Author Topic: RRSP/RRIF draw down  (Read 7420 times)

bluebelle

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RRSP/RRIF draw down
« on: September 21, 2021, 07:51:55 PM »
We're finally at the draw down phase of our retirement savings...........FIRE (although not so early).....

Anyway, I'm looking at our RRSP balances and projecting what our forced minimum withdrawal will be in our 80s if we wait until the recommended age of 71 to start to pull funds out of our RRIF.

I think the 'experts' have finally figured out that their advice to leave RRSP funds intact until age 71 when forced to convert to a RRIF and start the draw down is bad advice for deligent savers.   (IE this crowd).

We're in our late 50s, and based on my calculations, we should start pulling money out of our RRSPs or convert a small portion to a RRIF to avoid having to pull out a big chunk of money out when we're in our 80s and get whacked into a higher than necessary tax bracket.   

Question - have others done this?  Started drawing down an RRSP during their early years of FIRE?  Looking a $1M+ RRSP for me, at even a 4% return until I turn 71, I'd be forced to pull $97K out that year.   I'm looking for the lowest lifetime tax implications.

BTW - I am doing a happy dance that my biggest worry right now is which of our retirement funds to dip into.   

damn, I know the answer, I just wanted to come here for some validation.   I can't discuss this with anyone in real world.   DH isn't especially interested in finances

Is there any way to avoid the 30% hit of taxes withheld?  I know if I'm just pulling the minimum from a RRIF, tax isn't withheld.   And if I pull out less than $5,000 it's 10%, but from what I've read if I asked for $2,000 a month, it's seen as $24,000 and the whack of tax is withheld.   Is the only way around it to just pull $5,000 at a time?   

SoftwareGoddess

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Re: RRSP/RRIF draw down
« Reply #1 on: September 22, 2021, 10:25:35 AM »
Yes, I have been drawing down my RRSP for four or five years now. I never understood the reason for the advice to spend down my taxable accounts before my RRSP.

My situation is probably a little different than yours. I have no TFSA, but I have retirement savings in a LIRA and an RRSP. I can't touch the LIRA yet, and it is pretty likely that at age 71, I will face the same issue of large forced withdrawals. At least I'm mitigating the RRSP part of it.

With regard to withheld taxes, I don't think there's a way around the 30% if you are withdrawing more than $5000 annually. But after the first year, I just considered the tax refund as part of my income for the purposes of my spending and adjusted the future withdrawals with that in mind.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #2 on: September 22, 2021, 07:07:19 PM »
Yes, I have been drawing down my RRSP for four or five years now. I never understood the reason for the advice to spend down my taxable accounts before my RRSP.

My situation is probably a little different than yours. I have no TFSA, but I have retirement savings in a LIRA and an RRSP. I can't touch the LIRA yet, and it is pretty likely that at age 71, I will face the same issue of large forced withdrawals. At least I'm mitigating the RRSP part of it.

With regard to withheld taxes, I don't think there's a way around the 30% if you are withdrawing more than $5000 annually. But after the first year, I just considered the tax refund as part of my income for the purposes of my spending and adjusted the future withdrawals with that in mind.
My guess for the mis-guided advice is that 'advisors' aren't considering the tax implications down the road.  Everyone gets so focused on tax-free growth, they forget the impact of being forced to pull $100K plus out down the road.

I could go off on another tanget about my frustrations with locked in RRSPs (which I think a LIRA basically is).....I have a federally regulated and a provincially regulated locked in RRSP, plus my personal RRSP   I can not combine them, so I have to manage 3 different plans.   To add to my 'inconvenience', when I convert them to LRRIFs, to draw them down, the federal and provincial plans have different maximum % that I can withdraw.   I understand the government is 'protecting' the general population from itself, so someone doesn't spend all their retirement savings the first year.....but it is a PIA for me.

Since I anticipate my average tax rate to be lower than 30%, giving the government a tax free loan for months just annoys me.  Oh Lord, I'm a grumpy old woman.....get off my yard!   :-)   I need to remember that this tax will off-set the tax that will be owing on the dividens and capital gains our non-registered investments will be throwing off.


None of my business, but why don't you have a TFSA?   Just curious.


SoftwareGoddess

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Re: RRSP/RRIF draw down
« Reply #3 on: September 22, 2021, 07:55:03 PM »
I agree that it does hurt to temporarily "lose" that 30% on the RRSP withdrawal.

I don't have a TFSA because I am a dual US-Canadian citizen, and my accountant has told me that doing the US tax paperwork on the TFSA every year will cost me more in her services than I would make in the TFSA. Apparently, it is not only very complicated, but also the penalties for doing it wrong are pretty onerous.

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Re: RRSP/RRIF draw down
« Reply #4 on: September 22, 2021, 11:44:52 PM »
My thought is that the older I get, the less I will want a complicated financial situation. Mental decline is a possibility associated with age, and I don't want to be figuring out draw-downs when my heart wants to be doing crosswords by a sunny window.
My plan is to use up the RRSP first, letting it cover living expenses and fund my TFSA. It will involve a bigger tax bill, but I accept that as the cost of doing business. When the RRSP is gone I will have just the TSFA left, which is amazingly flexible and (currently) triggers no taxes. If I need services in my old age I will qualify, since my taxable income will be extremely low.
The goal is to retire with enough money that I don't need to worry about tax implications, just simplicity of operation for my financial plan.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #5 on: September 23, 2021, 08:20:41 AM »
I agree that it does hurt to temporarily "lose" that 30% on the RRSP withdrawal.

