Author Topic: RRSP/RRIF draw down  (Read 6564 times)

Gerard

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Re: RRSP/RRIF draw down
« Reply #50 on: January 12, 2022, 03:21:58 PM »
This whole discussion has got me thinking (thanks, everyone!). Which means I need advice:

I need to draw down about $100K from my RRSP over the next 9 years or so. My original plan was to pull out around $8K a year till I'm 65 (when my DB pension shrinks because I'm eligible for full CPP). Then $13K a year, and delay taking CPP till 70.

But... thanks to my pension income and dividend-paying investments, the top slice of that RRSP drawdown is taxed at  30%. And, of course, the money I'm earning in the RRSP will also be taxed at 30% when I withdraw it.

My question is, would it make more sense to take out a crapton of RRSP money now, taxed at 30%, and put it into investments whose earnings will be taxed at lower rates (dividends, cap gains)?

In other words, is there any advantage at all to sticking with the slow and steady withdrawal, or should I just pull off the bandaid all at once?

scottish

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Re: RRSP/RRIF draw down
« Reply #51 on: January 12, 2022, 05:40:28 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

I'm a big believer in doing the math.   The thing that bugs me about Vettese is he gives a qualitative answer to what is fundamentally a quantitative problem.

So I finally did a spreadsheet for future value of CPP payments.   If you're from a long lived family it does make sense to defer the start date.   For example, if you're going to pass away at 93, you (well actually me, since the payments on based on my history) would maximize your future value by starting CPP at age 67.   

But there's going to be a lot of error in future value estimates, because it's not possible to forecast an accurate rate of return, not to mention factoring in inflation.   I used 6% to get these numbers.   

If you're interested I can make the spreadsheet available...

daverobev

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Re: RRSP/RRIF draw down
« Reply #52 on: January 13, 2022, 01:44:39 AM »
This whole discussion has got me thinking (thanks, everyone!). Which means I need advice:

I need to draw down about $100K from my RRSP over the next 9 years or so. My original plan was to pull out around $8K a year till I'm 65 (when my DB pension shrinks because I'm eligible for full CPP). Then $13K a year, and delay taking CPP till 70.

But... thanks to my pension income and dividend-paying investments, the top slice of that RRSP drawdown is taxed at  30%. And, of course, the money I'm earning in the RRSP will also be taxed at 30% when I withdraw it.

My question is, would it make more sense to take out a crapton of RRSP money now, taxed at 30%, and put it into investments whose earnings will be taxed at lower rates (dividends, cap gains)?

In other words, is there any advantage at all to sticking with the slow and steady withdrawal, or should I just pull off the bandaid all at once?

How much of the planned annual withdrawal amount is in the 30% bracket?

What happens to those numbers in the case of a market correction or crash?

I think it's all about risk management - you might lose a little (pay 'too much' tax), but protect yourself against the chance something worse... maybe?

bluebelle

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Re: RRSP/RRIF draw down
« Reply #53 on: January 13, 2022, 06:28:19 AM »
If you're interested I can make the spreadsheet available...
I would love to see your spreadsheet.....I love spreadsheets.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #54 on: January 13, 2022, 06:40:16 AM »
This whole discussion has got me thinking (thanks, everyone!). Which means I need advice:

I need to draw down about $100K from my RRSP over the next 9 years or so. My original plan was to pull out around $8K a year till I'm 65 (when my DB pension shrinks because I'm eligible for full CPP). Then $13K a year, and delay taking CPP till 70.

But... thanks to my pension income and dividend-paying investments, the top slice of that RRSP drawdown is taxed at  30%. And, of course, the money I'm earning in the RRSP will also be taxed at 30% when I withdraw it.

My question is, would it make more sense to take out a crapton of RRSP money now, taxed at 30%, and put it into investments whose earnings will be taxed at lower rates (dividends, cap gains)?

