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INCOME SMOOTHING - CASHING IN YOUR RRSP AFTER RETIREMENT
January 27, 2013
2:53 pm
kanaka
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Hi, I have been retired for 6 years. I just spoke to my new investment advisor and he mentioned about income smoothing. I have my CPP bridged as part of my pension and will lose that when I am 65 and I also recieve CPP as I took it early. When we reach 65 then on to OAP. Then when we reach 71 we will be forced inot a RRIF or an annuity (not likely). So we are likely to be paying much more income tax that we were led to believe when we bought into the RRSP program. So the suggestion is to cash our our RRSPs, within reason, to minimize taxation at age 71.

So is any one doing this?
Is there a formula for this?

February 13, 2013
12:45 pm
Jim
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Go to taxtips.ca and check the marginal tax rates for the various levels of income for BC. With that info, you can figure out how much to pull out of your RRSP each year to stay below certain levels of taxation. As you know, once you reach age 71 you have no choice. Let's face it, as the provinces keep marching towards bankruptcy (eg. Ontario, Quebec), tax rates have nowhere to go but further up. Starting to liquidate now is a good idea. It wasn't so clear back in the day when the compounding tax-free investment gains would more than offset the tax issues, but in today's crappy returns environment the tax rates are now significant.

February 22, 2013
10:09 pm
GS1
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I am in a similar boat to kanaka but just turned 66. One tip is that from 66 to 70 you can take $2000 out of an RSP tax free. I pulled my $2000 out in late December, minus the 10% withholding and will report that this tax season and will be credited with the $200 that was withheld, essentially making this tax free. The $10k I pull out will not do a whole lot to collapse the RSP but any help is some help.

I also thought I might be better starting to collapse my RSP now rather than waiting till 71 but in building an Excel spreadsheet was able to determine waiting till 71 was better for my particular circumstances.

I always like to let the numbers make the decision for me.

Greg

February 23, 2013
11:18 am
kanaka
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GSmall99 said

I am in a similar boat to kanaka but just turned 66. One tip is that from 66 to 70 you can take $2000 out of an RSP tax free. I pulled my $2000 out in late December, minus the 10% withholding and will report that this tax season and will be credited with the $200 that was withheld, essentially making this tax free. The $10k I pull out will not do a whole lot to collapse the RSP but any help is some help.

I also thought I might be better starting to collapse my RSP now rather than waiting till 71 but in building an Excel spreadsheet was able to determine waiting till 71 was better for my particular circumstances.

I always like to let the numbers make the decision for me.

Greg

Thank You, Thank You

In support of what you are saying I found this article.
http://retirehappy.ca/are-you-.....e-pension/

I also plan to buy this book.
http://www.chapters.indigo.ca/.....eview.html

Did your adviser help you with this or?

My adviser just retired and what may have helped him do so, his company changed from Peak to Manulife. I am not to comfortable dealing with an insurance company and at first I thought the new adviser would be good but I now have reservations. So even though I have a new adviser I also may be on my own to make the decisions and steps that I want to take. In the conversion of companies they can no longer sell me a GIC unless it is bought as a security. None of mine were bought that way and he wants me to transfer them but I can get rates .40 higher which means more interest, yes and more to be taxed, yes BUT more to pay the income tax with. So why would I take a lower rate so he can take a cut from the issuing company? Make sense?

February 24, 2013
9:26 am
GS1
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I have no advisor. I am self-taught. I had an advisor (a neighbour) 15-18 years ago who steered me into a series of funds that were not what I needed or wanted - but I knew no better.

Today my "plan" is simple (for me):

First, some background - our holdings iinclude a brokerage account in both Cdn$ and US$, my and my wife's RSP, my and my wife's TFSA (all of these are held at a bank's self-directed brokerage arm). Additionally we have access to 5 different Cdn$ HISA's (high interest savings accounts) and one US$ HISA (soon to be 4 and 0 when Ally bites the bullet). Additionally we have a regular Cdn$ chequing account, a regular US$ chequing account and a HISA at our chosen bank, as well as a US based, US$ chequing account at our bank's cross border banking offering. (I won't detail our credit cards here due to space and time constraints.).

I track everything (and I do mean everything) in Quicken.

I set my asset allocation to what I felt was right for me.
I then re-balanced by buying and selling till I was close to that asset allocation.
I tried to re-balance every year. I did re-balance if I had new money to add to the mix.
I try to only buy ETFs (exchange traded funds) to meet the asset allocation targets.
When I can't buy an appropriate ETF I buy a mutual fund. I don't buy any mutual fund that is in the top two quartiles of fees and in the bottom two quartiles of performance. (Why spend more money to buy less performance when others are willing to do so.)
I do buy the odd stock (typically US based) when my wife says "oh, look, why don't we own their shares" (currently Visa, Fedex and Tanger) and sell when she says, "why do we own that stock", most recently Carnival Cruise Lines, who have had some issues recently).
I track performance against a recognized benchmark to make sure I have not strayed too far from the mark.

Two years ago I did spend the money to engage a professional to confirm or reject the notion I was on the right path. We reviewed my entire portfolio, he did some projections, charged me around $2200, and told me I was on the right track and could actually spend another 15% per year without worry. He also gave me a template for an Investment Policy Statement and I was to "personalize" it.

That is still to be done -- but would be a framework for my wife's new advisor to follow should I leave without notice. sf-surprised

I am also working to try to determine what steps she should take when I am no longer able to manage our assets.