I don't have a TFSA because I am a dual US-Canadian citizen, and my accountant has told me that doing the US tax paperwork on the TFSA every year will cost me more in her services than I would make in the TFSA. Apparently, it is not only very complicated, but also the penalties for doing it wrong are pretty onerous.
I forgot about some of the penalties/complexities for dual citizens.....I'll stop my bitching.....

bluebelle

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Re: RRSP/RRIF draw down
« Reply #6 on: September 23, 2021, 08:24:23 AM »
My thought is that the older I get, the less I will want a complicated financial situation. Mental decline is a possibility associated with age, and I don't want to be figuring out draw-downs when my heart wants to be doing crosswords by a sunny window.
My plan is to use up the RRSP first, letting it cover living expenses and fund my TFSA. It will involve a bigger tax bill, but I accept that as the cost of doing business. When the RRSP is gone I will have just the TSFA left, which is amazingly flexible and (currently) triggers no taxes. If I need services in my old age I will qualify, since my taxable income will be extremely low.
The goal is to retire with enough money that I don't need to worry about tax implications, just simplicity of operation for my financial plan.
I'm certainly looking for simplicity as I age, my plan is to convert some if not all of my RRIFs to annuities sometime in my 80s.   At the very least, the locked up RRIFs, just so I don't need to manage them.

I know this isn't the forum to talk about spending more, but I suspect I'll be doing that in my late 60s early 70s, when I realize just how much too much we saved.   

FIRE Artist

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Re: RRSP/RRIF draw down
« Reply #7 on: September 24, 2021, 09:35:07 PM »
I intend to draw down my RRSP between when I retire at 50 and start my work pension at 65.  I am SINK and will be doing VPW and hope to die with near zero and will essentially take out 1/15 of the remaining balance in my RRSP annually and the rest will come from my taxable account.  I will also take an additional amount out of my RRSP account and transfer that to my TFSA.

Here is the basics of my plan, my registered accounts make up about 1/3 of my total non pension savings.  The total amount I will withdraw annually will be based on the VPW spreadsheet.

From 50 - 65 withdraw 1/15 of my RRSP and the remaining from my taxable account.  I will also take an additional sum RRSP to fund my TFSA.  My calculations show that I can do this all while staying in the lowest federal tax bracket.  When the inevitable stock market crash comes, and the VPW spreadsheet calculates for low withdrawal number (>30% reduction in income) I will mitigate the impact on my after tax money by drawing only from my taxable accounts that year, taking advantage of the lower capital gains taxes. 

At 65 my RRSP will be gone and replaced with my small pension.  I will continue to calculate my annual withdrawal with the VPW spreadsheet and take the difference from my taxable account.  Should there be a stock market crash, I can consider taking some from my TFSA instead of taxable account if it makes sense tax wise, but in a deep market decline it likely won’t make much of a difference. 

At 71 I start taking CPP and OAS, supplementing with taxable and TFSA.  This will be at the highest tax rates I will have since retirement, but I expect that my lifestyle spending will start to wind down anyway so this shouldn’t be as much of a hardship.  I will still be calculating my annual income with VPW, my mother is still mentally sharp as a tack at 78 so I assume that I will be too. 

At 75 I will convert half of my remaining investment into an annuity, this fix my spending floor for the rest of my life, I will continue to supplement with my remaining investments (which should all be in TFSA) but likely will not still be doing the calculations, rather spending what I want until it is gone.  I have set up my VPW to drain my investments by 95 but my actual life expectancy is realistically around 85 so I never actually expect to hit my spending floor. 

Should i have long term care needs, the equity in my house should cover that nicely, otherwise my nieces and nephews will inherit. 
« Last Edit: September 24, 2021, 09:38:48 PM by FIRE Artist »

FIRE Artist

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Re: RRSP/RRIF draw down
« Reply #8 on: September 24, 2021, 09:44:48 PM »
My thought is that the older I get, the less I will want a complicated financial situation. Mental decline is a possibility associated with age, and I don't want to be figuring out draw-downs when my heart wants to be doing crosswords by a sunny window.
My plan is to use up the RRSP first, letting it cover living expenses and fund my TFSA. It will involve a bigger tax bill, but I accept that as the cost of doing business. When the RRSP is gone I will have just the TSFA left, which is amazingly flexible and (currently) triggers no taxes. If I need services in my old age I will qualify, since my taxable income will be extremely low.
The goal is to retire with enough money that I don't need to worry about tax implications, just simplicity of operation for my financial plan.
I'm certainly looking for simplicity as I age, my plan is to convert some if not all of my RRIFs to annuities sometime in my 80s.   At the very least, the locked up RRIFs, just so I don't need to manage them.

I know this isn't the forum to talk about spending more, but I suspect I'll be doing that in my late 60s early 70s, when I realize just how much too much we saved.

Consider looking into VPW and reading the book Die with Zero.  There is no reason to wait until your late 60’s or 70’s to spend the excess.  VPW is a handy way to calculate what you can spend while ensuring you don’t run out of money.  If you intend to leave an inheritance to your kids, consider giving them the money while you are still alive, or keep that money segregated from your VPW calculation. 

Chaplin

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Re: RRSP/RRIF draw down
« Reply #9 on: September 24, 2021, 11:05:08 PM »
As mentioned in the OP, the withholding tax and deregistration fees are different if you withdraw from a RRIF. Something I learned from a similar question here was that you can convert only a part of your RRSP to a RRIF, and even convert it back to an RRSP if there's some reason to do that. I haven't decided on that yet (just FIRE'd four months ago), but definitely worth considering.

I'm planning to withdraw extra each year to fully fund the TFSA, which helps draw down the RRSP faster so it will avoid getting into mandatory minimum withdrawal territory. A TFSA is a far better place to leave funds for your heirs if you fail to Die With Zero(TM) anyway.

To reduce the sting of the withholding rates I'm planning to do my main withdrawals near the end of the year so I can get the tax refund in just a few months (March, hopefully). Having FIRE'd this year my next tax refund will be a big one, reducing the need for withdrawals. Next year I'll look at doing a conversion to a RRIF, although for a year or two I hope my wife and I can clean up our smaller accounts (Spousal RRSPs, LIRAs, etc.) so that might push back the need to do the RRIFs for the larger RRSP accounts.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #10 on: September 28, 2021, 04:38:47 AM »
My thought is that the older I get, the less I will want a complicated financial situation. Mental decline is a possibility associated with age, and I don't want to be figuring out draw-downs when my heart wants to be doing crosswords by a sunny window.
My plan is to use up the RRSP first, letting it cover living expenses and fund my TFSA. It will involve a bigger tax bill, but I accept that as the cost of doing business. When the RRSP is gone I will have just the TSFA left, which is amazingly flexible and (currently) triggers no taxes. If I need services in my old age I will qualify, since my taxable income will be extremely low.
The goal is to retire with enough money that I don't need to worry about tax implications, just simplicity of operation for my financial plan.
I'm certainly looking for simplicity as I age, my plan is to convert some if not all of my RRIFs to annuities sometime in my 80s.   At the very least, the locked up RRIFs, just so I don't need to manage them.

