Investment advice: invested for 13-28 Not 60 years (Canadian)

[sky_northern]

I am new at the investment thing. I have debt but am also in a high tax bracket so want to take advantage of RRSPs and the same time as paying debt (loan is at 5.75% and Mortgage is 3.2%).

My current RRSP in in Tangerine fund (Balanced Portfolio)
I opened a Questrade RRSP Account so I have a lot more flexibility now with what to do with my investments (buy Vanguard ETF). 

I’ve seen the Canadian couch potato portfolio recommendations and have been reading the forms.

My question is, should I still follow the simple ETF portfolio advice if my investment window is shorter than most?
I hope to retire in about 13 years (age 45); I have a defined pension that will kick in at 60. Tax-wise, it only makes sense to have RRSPs if I pull all the money out between when I retire and before the pension starts. So I will be living off the money in my RRSP and potentially moving some into my TFSA between age 45 and 60. Therefore I am only planning on holding the investments in my RRSPs for 13 to 28 years before ‘cashing out’. Most people seem to be talking about holding their investments for 60 years or forever (living off dividends).

It seems like I will be in a little bit riskier position than most,  I will have TFSA and taxable accounts so I could probably skip withdrawing my RRSP for a couple years if the markets crash a la 2008, but I have a deadline of when I should have the money out to avoid taxes. I could potential lose if market crashes when I'm 56 and takes 5 years to recover.

Thoughts, suggestions, advice?

[Bob W]

It isn't "if" the market crashes like 2008,  it is when?  Plan accordingly. 

[Tai]

I went to a pension information session, perhaps the same pension that you have, and the speaker suggested taking a year off to pull the entire RRSP all at once in an otherwise zero income year. The idea would be to take the tax hit all at once and transfer the funds to a TFSA for the long term. That was for someone retiring closer to the traditional age. That is assuming you have a large enough RRSP to make that necessary. Don't forget, the amount that you can actually put in an RRSP is pretty limited compared to people with no pension, your TFSA will have to be your main saving vehicle anyway.

Think of the risk of a market correction this way, if your investments did lose value when you had planned to take them out of the RRSP would you still forced to withdraw them? Could you not take a job for a couple years in your 40s or 50s to ride it out? It's not exactly the same risk as being 75 and having your investments tank. You'd have a tremendous amount of flexibility.

[daverobev]

Max your TFSA first (what's your tax bracket?)

Pay off the debt unless it's tax deductible (I have a LOC at 6% but after tax only 4.8 or whatever as it's for an investment property)

How much is the db pension? No reason to take the RRSP all at once unless there is only going to be one year with low/no income. Remember withdrawing from your TFSA has no effect whatsoever on your tax. So if you have 3 years of little to no income except RRSP and TFSA...

[sky_northern]

Thanks for the comments.

@Bob, it's the when that will screw me and I don't have a crystal ball to figure out when the best time in my 15 year window will be.

@Tai, if it works out the way I want I will have essentially a 15 year window of low income to pull my RRSP out, it won't be necessary to do it all in one year but I will be able to go for a bit on my other savings as I won't have enough RRSP room to put all my savings in RRSP. So some flexibility.

@daverobev, I am in the federal 26% tax bracket. I am at the top of my salary grid, so only small (inflation-like) raises for now on. If it works out like I plan I will draw from my RRSPs and be able to stay in the lowest tax bracket for the time between retirement and 60 with my pension kicks in. I think it makes perfect sense for me to be using my RRSP before my TFSA.


My question more what should I do with my RRSP, should I use one of the Canadian couch potatoes' portfolio like I'm inclined to or is there something else I should do because I'm planning to withdraw it in less than 30 year from now.

[Tai]

Go with one of the couch potato portfolios. My point was that you will have flexibility, so you could ride out a market dip/slump without disaster. And if you're moving money from an RRSP to a TFSA the market shouldn't affect you assuming you make the transfer quickly. There is no way to know the "best" time to pull money out of the market, that's market timing and if anyone could do it consistently they'd be rich. But if you're pulling out money over a window of 15 years you'll be able to lessen your risk, rather than be forced to pull all your money out at a bad time.

[daverobev]

Ok, so RRSP is 'before tax' money. You get tax free growth inside. You get taxed on any growth as income. You're going to be down in a lower tax bracket, so even putting $20k in this year and taking it out next year makes sense if the brackets are different. It's tax bracket arbitrage!