How to Melt down RRSP?

kasm wrote: ↑ <snip>

One of the benefits of an RRSP is tax deferral. The idea is to maximize your RRSP in your high earning years when you are at a high marginal tax bracket, but also try to draw down when you retire assuming you will be in a lower tax bracket. If you draw down while you are still working, you will not be taking advantage of this tax break. Also if your RRSP is so large that minimum withdrawals bump you into a high marginal tax bracket, you again will miss out on that tax advantage. However, you also have the advantage of a generous employee matching program which more than makes up for that as it's an automatic 200% return on investment.

</snip>

wolfie55 wrote: ↑ as suggested a fee only financial planner retirement specialist should be consulted.

I'm in mid 50's not retired yet, but you should be aware of income splitting for tax purposes with spouse:
https://www.canada.ca/en/revenue-agency ... ncome.html
https://www.canada.ca/en/revenue-agency ... ncome.html

I'm not sure what a RRSP annuity is but it seems to qualify. I'm more familiar with RRIF being eligible.

kelaaa wrote: ↑ Keep in mind that the primary goal of your retirement savings is to provide you with retirement income. Reducing taxes or fees is part of the picture, but should not be primary goal. Otherwise the simple solution to not paying taxes is to not have any income (donate your massive RRSP over a few years and don't sweat it https://www.queensu.ca/alumni/sites/default/files/another_way_to_donate_from_an_rrsp_or_rrif.pdf).

You have done well to have retirement accounts that will already provide a comfortable retirement by most people's standards. If you are delaying retirement for another 15 years, chances are it'll be significantly more. You'll have a chance to shift contributions to your wife's RRSP via spousal contributions. Another 15 years of TFSA contributions and growth for two people will also build up significant tax sheltered wealth. You may end up gifting money to your kids as they mature into responsible adults. You may end up with taxable accounts and benefit from the relatively low taxes on eligible dividends and capital gains (again can avoid capitals gains if you donate your massive growth securities directly). Nice things to have and to be in a position to do so.

Dynatos wrote: ↑ Or even worse, if you're withdrawing late in your career, when your income is at its highest, you might be withdrawing at a significantly higher income than when you contributed.

kasm wrote: ↑ There are a lot of different factors to look at. What is your annual expense? By the 4% rule, if it's under 80k you may be in good shape to retire soon. How much do you like your job? Also, what are your other sources of income in addition to any RRSP / RRIF withdrawal? Does your wife have an income?

One of the benefits of an RRSP is tax deferral. The idea is to maximize your RRSP in your high earning years when you are at a high marginal tax bracket, but also try to draw down when you retire assuming you will be in a lower tax bracket. If you draw down while you are still working, you will not be taking advantage of this tax break. Also if your RRSP is so large that minimum withdrawals bump you into a high marginal tax bracket, you again will miss out on that tax advantage. However, you also have the advantage of a generous employee matching program which more than makes up for that as it's an automatic 200% return on investment.

Sometimes you may want to drawdown early because mandatory RRIF conversion and minimum withdrawals will result in huge tax burdens when you are retired as well as OAS clawbacks. Another thing to consider is life expectancy. If you or your spouse were to pass unexpectedly, the entire RRSP portfolio may be taxable unless the designated beneficiary status is applied. If both you and your spouse pass away, there will be a huge tax bill as both RRSPs will be dissolved into your estate. The government could take roughly half the value. So you may want to drawdown early from an estate planning perspective, especially since you have kids.

Attached is a forecast on your 1.1M portfolio assuming 5% growth and no additional contribution showing minimum withdrawals. Today's minimum withdrawal starts as 27K, goes up to 50K by age 62, 80K by age 72, 90K by age 79. Your portfolio hits its peak of 1.43M at around age 70. Only then have your minimum withdrawals reached a point where it's actually starting to reduce the size of your portfolio. This is in today's dollars and ignores inflation.
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1.1 minimum.png
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If you start today withdrawing down 55K in both your and your spouse's account each (total of $110K), It keeps your RRSP in check with no growth assuming 5% return and no additional contributions. It will also deplete your spouse's RRSP by the age of 65. At this point, you can start drawing down your portfolio by 110K and use income splitting (which also starts at age 65) to minimize taxes. This will deplete your RRSP's by age 79. See attached images
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1.1 55k.png
600 55k.png
1.1 110k.png
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Tax-efficiency is not necessarily the most important thing. If you enjoy your job, the generous employee matching program you have more than compensates any tax draw of a large RRSP in my opinion.

A fee-only financial advisor may be a good option to look into.

Here are a couple of articles that can also help:
- https://www.planeasy.ca/retirement-inco ... d-or-tfsa/
- https://www.myownadvisor.ca/overlooked- ... derations/

Quentin5 wrote: ↑ Very nice, you wouldn't be a financial planner would you?

cheapshopper wrote: ↑ My thinking is I want to retire between 60-65. So I have at least 10 more working year.
I will continue to put $ into RRSP because my employer matching. Use up max RRSP room. I can't put it into Spouse RRSP, because it still count as my RRSP room, not her, right? I just use up all RRSP room every year.
Also Maxed out both of our TFSA
I start putting into cash account now, because I have no more room to put, and all mortgage all paid off.
Kids is not old enough to have TFSA yet, so I can't give them GIFT, they are just too young.

georvu wrote: ↑ Sp RRSP means you use your RRSP room and get deduction however spouse owns.

If can put into Sp RRSP and still get matching then go for it... yes, counts as your RRSP room and you get deduction but spouse owns that RRSP.

cheapshopper wrote: ↑ My thinking is I want to retire between 60-65. So I have at least 10 more working year.
I will continue to put $ into RRSP because my employer matching. Use up max RRSP room. I can't put it into Spouse RRSP, because it still count as my RRSP room, not her, right? I just use up all RRSP room every year.
Also Maxed out both of our TFSA
I start putting into cash account now, because I have no more room to put, and all mortgage all paid off.
Kids is not old enough to have TFSA yet, so I can't give them GIFT, they are just too young.

cheapshopper wrote: ↑ Yeah, that's the issue. The RRSP is under my employer plan, so must be under my name. Plus, it use up every dollar of my RRSP room, so I don't have extra room to create a Spouse RRSP

cheapshopper wrote: ↑ Exactly, I regret putting money in RRSP when I was in my 20s, when my tax rate is still low.
Should have save the room to use now.

kelaaa wrote: ↑ I wouldn't dwell on it too much. What if you you were unemployed one year at that time and due to whatever issues (recession, injury that didn't qualify for EI / workers compensation, having to take care of family member, etc) and had no income for a few years? I'm sure drawing on that money would have been helpful in that case. The simple answer is that you can't know the future. The fact that it didn't happen that way doesn't mean it was a bad choice. As another example, the fact that you might never have had a serious car crash in your life so far does not mean that airbags are unnecessary and that wearing seat belts for 30 years was a bad choice.