I know this isn't the forum to talk about spending more, but I suspect I'll be doing that in my late 60s early 70s, when I realize just how much too much we saved.

Consider looking into VPW and reading the book Die with Zero.  There is no reason to wait until your late 60’s or 70’s to spend the excess.  VPW is a handy way to calculate what you can spend while ensuring you don’t run out of money.  If you intend to leave an inheritance to your kids, consider giving them the money while you are still alive, or keep that money segregated from your VPW calculation.

VPW is variable percentage withdrawal?
Die with Zero hold placed with the library, thank you for the recommendation.....while I'd like the book now, I am happy to see a 'longish' hold line up, means there are other like minded souls out there.

And I know we can spend more now, and we do spend 'more' by mustachian standards, it's just hard to change gears from saving to spending.   

FIRE Artist

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Re: RRSP/RRIF draw down
« Reply #11 on: September 28, 2021, 11:49:45 AM »
Yes, VPW = Variable Percentage Withdrawal.  Here is the link to the Canadian page https://www.finiki.org/wiki/Variable_percentage_withdrawal

The great thing about VPW is that it an actual calculation that lets you know exactly what you can take in any given year, and instead of just making general statements about “take out less when the markets are down”, this gives your number, in a spreadsheet format that you can understand and look under the hood to see how exactly it is calculated (important to me). I have been able to customize my own version of the VPW, changing my max life expectancy to 95, creating retirement scenarios for leaving today, or any of the next 3 years, calculate how moving from a 90/10 to 60/40 portfolio will impact annual withdrawal, add in a calculation of how the withdrawal will compare to my actual current lifestyle money as % replacement, etc.  Most books on financial planning including an online calculator, but I just don’t trust things that I can’t see how it works, make fixed assumptions about longevity and taxation obligations - I would never trust a black box to calculate something this important for me.   


The Die with Zero book is really a philosophy on how and when to save and when to withdraw (spend).  And as far as Mustachianism goes, you could always choose to give away any surplus - excess to annual spending doesn’t have to mean burning it on consumerist things.  What really hit home for me from this book was that I should be considering at what age I should reach max net worth, and even if I were to choose to continue to work, I should still take out the max annual amount from my portfolio and use it in whatever means I want.  I am using the VPW calculation to help me figure out what my max net worth should be, and at what age I will hit it. 

FLBiker

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Re: RRSP/RRIF draw down
« Reply #12 on: September 28, 2021, 02:00:17 PM »
Yes, VPW = Variable Percentage Withdrawal.  Here is the link to the Canadian page https://www.finiki.org/wiki/Variable_percentage_withdrawal

The great thing about VPW is that it an actual calculation that lets you know exactly what you can take in any given year, and instead of just making general statements about “take out less when the markets are down”, this gives your number, in a spreadsheet format that you can understand and look under the hood to see how exactly it is calculated (important to me). I have been able to customize my own version of the VPW, changing my max life expectancy to 95, creating retirement scenarios for leaving today, or any of the next 3 years, calculate how moving from a 90/10 to 60/40 portfolio will impact annual withdrawal, add in a calculation of how the withdrawal will compare to my actual current lifestyle money as % replacement, etc.  Most books on financial planning including an online calculator, but I just don’t trust things that I can’t see how it works, make fixed assumptions about longevity and taxation obligations - I would never trust a black box to calculate something this important for me.   


The Die with Zero book is really a philosophy on how and when to save and when to withdraw (spend).  And as far as Mustachianism goes, you could always choose to give away any surplus - excess to annual spending doesn’t have to mean burning it on consumerist things.  What really hit home for me from this book was that I should be considering at what age I should reach max net worth, and even if I were to choose to continue to work, I should still take out the max annual amount from my portfolio and use it in whatever means I want.  I am using the VPW calculation to help me figure out what my max net worth should be, and at what age I will hit it.

Thanks for this!  We are basically at our FI number, but I've been looking for a firmer way to confirm that very thing -- what should our max net worth be, and when will we be there.  I will definitely look at this.  Thanks!

bluebelle

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Re: RRSP/RRIF draw down
« Reply #13 on: September 29, 2021, 09:19:33 AM »
Yes, VPW = Variable Percentage Withdrawal.  Here is the link to the Canadian page https://www.finiki.org/wiki/Variable_percentage_withdrawal

The great thing about VPW is that it an actual calculation that lets you know exactly what you can take in any given year, and instead of just making general statements about “take out less when the markets are down”, this gives your number, in a spreadsheet format that you can understand and look under the hood to see how exactly it is calculated (important to me). I have been able to customize my own version of the VPW, changing my max life expectancy to 95, creating retirement scenarios for leaving today, or any of the next 3 years, calculate how moving from a 90/10 to 60/40 portfolio will impact annual withdrawal, add in a calculation of how the withdrawal will compare to my actual current lifestyle money as % replacement, etc.  Most books on financial planning including an online calculator, but I just don’t trust things that I can’t see how it works, make fixed assumptions about longevity and taxation obligations - I would never trust a black box to calculate something this important for me.   