In other words, is there any advantage at all to sticking with the slow and steady withdrawal, or should I just pull off the bandaid all at once?
I can't answer your question without more detail, but reading between the lines you have a fairly healthy DB pension (yay you!), and your bridge benefit is around $5K.   In deciding how much to take out of your RRSP/RRIF, you need to look at how much you need to live on (sounds like you have more than enough), and your overall life time taxes, not just this year's tax bite.   I have a pretty simplistic spreadsheet that lets you plug in the RRSP/RRIF value, pension values, when you want to take CPP and OAS, and the percent you want to withdraw and it will spit out the required withdrawal etc....lets you see how long it will last and what your total income would be for the year, I'll share if you're interested.....the minimum RRIF withdrawal rates ramp up pretty quickly in your 80s, so you can see your tax bit increase, and depending on your overall income, your OAS be clawed back.   But having too much money in retirement is a whole lot better than not enough.   But it also means you're like me and worked and/or saved for too long without enjoying the fruits of your labour.   (I'm willing to live with that to have the piece of mind of knowing I have 'enough')

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #55 on: January 13, 2022, 11:15:02 AM »
If you're interested I can make the spreadsheet available...
I would love to see your spreadsheet.....I love spreadsheets.

Here is a spreadsheet that I developed to ascertain the value of additional contributions to CPP as well as the effects of taking CPP at 60,65 and 70.  Inputs can be obtained from my Service Canada and uploaded "www.cppcalculator.com".  I then exported expected CPP Payouts  making different future earnings assumptions.

I used the PV value as a heuristic to determine how my CPP and OAS can be utilized for determining an Safe Withdrawal.

https://docs.google.com/spreadsheets/d/1gJoQKVrSxfZf3zNrwJp2E9_ornfPuWDWjOgQunC7zEY/edit?usp=sharing

« Last Edit: January 13, 2022, 12:09:46 PM by cdn5cents »

scottish

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Re: RRSP/RRIF draw down
« Reply #56 on: January 13, 2022, 03:08:37 PM »
If you're interested I can make the spreadsheet available...
I would love to see your spreadsheet.....I love spreadsheets.

Here is a spreadsheet that I developed to ascertain the value of additional contributions to CPP as well as the effects of taking CPP at 60,65 and 70.  Inputs can be obtained from my Service Canada and uploaded "www.cppcalculator.com".  I then exported expected CPP Payouts  making different future earnings assumptions.

I used the PV value as a heuristic to determine how my CPP and OAS can be utilized for determining an Safe Withdrawal.

https://docs.google.com/spreadsheets/d/1gJoQKVrSxfZf3zNrwJp2E9_ornfPuWDWjOgQunC7zEY/edit?usp=sharing

Ok, I attached mine as well.

Now I have to try and reconcile the two...


GreatLaker

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Re: RRSP/RRIF draw down
« Reply #57 on: January 14, 2022, 09:39:53 AM »
If you're interested I can make the spreadsheet available...
I would love to see your spreadsheet.....I love spreadsheets.

Since you love spreadsheets, here is another one. This one was developed by Longinvest, the same poster from Bogleheads and FWF that developed the VPW spreadsheet.
https://www.finiki.org/wiki/CPP_and_QPP_calculator

Gerard

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Re: RRSP/RRIF draw down
« Reply #58 on: January 14, 2022, 01:35:10 PM »
How much of the planned annual withdrawal amount is in the 30% bracket?

Most of it (it varies depending on how well my taxable investments do). Enough that I can't spread out the withdrawals long enough to get it all out at a lower taxation rate.

What happens to those numbers in the case of a market correction or crash?

I guess if things really crashed, the amount left in the RRSP would be small enough that I could take it out at a lower tax rate? Otherwise, I think it's fairly crash-neutral as I'd be moving the money from an ETF-based RRSP to a taxable ETF.
[/quote]

I think it's all about risk management - you might lose a little (pay 'too much' tax), but protect yourself against the chance something worse... maybe?

