Author Topic: Nearing retirement with some RRSP and TFSA room + US cash: where to put what?  (Read 1039 times)

Anon-E-Mouze

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DH and I are looking at retirement in 2024-2025 (or possibly downshifting for me in 2024 while he works another couple of years).  Our situation is complicated but the basic question I have (set out at the bottom of this post) is about what to do with a chunk of US$ that is currently sitting in a savings account.

Because we lived in the US for 10+ years (and in Europe and the Middle East for a few years before that), our financial asset situation is somewhat complicated. We've got substantial financial assets at US and Canadian financial institutions, future corporate pension streams from US companies, future Social Security and CPP (SS subject to WEP), and a small government employer pension from Canada.

The last few years were a bit rocky, financially (DH was unemployed for the better part of two years so I was the sole income earner on a lower salary than what I make now and with a large mortgage). But 2022 is looking better because my salary has jumped 67%, DH has a job, our mortgage is less massive (and the rate dropped to 1.69%), and my dad just gave us a car. We have some RRSP contribution room (probably about $75K for me + 15K for him). I'm caught up on TFSAs (except for 2022), while DH has $29.5K of contribution room. He is not accumulating any RRSP room because he's currently working remotely for a US employer.

We don't plan on tapping our various pension income streams until we're 65 (or 67 for SS etc), so we'll need to live on a combination of financial asset drawdowns and dividends, plus some employment income (e.g. if DH continues working or if I work part-time) and cash reserves.

I'd like to start getting us set up for 2024-2026 with a lower-risk financial cushion to supplement any employment income we bring in for the first couple of years of retirement or semi-retirement. I'm trying to figure out where to put our savings for the year.

We will be carrying a mortgage into retirement (probably will have it paid off about 5 years after we retire). We currently have about 8 months of expenses (one year of core expenses) in cash or very liquid investments (although a good portion of it is subject to exchange rate risk as it's in USD).

My salary puts me in the top income tax bracket, I expect to be withdrawing from my RRSP as soon as I stop working (especially to fund the pre-pension years), and I expect my income once I fully retire will be about half what it is now. So it seems to me that it would make sense to continue doing what I've been doing for the past couple of years since I moved back to Canada, which is to fill up my RRSP, reduce my taxable income, and then take tax refunds and invest them first in my TFSA (if there's room) and then in taxable accounts.

However, I also have about $20K sitting in a USD account earning a small amount of interest. Last year, I transferred about US$5K from this account (reducing the balance from US$25K to US$20K) to the USD side of my TFSA at TD and then invested that sum in a USD ETF.

So, a few questions:

1. I'm looking for views on whether I'm correct to be continuing to fill up contribution room in my RRSP while I'm earning a very high income, even though I expect to start drawing it down beginning in 2024 or 2025.

2. Should I transfer some of the US cash to the US side of my TFSA in 2022, to the maximum allowed in C$, or should I treat this US$ as part of the cash cushion that would come in handy when I retire in a few years to reduce my SORR? Of course, one never knows what the exchange rate will be in a few years and it's quite possible that I wouldn't want to convert USD to CD if the exchange rate was poor. Maybe I'm better off investing the USD in USD-denominated funds or ETFs and building up a Canadian cash cushion instead?

3. DH is in a similar situation, since he's earning USD for a US employer and has started accumulating US cash in a savings account on top of the cash he already has. Maybe it would make sense for him to fund his TFSA (in a USD-denominated component of his TFSA with USD-denominated funds or ETFs)? Or should he keep it liquid?

If it's relevant, our USD-denominated investments are about the same size as our CD-denominated investments.

4. Should I be turning off dividend reinvestment in my RRSP, TFSA and/or unregistered accounts now in order to build up some cash? Or should I wait another year or two or three?