The Die with Zero book is really a philosophy on how and when to save and when to withdraw (spend).  And as far as Mustachianism goes, you could always choose to give away any surplus - excess to annual spending doesn’t have to mean burning it on consumerist things.  What really hit home for me from this book was that I should be considering at what age I should reach max net worth, and even if I were to choose to continue to work, I should still take out the max annual amount from my portfolio and use it in whatever means I want.  I am using the VPW calculation to help me figure out what my max net worth should be, and at what age I will hit it.

thank you!

daverobev

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Re: RRSP/RRIF draw down
« Reply #14 on: September 29, 2021, 12:21:42 PM »
Question - have others done this?  Started drawing down an RRSP during their early years of FIRE?

Yup this absolutely wants to be the first thing you do - remember that OAS + CPP are all taxable, you want to have pulled as much out of your RRSP as possible before they kick in and push you up a(nother) tax bracket!

I don't want to be morbid but just remember when you die the RRSP gets liquidated in its entirety - so if you have people to leave money to, again, you want to get the RRSP reduced.

RRSP drawdown as soon as sensibly possible (ie as soon as you enter a new tax year after pulling the plug) and into your TFSA.

Chaplin

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Re: RRSP/RRIF draw down
« Reply #15 on: September 29, 2021, 05:07:48 PM »
Question - have others done this?  Started drawing down an RRSP during their early years of FIRE?

Yup this absolutely wants to be the first thing you do - remember that OAS + CPP are all taxable, you want to have pulled as much out of your RRSP as possible before they kick in and push you up a(nother) tax bracket!

I don't want to be morbid but just remember when you die the RRSP gets liquidated in its entirety - so if you have people to leave money to, again, you want to get the RRSP reduced.

RRSP drawdown as soon as sensibly possible (ie as soon as you enter a new tax year after pulling the plug) and into your TFSA.

Yes, @daverobev nailed it. Clear the RRSPs (and LIRAs and LRSPs) early, take enough extra each year to fill your TFSA, and avoid the higher taxable income when OAS and CPP hit, avoid mandatory minimum withdrawals, and put your estate on a better footing (TFSAs are way better than RRSPs for your heirs). Obviously things like age, pensions, etc. could lead to different plans. One thing that's less clear is where to slot in withdrawals from taxable accounts. My plan is to use our taxable account to supplement our baseline RRSP withdrawals for one-offs like a roof or car replacement, or to take a big trip - it's a way to take extra out with less of a tax hit (only on the gains, not the full withdrawal like the RRSP). Alternatively, depending on the relative size of your RRSP and taxable accounts, maybe the taxable account is the way to fund TFSAs each year.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #16 on: October 17, 2021, 08:33:32 AM »
thank you for all the replies.....because I'm a geek, I've gone off and built a spreadsheet that looks a various withdrawal rates at different ages.....we're going to be just fine......nice Sunday morning endeavor for me.   Does demonstrate that I need to work on the de-accumulation phase of my life.   I recently listened to an audiobook "dumb things smart people do with their money", and one of the points that resonated with me is that I'm too obsessed with money.   I have "enough", but I'm constantly checking balances, constantly playing with spreadsheets, constantly worrying about money.   I'm a little too obsessed, and it's not healthy for me.   Dollar cost averaging worked for me during the accumulation years, I need to utilize it during my retirement years.   Stop stressing about "when" to withdraw, use a set it and forget it model.   (checking in often enough that I can correct for dramatic market swings)


daverobev

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Re: RRSP/RRIF draw down
« Reply #17 on: October 17, 2021, 03:24:27 PM »
thank you for all the replies.....because I'm a geek, I've gone off and built a spreadsheet that looks a various withdrawal rates at different ages.....we're going to be just fine......nice Sunday morning endeavor for me.   Does demonstrate that I need to work on the de-accumulation phase of my life.   I recently listened to an audiobook "dumb things smart people do with their money", and one of the points that resonated with me is that I'm too obsessed with money.   I have "enough", but I'm constantly checking balances, constantly playing with spreadsheets, constantly worrying about money.   I'm a little too obsessed, and it's not healthy for me.   Dollar cost averaging worked for me during the accumulation years, I need to utilize it during my retirement years.   Stop stressing about "when" to withdraw, use a set it and forget it model.   (checking in often enough that I can correct for dramatic market swings)

I've been somewhat the same. Lots of complexity for me because of country-hopping.

From next year I'm going to switch to doing everything quarterly I think. Rebalance/sell and withdraw on the first of each quarter. And try to stop worrying about it all.

Anon-E-Mouze

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Re: RRSP/RRIF draw down
« Reply #18 on: October 18, 2021, 07:47:49 PM »
We are starting to plan more earnestly for retirement in 2024 (at about age 60) and, like many others, I'm just starting to realize I need to get a better grip on drawdown strategies. Although our retirement is likely to be "Fat FIRE", it's also quite complex because we've accumulated financial assets (and pensions) in the US and Canada, including US social security pensions, two US corporate pensions, one Canadian government employer pension, CPP entitlements, and a grab bag of RRSPs, TFSAs, IRAs, 401ks, and a few direct investments.

Over the weekend, I did some research to see if there are any recent, Canadian books that deal with retirement income drawdown strategies - especially books that might deal with multiple income sources. I ended up buying a hard copy (!) of 3rd edition of Daryl Diamond's book, Your Retirement Income Blueprint. I haven't bought a book (other than a photobook) in a couple of years, preferring to check books out of the library, but this one wasn't available. I haven't read it thoroughly yet but my first pass-through suggests that it was probably worth the price. It's quite detailed and there isn't too much fluff.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #19 on: October 19, 2021, 08:55:00 AM »
We are starting to plan more earnestly for retirement in 2024 (at about age 60) and, like many others, I'm just starting to realize I need to get a better grip on drawdown strategies. Although our retirement is likely to be "Fat FIRE", it's also quite complex because we've accumulated financial assets (and pensions) in the US and Canada, including US social security pensions, two US corporate pensions, one Canadian government employer pension, CPP entitlements, and a grab bag of RRSPs, TFSAs, IRAs, 401ks, and a few direct investments.