I feel like the difference in risk between leaving it and cashing it in is fairly small. I think the big problem is between my ears -- I socked that money away thinking I would be withdrawing it at a much lower tax rate than during my work life, but my damn investments insist on earning too much.

Gerard

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Re: RRSP/RRIF draw down
« Reply #59 on: January 14, 2022, 01:59:21 PM »
I'm a big believer in doing the math.   The thing that bugs me about Vettese is he gives a qualitative answer to what is fundamentally a quantitative problem.

Vettese does say somewhere in the book that his strategy won't make financial/math sense more than half the time, but that it helps very worried people feel more secure by offloading risk. I guess that's a qualitative problem?

A long time ago I suggested something similar in a guest post for MMM -- that people consider buying (simple) annuities very late in life to cover longevity and investment-senility risk. Commenters rightly pointed out that most of us will earn much more through managing our own investments than we would through annuities. But the strategy is a way of dealing with that specific fear.

scottish

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Re: RRSP/RRIF draw down
« Reply #60 on: January 14, 2022, 03:40:28 PM »
I'm a big believer in doing the math.   The thing that bugs me about Vettese is he gives a qualitative answer to what is fundamentally a quantitative problem.

Vettese does say somewhere in the book that his strategy won't make financial/math sense more than half the time, but that it helps very worried people feel more secure by offloading risk. I guess that's a qualitative problem?

A long time ago I suggested something similar in a guest post for MMM -- that people consider buying (simple) annuities very late in life to cover longevity and investment-senility risk. Commenters rightly pointed out that most of us will earn much more through managing our own investments than we would through annuities. But the strategy is a way of dealing with that specific fear.

Especially when the amount of error in the math means you can't actually say which option is quantitatively better, at least not without a lot more work than a simple spreadsheet.     I prefer the approach in McClung's "Living off your money" despite the complexity.

One of my big challenges is getting the portfolio setup so I can manage it effectively when I'm old and not as mentally capable.     I've learned from the experience with my parents.

cdn5cents

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Re: RRSP/RRIF draw down
« Reply #61 on: January 14, 2022, 06:40:19 PM »
I'm a big believer in doing the math.   The thing that bugs me about Vettese is he gives a qualitative answer to what is fundamentally a quantitative problem.

Vettese does say somewhere in the book that his strategy won't make financial/math sense more than half the time, but that it helps very worried people feel more secure by offloading risk. I guess that's a qualitative problem?

A long time ago I suggested something similar in a guest post for MMM -- that people consider buying (simple) annuities very late in life to cover longevity and investment-senility risk. Commenters rightly pointed out that most of us will earn much more through managing our own investments than we would through annuities. But the strategy is a way of dealing with that specific fear.

Especially when the amount of error in the math means you can't actually say which option is quantitatively better, at least not without a lot more work than a simple spreadsheet.     I prefer the approach in McClung's "Living off your money" despite the complexity.

One of my big challenges is getting the portfolio setup so I can manage it effectively when I'm old and not as mentally capable.     I've learned from the experience with my parents.

I think Vettese's insight is that a Retiree's Objective changes from solving a Portfolio Return optimization problem to a minimizing Liquidity Risk problem.  Early RRSP spend-down with a later reliance on deferred CPP and OAS, and deferred Annuities provide vehicles for reducing dependency on volatile cashflows.   I believe that Vetesse concedes that in today's low interest environment that Annuities might not be for everyone, especially those concerned with estate succession.   Still I think understanding how these vehicles work and the similarities to DB pensions are worth noting.  Personally, I do not see myself ever utilizing them.   But then.... I'm so cheap, I'd probably book a coach flight to my own funeral... ;-)
« Last Edit: January 14, 2022, 06:42:30 PM by cdn5cents »

Mighty Eyebrows

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Re: RRSP/RRIF draw down
« Reply #62 on: January 17, 2022, 01:56:59 AM »
I think Vettese's insight is that a Retiree's Objective changes from solving a Portfolio Return optimization problem to a minimizing Liquidity Risk problem.  Early RRSP spend-down with a later reliance on deferred CPP and OAS, and deferred Annuities provide vehicles for reducing dependency on volatile cashflows.