Greg

[edited 2013apr11 for spelling]

February 24, 2013
11:00 am
Doug
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Nice portfolio and tracking you're doing, Greg. I'm assuming Tanger is the Tanger outlet mall, basically a sort of US-based/like REIT? I like FedEx and UPS both, good income-generating, relatively-stable slower growing stocks but am holding off buying them as I am currently in the Canadian-based parcel delivery/courier/less-than-truckload/truckload equivalent in TransForce. It's done really well for me - bought them at $9.08, it went as low as $2 in March 2008 and I wish I averaged down then but instead I made the bad call and averaged down on then Yellow Pages Income Fund and took a major "shit-kicking". ;)

I'm currently looking at either Genworth MI Canada (does Genworth U.S. still own any interest in them or do they just license the brand/tradename from them in Canada), First National Financial, Morneau Shepell, Winpak, Killam Properties, Artis REIT, Canadian REIT and Northwest Healthcare Properties REIT but my recent now Yellow Media Ltd experience has left me a bit "gun shy" on investments that pay a slightly higher yield. Any thoughts? I do try and avoid paying much more than 1x book value, like a P/E Ratio less than 10x and an asset to debt ratio of 0.5 (that is, debt being less than half what the assets are). What metrics do you use?

Cheers,
Doug

February 24, 2013
11:15 am
GS1
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Tanger is the mall people. As I said, my wife sees malls and says "why don't we own Tanger?". I get Fedex deliveries on time and she says "why don't we own Fedex?" VISA did an IPO, we missed the ground floor, she said a few weeks later, "we should buy some anyway". We bought Carnival in 2009 when we were going on a cruise and stock ownership translated into shipboard credits of $250 (instant dividend). We held it through the Costa semi-sinking and sold after the Triumph fire.

Our stock holdings are a very minimal part of our total.

Years and years ago I had $10,000 spare cash and decided to but "bank stocks". My choices were Canada's big five and I selected two that allowed me to buy multiples of 100 shares for $5000 each. They stagnated and the other three went up. I sold them for zero gain.

Subsequently I buy almost exclusively broad based ETFs. The experts are never right often enough so I would rather match the market. I hate paying fees.

I said I track everything through Quicken, but also have a giant Excel spreadsheet that is used for asset allocation analysis, and one for fee analysis and one for performance analysis, and one for net worth year over year analysis. All this takes time but "no one cares more about my money than I do". The firm that did the "second look" analysis for me a few years back was overwhelmed ith the data dump I did as they were used to having to dredge out all the info themselves.

Greg

February 24, 2013
9:14 pm
Rick
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GSmall99 said

I am in a similar boat to kanaka but just turned 66. One tip is that from 66 to 70 you can take $2000 out of an RSP tax free. I pulled my $2000 out in late December, minus the 10% withholding and will report that this tax season and will be credited with the $200 that was withheld, essentially making this tax free. The $10k I pull out will not do a whole lot to collapse the RSP but any help is some help.

I also thought I might be better starting to collapse my RSP now rather than waiting till 71 but in building an Excel spreadsheet was able to determine waiting till 71 was better for my particular circumstances.

I always like to let the numbers make the decision for me.

Greg

I didn't know about the 2K rule from 66 to 70. Thanx...I'll keep it in mind. My thought is to put it in a TFSA HISA or GIC. Any income generated from them doesn't affect your taxable income, like RSP withdrawals do, which reduces your OAS eligibility. I encourage my kids to max out their TFSA and minimize their RSP contributions for that reason.

March 12, 2013
9:41 pm
kanaka
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Rick said

GSmall99 said

I am in a similar boat to kanaka but just turned 66. One tip is that from 66 to 70 you can take $2000 out of an RSP tax free. I pulled my $2000 out in late December, minus the 10% withholding and will report that this tax season and will be credited with the $200 that was withheld, essentially making this tax free. The $10k I pull out will not do a whole lot to collapse the RSP but any help is some help.

I also thought I might be better starting to collapse my RSP now rather than waiting till 71 but in building an Excel spreadsheet was able to determine waiting till 71 was better for my particular circumstances.

I always like to let the numbers make the decision for me.

Greg

I didn't know about the 2K rule from 66 to 70. Thanx...I'll keep it in mind. My thought is to put it in a TFSA HISA or GIC. Any income generated from them doesn't affect your taxable income, like RSP withdrawals do, which reduces your OAS eligibility. I encourage my kids to max out their TFSA and minimize their RSP contributions for that reason.

Just did my income tax today. I am 63 and found that I already receive both the 1000 Pension Deduction and the 2000 one mentioned here too. I was surprised to see it!!! Basically if you receive any type of formal pension you are eligible, regardless of age. I bought the book YOUR RETIREMENT INCOME BLUE PRINT and it said the same thing too. It is based on what tax line you input too.
http://www.cra-arc.gc.ca/tx/nd.....u-eng.html
I thought I hit a gold mine ..... but was already there!! So any more ideas for legit deductions???

Regards Peter

March 13, 2013
1:25 pm
Deb
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Kanaka,
Do you find the book useful?
Maybe I'll pick it up.

March 13, 2013
2:16 pm
kanaka
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Deb said

Kanaka,
Do you find the book useful?
Maybe I'll pick it up.

Hi, have not read it yet. Apparently some advisers use it in their business. I have read about it and the author and it should be good. I mainly want to use it to know how to draw down my RRSPs at the lowest tax rate possible and reinvest the money in either TFSA (not enough room though) or in dividends (less taxation) or ?? I also need to know if I look at dividend income how it will impact on my income in regards to GIS or OAS claw back.

btw I used to live in Cranston SE

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