Over the weekend, I did some research to see if there are any recent, Canadian books that deal with retirement income drawdown strategies - especially books that might deal with multiple income sources. I ended up buying a hard copy (!) of 3rd edition of Daryl Diamond's book, Your Retirement Income Blueprint. I haven't bought a book (other than a photobook) in a couple of years, preferring to check books out of the library, but this one wasn't available. I haven't read it thoroughly yet but my first pass-through suggests that it was probably worth the price. It's quite detailed and there isn't too much fluff.
thanks for the book suggestion.   Might be a good use of all the 'chapters' gift cards I accumulated from a former job and forgot about.   I switched from buying books to borrowing from the library years ago, for two reasons, we were being buried in books, and it's a stupid expense.   

Blissful Biker

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Re: RRSP/RRIF draw down
« Reply #20 on: October 19, 2021, 10:05:41 AM »
I'll be retiring in a couple of months, which is earlier than I anticipated, so I am also working on developing a drawdown plan.  Thanks for the book recommendations!

What I have learned so far is consistent with the other posters - draw primarily from my RRSP and use it to fund the TFSA to avoid high tax bills when CPP/OAS come on line and minimum mandatory RRIF withdrawals at 71.

Mighty Eyebrows

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Re: RRSP/RRIF draw down
« Reply #21 on: October 19, 2021, 03:12:23 PM »
One more book recommendation:

Retirement Income for Life
by Fred Vettese
https://www.amazon.ca/Retirement-Income-Life-Getting-without/dp/1770416021

His work is more aimed at "average" Canadian households, but the basic principles are all good. Any of his articles are worth reading, as well.

I also encourage reading into the VPW approach mentioned above, hosted at the Financial Wisdom Forum. As well as the core drawdown concept, the built-in assumptions in the spreadsheet will plan for RRSP drawdown and CPP delay to 70.


thinkerGirl

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Re: RRSP/RRIF draw down
« Reply #22 on: October 23, 2021, 05:38:46 PM »
Was able to put a hold at our local library  (Mississauga System in case anyone is from that area) yay!  Thanks for the suggestion.   

treffpunkt

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Re: RRSP/RRIF draw down
« Reply #23 on: October 31, 2021, 11:34:51 AM »
My thought is that the older I get, the less I will want a complicated financial situation. Mental decline is a possibility associated with age, and I don't want to be figuring out draw-downs when my heart wants to be doing crosswords by a sunny window.
My plan is to use up the RRSP first, letting it cover living expenses and fund my TFSA. It will involve a bigger tax bill, but I accept that as the cost of doing business. When the RRSP is gone I will have just the TSFA left, which is amazingly flexible and (currently) triggers no taxes. If I need services in my old age I will qualify, since my taxable income will be extremely low.
The goal is to retire with enough money that I don't need to worry about tax implications, just simplicity of operation for my financial plan.

I could have written this! It describes my thoughts and plans to a T.

I'll be retiring in April at 49 and will clear out the RSPs for living expenses and TFSA contributions starting the next year at 50.

Thanks for all the book suggestions in this thread too. I lucked out with all being available through my library system.

Gerard

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Re: RRSP/RRIF draw down
« Reply #24 on: November 23, 2021, 11:53:02 AM »
+1 on the Vettese recommendation. Executive summary: Canadian govt money (CPP/OAS/GIS) is  stable and reliable, so you can quell fears of market volatility or declining brain by cashing out your RRSP first and delaying CPP (and maybe OAS) till 70 for the larger payments. 

I retired at 60 (a couple of years back) and I'm trying to cash out my RRSP over the next ten years. But all my investments keep making money, leaving me with higher taxes and bigger required withdrawals than I expected!

(hmmm, this sounds like a "mustachian people problems" post...)

scottish

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Re: RRSP/RRIF draw down
« Reply #25 on: November 23, 2021, 06:16:05 PM »
I expect the same sort of problems.   We hope to focus on minimizing taxes every year, so keeping a close eye on the RSP/RIF withdrawal rate is going to be a big part of that.

On the CPP side, my view is that if someone is offering me money, I'll take it.     Who knows if I'll still be around at 71?   It makes me want to RE pretty soon when I put it that way (I'm 57).

Mighty Eyebrows

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Re: RRSP/RRIF draw down
« Reply #26 on: November 25, 2021, 12:16:45 PM »
On the CPP side, my view is that if someone is offering me money, I'll take it.     Who knows if I'll still be around at 71?

The better question is "Who knows if I will still be around at age 98?" Longevity insurance is very worthwhile, especially for awesome healthy optimistic mustachians. Delayed gratification should also be strong with you.

scottish

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Re: RRSP/RRIF draw down
« Reply #27 on: November 25, 2021, 03:38:10 PM »
The life expectancy calculator says I'm looking at 92.    That's lots of time for the government to raid the CPP!.   Grab it while it's there!

I don't see delayed gratification playing a role here.   We don't have a money problem. 

In terms of longevity the CPP isn't nearly enough to provide for any sort of care.   Private long term care rooms - nice ones - are around 8K/month.   At home care can get up to 30K/month (speaking from experience here).     Maybe the CPP would cover the rent for a personal care robot, though!





Mighty Eyebrows

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Re: RRSP/RRIF draw down
« Reply #28 on: November 25, 2021, 11:58:26 PM »
The life expectancy calculator says I'm looking at 92.    That's lots of time for the government to raid the CPP!.   

In other words you have a 50% chance of outliving 92. How lucky do you feel? Are you going to be happy to be micromanaging your investments at that age?

Also, there is no way for government to raid CPP. It is your money administered by an independent investment board. I wish this misconception would die, but Canadians are much too influenced by wailing from the USA about social security.

scottish

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Re: RRSP/RRIF draw down
« Reply #29 on: November 26, 2021, 03:54:11 PM »
The life expectancy calculator says I'm looking at 92.    That's lots of time for the government to raid the CPP!.   

In other words you have a 50% chance of outliving 92. How lucky do you feel? Are you going to be happy to be micromanaging your investments at that age?

Also, there is no way for government to raid CPP. It is your money administered by an independent investment board. I wish this misconception would die, but Canadians are much too influenced by wailing from the USA about social security.

