PS... am thinking that 5 year laddering is my best option for the GIC's. That way you can take advantage of the highest rate if/when rates go up. With one maturing every year, you won't be stuck waiting 5 years for them to come up for renewal at the new rate. I will be starting with my funds split 5 ways into a 1.2.3.4 and 5 year term, renewing them at 5 years each as they come due. As the 5 year rates are higher, you will also be getting a raise every year for the first 4 years. LOL!

Also, I notice from the RIF calculator, that if funds from a RIF are paid out in the same tax year as the term was started, there if a big chunk of tax taken off the top. Something to consider. Maybe start them the year BEFORE you retire with first payment due after you retire? Need to look deeper into that.

February 1, 2014
10:44 pm
SD2013
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Loonie, the mandatory withdrawal you are talking about is the minimum RRIF withdrawal or payments required by the CRA, Canada Revenue Agency and income tax laws.

Loonie, you do not have to take the minimum mandated CRA RRIF withdrawal or payment. You can request to take out $2,000 a year or $166.67 per month.

Oaken Financial allows this but you have to make sure that you put it in writing when you fill out your RRIF GIC application, contract on how much fixed payments you want monthly, quarterly, semi-annually, annually.

Once you chose how much and when you want to receive your RRIF GIC payments, you can't change them. They are fixed just like your 3.05% 5 year RRIF GIC rate.

Their current 5 year RRIF GIC rate is 3.05% for all RRIF GIC income options. If you go to Oaken Financial in this forum, I wrote a whole bunch of information about this stuff.

I can give you a quick calculation. If you invest $13,000 in a 3.05% 5 year RRIF GIC that pays $2,000 annually, you will have a balance of $4,154.11 at the end of your 5 years when the RRIF GIC matures.

Loonie, in this case, you or any other person would receive 5 annual RRIF GIC payments of $2,000 for a total of $10,000. This is based on the RRIF GIC payments being paid at the beginning of the year.

The minimum deposit for RRIF GIC's at Oaken Financial is $10,000, so Loonie, you do have enough to invest with them. See it for yourself at http://www.oaken.com or http://www.oakenfinancial.com

Thanks, from SD2013.sf-cool

February 1, 2014
11:17 pm
SD2013
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Loonie, if you take the monthly RRIF GIC payments of $166.67 per month instead of a $2,000 annual RRIF GIC payments in the beginning of the year, you will have a bigger remaining RRIF GIC balance in 5 years when the RRIF GIC matures.

The remaining RRIF GIC balance would be $4,303.48 at maturity in 5 years. This is an extra $149.37 more principal left in 5 years. It is not a big amount but every little bit helps.

You will still receive your $2,000 annually but paid gradually, monthly throughout the year.

If you could get paid at the end of the year, it would be even better making your RRIF GIC last longer. I don't know if Oaken Financial or any other financial institutions can do this.

I forgot to mention that there are RRIF GIC withholding taxes but they charge only on the excess above the total minimum RRIF GIC payment or withdrawal.

For example, if you are 65 years old, the total annual minimum RRIF GIC payment or withdrawal mandated by CRA is 4.00% of the $13,000. This is $520 for 2014.

Since your total annual RRIF GIC payment or withdrawal is $2,000, you will pay RRIF GIC withholding taxes on the difference above the $520. Take $2,000-$520=$1,480*10%=$148.00

The RRIF GIC withholding taxes is $148 because you pay 10% on the excess amounts $5,000 and less.

For excess amounts of more than $5,000 to $15,000, there is a 20% RRIF withholding tax and excess amounts of above $15,000 has a 30% RRIF withholding taxes.

You should get most of it all back in a income tax refund or by paying less income taxes because of the $2,000 pension income amount is a tax benefit of 15% as a federal income tax credit on this entire amount.

Provincially is another story because it depends on your provincial income tax laws. In Ontario, you will pay maybe $50 because it is a lower amount than $2,000 but if I remember correctly, it is $1,200.

I hope this clarifies something for you Loonie and anyone else in a similar position.

Thanks, from SD2013.sf-cool

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