Personal Finance

In retirement and drawing from your RRSP

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  • Feb 28th, 2020 12:15 pm
[OP]
Member
Dec 3, 2003
265 posts
82 upvotes
Alberta

In retirement and drawing from your RRSP

Hi
I will be retiring soon and am wondering a couple of things.
1. Once retired and drawing upon my RRSP, how do people manage it?
Lets say I want to withdraw $5k/month. So then I sell $5k worth of my All in One ETF. On that amount, I know there will be a withholding fee, trading fee and a partial transfer out fee from TDDI. This can add up, so I'm wondering, do people do this Monthly?, Quarterly? and then keep the excess in a HISA (Like Motive)?
2. I also understand that if I move my RRSP to a RIF, there won't be any withholding tax if I withdraw the minimum and I could claim the $2k pension credit but I'm not 65 yet.
Any help or thoughts would be appreciated.
Thanks
8 replies
Jr. Member
Dec 1, 2019
129 posts
108 upvotes
A neat way I've seen suggested to people is to structure it via a GIC ladder.

https://www.moneysense.ca/save/retireme ... nt-income/

You build a 5-year GIC ladder with 5 GICs, each one containing a year's worth of expenses. Every year you refresh it with another 5-year GIC via selling some of your portfolio.

The example in the article is in a non-registered account though.

https://www.moneysense.ca/columns/best- ... ave-money/
https://www.moneysense.ca/columns/ask-m ... -benefits/
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Deal Addict
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Jan 4, 2009
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on the links
gordi777 wrote: I also understand that if I move my RRSP to a RIF, there won't be any withholding tax if I withdraw the minimum and I could claim the $2k pension credit but I'm not 65 yet.
You also won't be hit with a withdrawal fee from a RRIF, at least for most of the half-decent brokers
Member
May 24, 2018
275 posts
164 upvotes
Ontario
I googled about your scenario & learned few possiblities -
  1. Conversion allowed at any age
  2. Partial conversion allowed. You don't have to do the full amount
  3. Convert back to RRSP plan later also allowed if you are not of retirement age yet & don't need the income anymore.
  4. Age 65 required for 2k pension credit in some cases listed in the Retirement income - Summary table, p17 2019 Income Tax Guide

The fees associated with these options probably not worth it though.
But since I have RRSP plans at multiple FI, it may be helpful if I am allowed to convert one plan at a time over may be a span of ten or fifteen years e.g. from age 55 to 71
Sr. Member
Jan 15, 2015
619 posts
356 upvotes
gordi777 wrote: Hi
I will be retiring soon and am wondering a couple of things.
1. Once retired and drawing upon my RRSP, how do people manage it?
Lets say I want to withdraw $5k/month. So then I sell $5k worth of my All in One ETF. On that amount, I know there will be a withholding fee, trading fee and a partial transfer out fee from TDDI. This can add up, so I'm wondering, do people do this Monthly?, Quarterly? and then keep the excess in a HISA (Like Motive)?
2. I also understand that if I move my RRSP to a RIF, there won't be any withholding tax if I withdraw the minimum and I could claim the $2k pension credit but I'm not 65 yet.
Any help or thoughts would be appreciated.
Thanks
Here are a couple of pointers.

1. Take advantage of the $2000 Pension Income Tax Credit. TaxTips.ca link...

You need to move some or all of your RRSP into a RRIF before you turn 65. This is because by doing so you can take advantage of the $2000 tax credit for the tax year that you turn 65. The minimum withdrawal at age 65 is 4% of the total amount in the RRIF as of Dec 31 on the year you are 64. So you need to transfer at least $50,000 to your RRIF by Dec 31 of 2020 if you are turning 65 in 2021 and wish to claim the full $2K. Since 4% of $50K is $2K, you will not have tax deducted from the $2K (but may end up paying income tax on other income such as pension income from employment). You would have tax deducted on any excess amounts over $2K withdrawn from the RRIF, however.

The $2K tax credit cannot be carried forward or back but may be claimed by an eligible spouse if you are not claiming. Use it or lose it.

Here are minimum RRIF withdrawal amounts by age: RRIF Minimum Withdrawal...

2. Move assets like stocks and ETFs into a non-sheltered trading account or into a TFSA, rather than first selling within the RRSP or RRIF. This is known as an "in kind" transfer and most financial institutions will not charge a fee for doing so. That way, you will be able to deduct trading commissions when the assets are sold eventually in a non-sheltered investment account. Any capital gains are taxable when you eventually sell from your non-sheltered, but you can also claim capital losses - both which can't be done within an RRSP (any "capital gains" on investments within the RRSP/RRIF and cashed out are taxed 100% just like employment income whereas the equivalent gain in a non-sheltered is taxed at 50%). For stocks that you wish to keep long term, and that pay dividends, it is sometimes better to transfer in kind to a TFSA before dividends are paid out (prior ex-dividend date). For a TFSA, dividends are non-taxable as far as Canada Revenue; if Canadian stocks there is no dividend withholding tax in your TFSA .
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Feb 1, 2012
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Thunder Bay, ON
I am 62 and 3 years into retirement. Accounts I have are non-registered, TFSA, RRSP and 2 LIRAs. No pension and have not started CPP/OAS so currently living off my savings. Around yearend I make one withdrawal from my RRSP and one from non-registered. I transfer that money to a HISA for my annual living expenses. I use EQ Bank or Oaken for my HISA because they have OK rates without having to chase promotions. I find it simpler that way than to be selling investments and making monthly withdrawals from my investment accounts. I use a variable percent withdrawal method to determine how much I can withdraw each year based on investment performance. And I keep my asset allocation close to my targets using the method from the Moneysense article upthread in post #2. Here is info on Variable Percentage Withdrawal (VPW):
https://www.finiki.org/wiki/Variable_pe ... withdrawal