Well said.


scottish

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Re: RRSP/RRIF draw down
« Reply #63 on: January 19, 2022, 05:22:24 PM »
There's definitely something to be said for the approach of transferring risk to the government through the CPP, i.e. by deferring it.

afulldeck

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Re: RRSP/RRIF draw down
« Reply #64 on: February 21, 2022, 02:29:03 PM »
There's definitely something to be said for the approach of transferring risk to the government through the CPP, i.e. by deferring it.

True, but it really depends on the value of your RRSP. If you end up near the top tax bracket are you gaining much?

bluebelle

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Re: RRSP/RRIF draw down
« Reply #65 on: February 26, 2022, 08:10:29 AM »
There's definitely something to be said for the approach of transferring risk to the government through the CPP, i.e. by deferring it.

True, but it really depends on the value of your RRSP. If you end up near the top tax bracket are you gaining much?
@afulldeck I don't understand your question.   Are you saying that if you have such a large RRSP and defer CPP, you'll end up near the top tax bracket?   I'm not getting how deferring CPP could do that?   That implies you worked too long.   I'll never say anyone contributed too much to an RRSP, just that they didn't start withdrawing from their RRSP/RRIF soon enough.

afulldeck

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Re: RRSP/RRIF draw down
« Reply #66 on: March 01, 2022, 08:19:22 PM »
There's definitely something to be said for the approach of transferring risk to the government through the CPP, i.e. by deferring it.

True, but it really depends on the value of your RRSP. If you end up near the top tax bracket are you gaining much?
@afulldeck I don't understand your question.   Are you saying that if you have such a large RRSP and defer CPP, you'll end up near the top tax bracket?   I'm not getting how deferring CPP could do that?   That implies you worked too long.   I'll never say anyone contributed too much to an RRSP, just that they didn't start withdrawing from their RRSP/RRIF soon enough.

What I am saying is there is no real difference at some point to defer or not if you have an RRSP that is large. Take the example of having 4 million in your RRSP and your just going to start a RRIF withdraw. That would mean a minimum mandatory withdraw of 211,200.00  (top bracket) + CPP. If you are in that scenario, whether your take CPP early or late is kind of redundant.

bluebelle

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Re: RRSP/RRIF draw down
« Reply #67 on: March 02, 2022, 07:12:24 AM »
There's definitely something to be said for the approach of transferring risk to the government through the CPP, i.e. by deferring it.

True, but it really depends on the value of your RRSP. If you end up near the top tax bracket are you gaining much?
@afulldeck I don't understand your question.   Are you saying that if you have such a large RRSP and defer CPP, you'll end up near the top tax bracket?   I'm not getting how deferring CPP could do that?   That implies you worked too long.   I'll never say anyone contributed too much to an RRSP, just that they didn't start withdrawing from their RRSP/RRIF soon enough.

What I am saying is there is no real difference at some point to defer or not if you have an RRSP that is large. Take the example of having 4 million in your RRSP and your just going to start a RRIF withdraw. That would mean a minimum mandatory withdraw of 211,200.00  (top bracket) + CPP. If you are in that scenario, whether your take CPP early or late is kind of redundant.
True.   If you're in the enviable position of having $4 million in your RRSP/RRIF, and plan to draw down $200,000+ a year, then yes, I agree that OAS claw back isn't going to be part of your worries or part of your retirement tax strategy.   I was speaking more to the folks on here that are probably planning on living on far less that than, this is a MMM forum after all.   If you use a much smaller, but still respectable RRSP of $1 million, then planning a tax strategy that minimizes lifetime tax as well as transferring risk to the government in your later years in the form of a CPP lifetime annuity has value.