I think we just have different approaches in this regard.    I have little belief that the government will look after me.    It sounds like you have more faith in the government...

I will also note that the government fired the head of the CPPIB last winter when he didn't do want they wanted - it was vaccine tourism which is ethically questionable.   So the CPP is not independent of the government.

My copy of "Retirement Income for Life" arrived!   I'll read chapter 12 and see if they convince me differently.

« Last Edit: November 26, 2021, 05:34:04 PM by scottish »

Mighty Eyebrows

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Re: RRSP/RRIF draw down
« Reply #30 on: November 28, 2021, 09:39:37 PM »
My copy of "Retirement Income for Life" arrived!   I'll read chapter 12 and see if they convince me differently.

If you want the full knock-down-drag-out debate on CPP deferral, have a look here:
https://www.financialwisdomforum.org/forum/viewtopic.php?t=120086

You get both sides of the argument from a lot of smart people. In particular, read posts by @longinvest carefully. The point is CPP (or OAS) deferral allows you to spend more overall. It also shifts risk from you to the government.

A related point, CPP is the best income annuity you can get. For an excellent discussion of the general role of annuitization in retirement planning, you can read excellent stuff by Wade Pfau:
https://www.advisorperspectives.com/articles/2015/08/04/why-bond-funds-don-t-belong-in-retirement-portfolios

bluebelle

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Re: RRSP/RRIF draw down
« Reply #31 on: December 22, 2021, 01:20:51 PM »
hey all - just checking in.....done the reading assignments!   :-)   I found them very thought provoking.   Die with zero and your money or your life would have helped me 10+ years ago....I have regrets that I didn't do some things when I was younger and healthier.   I also found retirement income for life interesting, maybe because much of the topics resonated with me (it must be good advice, I agree with it, ha!).   Still struggling with the idea of buying an annuity at retirement age (especially with how low rates are), I think I'll circle back to that as I approach 70-75, I'm still comfortable managing our money, although, I have a financial advisor, that has done well for us.

I think I will always struggle with recognizing I have "enough", and the constant fear of outliving my money, the idea of deferring CPP and buying an annuity to mitigate that does give me comfort.   I'm already too old too do some things I want (58) or maybe too broken from working too long, I don't want to wake up at 75 and go 'damn - should have travelled more'....although, with general COVID and Omicron, I don't see travelling much for a year or two.   I do want to make sure we get some trips in before we're 65 and travel insurance jumps up and CC travel insurance becomes pretty useless.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #32 on: December 30, 2021, 09:06:16 AM »
So I pulled the plug and converted DH RRSP to a RRIF, and he'll start draw down next year at age 57 at slightly above the minimum required.   Based on my spreadsheets (oh, how I love spreadsheets!), this will give him a smoother income, rather than a huge spike starting at age 71, which would have in all likelihood resulted in a OAS claw back.    I planned to start mine at the same time, but there are some outstanding monies owed from my former employer (long story, I'll put it in epic FU when the cheque clears).   I expect that to be paid out in 2022, and it be enough that drawing from a RRIF would not be tax advantageous.   (MMM problem)....

anyway, I'm curious about people's RRIF start age.  Are people delaying until age 71?   Or just pulling from an RRSP instead of converting all or part of it to a RRIF?

bluebelle

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Re: RRSP/RRIF draw down
« Reply #33 on: December 30, 2021, 09:09:32 AM »
The goal is to retire with enough money that I don't need to worry about tax implications, just simplicity of operation for my financial plan.
I love your goal, and I do aspire to it.   I'm happy to worry about investments and tax implications in my 50/60 and maybe 70s, but by the time I'm 80 I really want a 'set it and forget it' system in place.   I'm not buy an annuity yet, but intend to by an annuity with RRIF money sometime in the future, to take longevity risk out of the mix for me.

SoftwareGoddess

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Re: RRSP/RRIF draw down
« Reply #34 on: December 30, 2021, 09:25:32 AM »
anyway, I'm curious about people's RRIF start age.  Are people delaying until age 71?   Or just pulling from an RRSP instead of converting all or part of it to a RRIF?

My current plan is to partially convert to a RRIF at age 65, and then pull from the RRIF, so that I can claim the pension income tax credit. Until then, I am just pulling directly from my RRSP.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #35 on: December 30, 2021, 09:38:48 AM »
anyway, I'm curious about people's RRIF start age.  Are people delaying until age 71?   Or just pulling from an RRSP instead of converting all or part of it to a RRIF?

My current plan is to partially convert to a RRIF at age 65, and then pull from the RRIF, so that I can claim the pension income tax credit. Until then, I am just pulling directly from my RRSP.
I converted it to a RRIF for two reasons:
1) I needed it to be automated so I wouldn't agonize over when to pull the money, I wanted it monthly
2) As I understand it, it's $25 per withdrawal from an RRSP, with the 30% automatic tax withheld.   With a RRIF, there is no withdrawal fee and the tax is only withheld on the amount above the minimum withdrawal required (which is based on the balance at the end of the prior year)

SoftwareGoddess

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Re: RRSP/RRIF draw down
« Reply #36 on: December 30, 2021, 02:04:42 PM »
anyway, I'm curious about people's RRIF start age.  Are people delaying until age 71?   Or just pulling from an RRSP instead of converting all or part of it to a RRIF?

My current plan is to partially convert to a RRIF at age 65, and then pull from the RRIF, so that I can claim the pension income tax credit. Until then, I am just pulling directly from my RRSP.
I converted it to a RRIF for two reasons:
1) I needed it to be automated so I wouldn't agonize over when to pull the money, I wanted it monthly
2) As I understand it, it's $25 per withdrawal from an RRSP, with the 30% automatic tax withheld.   With a RRIF, there is no withdrawal fee and the tax is only withheld on the amount above the minimum withdrawal required (which is based on the balance at the end of the prior year)

My system is slightly more complex than I made it appear. :-) I pull from my RRSP once per year, and move the money to my taxable investment account. I have an automatic monthly transfer from the taxable account to my bank accounts.