Then there is the issue of tax efficient withdrawals, and whether to withdraw from registered accounts or non-registered first. Most discussion I have seen say withdraw from TFSA last because it will grow tax-free for life. Between non-registered vs. RRSP withdrawals, you will pay less tax withdrawing from a non-registered. RRSP withdrawals are taxed at your marginal rate for other income whereas non-registered withdrawals are taxed only on the capital gains, at half your marginal rate. This leaves more money in your accounts to grow and compound. So short term, non-registered withdrawals are preferred.

But longer term, letting your RRSP or RRIF grow with no withdrawals may cause higher tax later for a number of reasons. 1) When you start mandatory RRIF withdrawals if they are large enough you may be pushed into OAS clawback territory. 2) If married, when the first spouse passes away the second will inherit the RRIF, which may drive them into a higher tax bracket. 3) When the second spouse (or RRIF holder if not married) passes away, there will be a deemed disposition of the RRIF, which may also drive you into a higher tax bracket. This item is more of an issue if you want to leave a large estate to your beneficiaries.

A way to reduce these three issues is to withdraw some funds from your RRSP or RRIF after retirement, but before age 71 when mandatory RRIF withdrawals start. Effectively you will pay more tax now to enable paying less tax later. Note that the objective is not to minimize taxes. Rather it is to leave the largest estate for a given withdrawal rate, or conversely, have the largest withdrawals for a given estate value.

This article explains what I outlined above in more detail: Which Account Should I Draw First In Retirement?. The tax rates are from a couple of years ago in Alberta, but the principles apply in all provinces.

Other good resources to assist with the analysis at TaxTips.ca are the Tax Rates and OAS Clawback info
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Sr. Member
User avatar
Aug 7, 2010
980 posts
341 upvotes
SAM3674 wrote: Here are a couple of pointers.

1. Take advantage of the $2000 Pension Income Tax Credit. TaxTips.ca link...

You need to move some or all of your RRSP into a RRIF before you turn 65. This is because by doing so you can take advantage of the $2000 tax credit for the tax year that you turn 65. The minimum withdrawal at age 65 is 4% of the total amount in the RRIF as of Dec 31 on the year you are 64. So you need to transfer at least $50,000 to your RRIF by Dec 31 of 2020 if you are turning 65 in 2021 and wish to claim the full $2K. Since 4% of $50K is $2K, you will not have tax deducted from the $2K (but may end up paying income tax on other income such as pension income from employment). You would have tax deducted on any excess amounts over $2K withdrawn from the RRIF, however.

The $2K tax credit cannot be carried forward or back but may be claimed by an eligible spouse if you are not claiming. Use it or lose it.
You don't need to transfer that much ($50K). 4% is the minimum you have to withdraw but nothing is preventing you from withdrawing more. For example, you could transfer $12000 from your RRSP to a RRIF ($2000 x 6 years) and withdraw each year $2000 until you reach 71 years (at which age all RRSPs must be converted into RRIF).
Sr. Member
Jan 15, 2015
619 posts
356 upvotes
komodor wrote: You don't need to transfer that much ($50K). 4% is the minimum you have to withdraw but nothing is preventing you from withdrawing more. For example, you could transfer $12000 from your RRSP to a RRIF ($2000 x 6 years) and withdraw each year $2000 until you reach 71 years (at which age all RRSPs must be converted into RRIF).
Let me clarify: in order to withdraw the full $2K without having taxes withheld, you need to transfer $50K. Another condition is that if you use a younger spouse's age when you first set up the RRIF, the minimum amount is less than 4%.

So if you simply transfer $12K into an RRIF by Dec 31 of 2020, you would only be able to withdraw 4% x $12K or $480 tax free in 2021. You could still withdraw $2K but would only receive about 85% of that amount as the rest is sent to Canada Revenue (and provided you have minimal pension income you would see most or all of it refunded).
Newbie
Feb 20, 2018
34 posts
29 upvotes
komodor wrote: You don't need to transfer that much ($50K). 4% is the minimum you have to withdraw but nothing is preventing you from withdrawing more. For example, you could transfer $12000 from your RRSP to a RRIF ($2000 x 6 years) and withdraw each year $2000 until you reach 71 years (at which age all RRSPs must be converted into RRIF).
You can most definitely withdraw more than the minimum; however, a withholding tax will be applied to excess of the required minimum. In your example, if you transfer $12,000 and the minimum is say $480, anything over $480 will have withholding tax applied to.
Hope this helps.

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