Our goals are to retire in about 7 years at age 52 with $1.65MM in investments to throw off an annual income of $65K based on a 4% SWR. Our current savings rate is about 40% with a spend of $84K per year, but we also have these active growing boys (12 and 13) eating the cupboards bare. In 7 years they will be feeding themselves, buying their own bikes and a spend of $65K/yr will be luxurious.
You have this well thought out. I am probably overloading you with reading and this one is for later, but The Real Retirement by Fred Vettese and Bill Morneau (yeah, that guy) is a good look at how much of your current income you will need in retirement based on your lifestyle. https://www.amazon.ca/Real-Retirement-Could-Better-Happen/dp/111849864X
Another one I got from the library.
Heckler and Stasher seemed concerned about $850K in RRSP. Please elaborate. More is better right? Granted there will be taxes in the future but that seems far superior to not having a healthy stash.
It is a myth that the benefit of an RRSP is tax-deferred compounding. The real benefit of tax-deferred accounts
like RRSPs is deferring taxes until your income is lower, therefore your tax rate is lower. That's common in retirement when youare not earning a salary or paying CPP/EI, or saving for retirement, and the kids are off the payroll.
The problem comes in when you have to convert a RRSP to a RRIF which is no later than the end of the year you turn 71 (I think couples can use the age of the lower spouse but let's ignore that for now). You can convert earlier if you want. But once you convert to a RRIF, every year after the year in which it is created you must
withdraw the minimum amount which changes with age. You can see the age factors here: https://www.woodgundy.cibc.com/wg/reference-library/topics/retirement-planning/rrsp-maturity-options/rrif-minimal-withdrawal.html
So the year you turn 72, you will have to withdraw 5.28% of the RRIF value at the end of the previous year. If you have $1M in your RRIF, you will be required to withdraw $52800. Now add approx $20k for CPP/OAS payments, and say you have $20k in pension income. Your income for the year is now over $90k, which could drive a higher tax rate than when you were working.
The other problem is OAS gets clawed back (I think the official name is OAS recovery tax) once your income goes above around $75k, by 15% for every dollar your income is above that threshold. It all gets clawed back by about $120k of income.
So if your RRSP gets too big you have a double whammy of getting hit with higher income tax rates, plus some or all of your OAS being clawed back. There are worse things than paying a lot of tax, like running out of money in retirement.
How do you manage this dilemma? Option one is contribute less to RRSP, and direct those savings to non-registered accounts instead. Another approach is to spend down some of the RRSP money after retirement but before you hit age 71. Your early retirement plans will give you lots of years to do that. From when you retire until you start collecting OAS (earliest age 65, latest age 70) you can withdraw as much as you want from the RRSP or RRIF, and probably pay less tax than leaving it until age 71 when you are forced to convert. Then from when you start OAS to the year you turn 71 you can withdraw until your income gets up to the ~$75k OAS clawback threshold. Note I have used numbers for a single person for all of the above... if your RRSP is split among both it will change the analysis.
So what do you do now? I say don't let this stop you from the self directed investing plan... Your RRSP is what it is, and delaying moving to a lower cost portfolio is not gonna make it worse in the short term. But as previous posters said you need to think longer term and have a good tax plan. This is where a good fee only
financial planner can help, using software that considers tax rates and investment returns. Or with enough reading and number crunching you can analyze it yourself. But for the amount of $ we are talking about, spending a little on a comprehensive plan can be well worth it. Remember you are paying 5 figure MERs every year now, and AdviceDirect would have cost you $3750/year for something that would not be nearly as customized or comprehensive.
Albert Einstein is reported to have said “The hardest thing in the world to understand is the Income Tax.” I do find that if I think about investing taxes too long my brain gets all foggy and I start typing random incoherent gibberishjlkjhf kjh fakjdhqe8hf uiyf uf euyfh udft ...