Since the RRSP pull only happens once per year year, the $25 fee doesn't matter much, and I have historically gotten most of the withholding back 4 months later at tax time. I'm willing to give up a small amount of money to reduce the number of accounts that I have to report to the IRS.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #37 on: December 31, 2021, 07:03:20 AM »
anyway, I'm curious about people's RRIF start age.  Are people delaying until age 71?   Or just pulling from an RRSP instead of converting all or part of it to a RRIF?

My current plan is to partially convert to a RRIF at age 65, and then pull from the RRIF, so that I can claim the pension income tax credit. Until then, I am just pulling directly from my RRSP.
I converted it to a RRIF for two reasons:
1) I needed it to be automated so I wouldn't agonize over when to pull the money, I wanted it monthly
2) As I understand it, it's $25 per withdrawal from an RRSP, with the 30% automatic tax withheld.   With a RRIF, there is no withdrawal fee and the tax is only withheld on the amount above the minimum withdrawal required (which is based on the balance at the end of the prior year)

My system is slightly more complex than I made it appear. :-) I pull from my RRSP once per year, and move the money to my taxable investment account. I have an automatic monthly transfer from the taxable account to my bank accounts.

Since the RRSP pull only happens once per year year, the $25 fee doesn't matter much, and I have historically gotten most of the withholding back 4 months later at tax time. I'm willing to give up a small amount of money to reduce the number of accounts that I have to report to the IRS.
sorry, forgot about the dual citizen BS hoops you need to jump through

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #38 on: December 31, 2021, 08:24:10 PM »
So I pulled the plug and converted DH RRSP to a RRIF, and he'll start draw down next year at age 57 at slightly above the minimum required.   Based on my spreadsheets (oh, how I love spreadsheets!), this will give him a smoother income, rather than a huge spike starting at age 71, which would have in all likelihood resulted in a OAS claw back.    I planned to start mine at the same time, but there are some outstanding monies owed from my former employer (long story, I'll put it in epic FU when the cheque clears).   I expect that to be paid out in 2022, and it be enough that drawing from a RRIF would not be tax advantageous.   (MMM problem)....

anyway, I'm curious about people's RRIF start age.  Are people delaying until age 71?   Or just pulling from an RRSP instead of converting all or part of it to a RRIF?

I just completed the setup of my RIF.  I'm 54.  I hope that between now and when I turn 70 I'll be able to slowly migrate assets from my RRSP into taxable accounts.  I have a low spend, and my modelling shows that even while drawing ~90K/year there's a good chance that I might see an OAS claw-back :-(.

Gerard

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Re: RRSP/RRIF draw down
« Reply #39 on: January 01, 2022, 10:03:42 AM »
I have a low spend, and my modelling shows that even while drawing ~90K/year there's a good chance that I might see an OAS claw-back :-(.

If you're drawing 90K a year, is the amount of OAS clawed back worth designing strategies around? Feels a bit like the tail wagging the dog.

 (I mention it because I see myself in this -- I catch myself letting an 8% tax difference affect how I think about a 40% capital gain!)

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #40 on: January 01, 2022, 01:00:21 PM »
I have a low spend, and my modelling shows that even while drawing ~90K/year there's a good chance that I might see an OAS claw-back :-(.

If you're drawing 90K a year, is the amount of OAS clawed back worth designing strategies around? Feels a bit like the tail wagging the dog.

 (I mention it because I see myself in this -- I catch myself letting an 8% tax difference affect how I think about a 40% capital gain!)

This is an interesting question ...I don't see it as the tail wagging the dog, but often I wonder if I'm spending too much time optimizing what will turn out to be small cashflows...

Having said this,  I do see some value in understanding the pro/cons of various spend-down strategies and being mindful of the constraints/implications of certain portfolio compositions.    For me, for example, as a recently single person with a largish RRSP,  deliberately trying to draw down tax deferred accounts aligns with my spending, tax and risk objectives.   Whether this effort was necessary I don't know. ..  WRT my RRSP...I guess I won't be too upset if my drawdown efforts prove too little ;-) .

Gerard

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Re: RRSP/RRIF draw down
« Reply #41 on: January 02, 2022, 11:07:24 AM »
This is an interesting question ...I don't see it as the tail wagging the dog, but often I wonder if I'm spending too much time optimizing what will turn out to be small cashflows...

Having said this,  I do see some value in understanding the pro/cons of various spend-down strategies and being mindful of the constraints/implications of certain portfolio compositions.    For me, for example, as a recently single person with a largish RRSP,  deliberately trying to draw down tax deferred accounts aligns with my spending, tax and risk objectives.   Whether this effort was necessary I don't know. ..  WRT my RRSP...I guess I won't be too upset if my drawdown efforts prove too little ;-) .

Makes sense! I'm trying to do roughly the same, but my RRSP keeps increasing in value by nearly the amount I take out of it...

Mighty Eyebrows

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Re: RRSP/RRIF draw down
« Reply #42 on: January 02, 2022, 06:35:02 PM »
Makes sense! I'm trying to do roughly the same, but my RRSP keeps increasing in value by nearly the amount I take out of it...

That is a good problem to have, but at least you are trying to do some melt-down.

The way I like to think of it is this: I only have a finite life span and so a finite number of yearly tax brackets to work with. So, it makes sense to spread the tax burden out to some degree. If there is an impending rise in the tax liability in the future (OAS clawback and/or forced RRIF withdrawals) then I should make sure I use the brackets I have available before then. If I still end up above the OAS clawback threshold, then my life must be going pretty darn well!

I don't see it as micro-managing things, just some basic planning.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #43 on: January 06, 2022, 06:36:35 AM »
Makes sense! I'm trying to do roughly the same, but my RRSP keeps increasing in value by nearly the amount I take out of it...

That is a good problem to have, but at least you are trying to do some melt-down.

