Look be­fore you make the RRIF leap

Ottawa Citizen - - RRSP PLANNING - JA­SON HEATH Ja­son Heath is a fee-only cer­ti­fied fi­nan­cial plan­ner (CFP) and in­come tax pro­fes­sional for Ob­jec­tive Fi­nan­cial Part­ners Inc. in Toronto.

Our spend­ing ques­tion re­lates to “what” money to spend. We have aboveav­er­age amounts set aside in each of our RRSPs. Should we start to draw some money from the RRSPs in or­der to al­le­vi­ate the tax im­pli­ca­tions at the time of Reg­is­tered Re­tire­ment In­come Fund pay­ments? We be­lieve that the RRIF for­mula ap­plied to th­ese amounts as they now stand, plus on­go­ing in­come from the other ac­counts as well as CPP and OAS (all likely to be clawed back), will put us in a much higher tax bracket than we are in at this point. DONNA

Know­ing what money to spend, and when, can be tough. When you’re work­ing, es­pe­cially as a salaried em­ployee, it’s a pretty easy de­ci­sion. For the work­ing pop­u­la­tion, the ques­tion is usu­ally where to al­lo­cate ex­tra cash flow — as­sum­ing there is some.

So it’s no sur­prise that in re­tire­ment, when peo­ple are draw­ing down on as­sets, it’s con­fus­ing or some­times out­right in­tim­i­dat­ing try­ing to de­ter­mine where the money is go­ing to come from.

Donna sounds more cu­ri­ous than wor­ried, but some peo­ple are ex­ces­sively wor­ried. Some pre-re­tirees work too long or too hard be­cause all they know is that they earn “X” dol­lars right now and if

‘For those who re­tire young and have siz­able RRSPs, it’s not un­com­mon to see very low rates of tax in one’s 60s and then very high rates of tax in one’s 70s.’ JA­SON HEATH Cer­ti­fied Fi­nan­cial Plan­ner

they re­tire, “X” is a big num­ber to re­place. But it’s im­por­tant to note that it’s not “X” that you need to re­place — it’s “X” less CPP, EI, union dues, ben­e­fits, pen­sion, RRSP and TFSA con­tri­bu­tions, among other things.

You also pay less tax as a re­tiree by virtue of pen­sion (in­clud­ing RRSP/RRIF) and age tax cred­its. And if you’re earn­ing a high in­come while work­ing, you might be paying 50 per cent tax on some of your earn­ings, so some of the de­cline in your in­come might only mean 50 cents less in your pocket for ev­ery dol­lar your in­come de­clines.

For Donna and her hus­band, both aged 62, with lots set aside in RRSPs, it sounds like a not-so-bad prob­lem to have. But it can be, from a tax per­spec­tive. Ev­ery dol­lar of RRSP with­drawals is tax­able. Es­pe­cially for those who re­tire young and have siz­able RRSPs, it’s not un­com­mon to see very low rates of tax in one’s six­ties and then very high rates of tax in one’s sev­en­ties. In some cases, this leads to an over­es­ti­mate of wealth in the low-tax six­ties and a faster de­cline in wealth in the high-tax sev­en­ties.

The so­lu­tion? Choose to pay a bit of tax to CRA to­day. By tak­ing early RRSP with­drawals, even if you don’t need the money to live on, you may pay less tax over the course of your life, for a va­ri­ety of rea­sons.

In par­tic­u­lar, most peo­ple would be bet­ter off in a mid­dle-of-the-road tax bracket for most of their life as op­posed to the low­est tax bracket in their six­ties and the high­est in the fol­low­ing two decades.

In­come smooth­ing may also pre­serve government ben­e­fits like Old Age Se­cu­rity (OAS), which might oth­er­wise get clawed back af­ter age 65 if your in­come is too high.

The fi­nan­cial in­dus­try gen­er­ally doesn’t spend nearly as much time as it should help­ing peo­ple plan what to do with their bi­weekly pay­cheques. Which ac­counts should money go into? Should you pay down debt?

Donna’s ques­tion is, there­fore, a good one. It’s one you should be ask­ing your­self or your ad­vis­ers to en­sure a plan ex­ists to help you best get from A to Z.


When you take the leap into re­tire­ment, it’s im­por­tant to know that you have a safety net to keep you fi­nan­cially com­fort­able. Set­ting up the right fund can be in­tim­i­dat­ing.


Fi­nan­cial plan­ning con­sul­tant Ja­son Heath says peo­ple don’t get enough help plan­ning for their re­tire­ment.

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