The way I like to think of it is this: I only have a finite life span and so a finite number of yearly tax brackets to work with. So, it makes sense to spread the tax burden out to some degree. If there is an impending rise in the tax liability in the future (OAS clawback and/or forced RRIF withdrawals) then I should make sure I use the brackets I have available before then. If I still end up above the OAS clawback threshold, then my life must be going pretty darn well!

I don't see it as micro-managing things, just some basic planning.
I think this is a great way to look at it.   I've heard of more than a few of my friends parents that followed "advice" and didn't start their RRIF withdrawal until the magic 71 and are now in their mid-80s, shocked at their tax hit from RRIF withdrawal.   I think this is one of the ways RRSPs get a bad name.    But it's a much better problem to have - too much money rather than not enough

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #44 on: January 06, 2022, 09:45:15 AM »
Slightly off topic... but I just got notification that my first RRIF withdrawal was processed ...  It remains to be seen if Questrade calculates withholding taxes on future unscheduled withdrawals based on cumulative or individual transactions... ?

How are others managing the mechanics of these withdrawals?

My hope is to fund my annual spend as follows...

1.  A sale from my Investment Account holding proceeds in a HISA --> ~ 10% of the proceeds will be considered Cap Gains
2.  Dividends from my Investment Account
3.  Existing HISA Cash Balances.
4.  In-kind transfers from my RRIF to my Investment Account will hopefully help sustain 1 and 2 in future years.

FTR.... 1st RIF transfer was in-kind and went straight into my TFSA.... ;-)

BNgarden

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Re: RRSP/RRIF draw down
« Reply #45 on: January 06, 2022, 10:53:08 AM »
...
FTR.... 1st RIF transfer was in-kind and went straight into my TFSA.... ;-)

Fascinating.  I've been told by iTrade (Scotiabank) that this could not be done.  And, yes, (AFAIK and have experienced) future unplanned or additional withdrawals within the calendar year should have withholding of taxes on cumulative amounts to date for that year.

Gerard

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Re: RRSP/RRIF draw down
« Reply #46 on: January 08, 2022, 11:07:20 AM »
(AFAIK and have experienced) future unplanned or additional withdrawals within the calendar year should have withholding of taxes on cumulative amounts to date for that year.

That would make sense, but I have one data point in the other direction -- I made two withdrawals from my (Tangerine) RRSP last year, and the witholding on each was as if they were the only withdrawal for the year.

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #47 on: January 09, 2022, 09:39:37 AM »
(AFAIK and have experienced) future unplanned or additional withdrawals within the calendar year should have withholding of taxes on cumulative amounts to date for that year.

That would make sense, but I have one data point in the other direction -- I made two withdrawals from my (Tangerine) RRSP last year, and the witholding on each was as if they were the only withdrawal for the year.

I also now have two RIF transfers completed, and noticed that the second transfer had 10% withheld again because the transfer amount was under 5K.  If it were otherwise, and,  I wanted to minimize withholding amounts, I would simply split my registered accounts across more institutions/accounts. 

Obviously, I understand and am willing to take responsibility for my eventual tax liability.

 

bluebelle

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Re: RRSP/RRIF draw down
« Reply #48 on: January 09, 2022, 09:52:58 AM »
(AFAIK and have experienced) future unplanned or additional withdrawals within the calendar year should have withholding of taxes on cumulative amounts to date for that year.

That would make sense, but I have one data point in the other direction -- I made two withdrawals from my (Tangerine) RRSP last year, and the witholding on each was as if they were the only withdrawal for the year.

I also now have two RIF transfers completed, and noticed that the second transfer had 10% withheld again because the transfer amount was under 5K.  If it were otherwise, and,  I wanted to minimize withholding amounts, I would simply split my registered accounts across more institutions/accounts. 

Obviously, I understand and am willing to take responsibility for my eventual tax liability.

 
My understanding of RRIF withdrawal taxation is as follows:
assuming both RRIF withdrawals were from the same institution, and the RRIF was created before Jan 1 of this year, there should be no withholding tax until you've withdrawn the minimum required.   For example, RRIF value was $500,000 Dec. 31 2021, and you're 65 Jan. 1 2022, your minimum withdrawal is 4% or $20,000, there should be no withholding until that minimum amount is withdrawn, and then all withdrawals have a 30% withholding tax.

I assume that if you had RRIFs at different financial institutions, you'd "get away with it" the first year, but if you had a large tax owing coming next April, CRA would start demanding quarterly payments - 'cuz they want their money!

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #49 on: January 09, 2022, 11:13:18 AM »
[My understanding of RRIF withdrawal taxation is as follows:
assuming both RRIF withdrawals were from the same institution, and the RRIF was created before Jan 1 of this year, there should be no withholding tax until you've withdrawn the minimum required.   For example, RRIF value was $500,000 Dec. 31 2021, and you're 65 Jan. 1 2022, your minimum withdrawal is 4% or $20,000, there should be no withholding until that minimum amount is withdrawn, and then all withdrawals have a 30% withholding tax.

I assume that if you had RRIFs at different financial institutions, you'd "get away with it" the first year, but if you had a large tax owing coming next April, CRA would start demanding quarterly payments - 'cuz they want their money!

1.  Agreed... No withholding tax up to the minimum.
2.  Withholding amounts in excess of minimum are 10% for < $5K,  20% < 15K and 30% beyond (i.e. same as RRSP withdrawals).
3.  I think the confusing part is comes when someone indicates that they want an amount in excess of the minimum that is to be paid periodically.    eg... if someone has a 40K minimum but tells their institution that they intend to withdraw a total of 64K/year split into monthly payments.   The CRA has said that withholding tax should be calculated on the excess "predictable 24K" instead of being treated as 12 $2K transactions.   My orig. question had to do with how institutions handle unpredictable/unscheduled withdrawals, which in my case will be made whenever cash balances from dividends are sufficient to cover withholding tax (i.e. ~$500).  From the varied responses thus far it would seem that YMMV on how the the WH tax is calculated. 
4. Good point re Quarterly payments... I hope that a final year end large withdrawal will mitigate this need....

Obviously, I'm spending too much time thinking about this ;-)