Ep # 6 - Strategic Withdrawal Strategies: Making the Most of Your Registered Retirement Income Funds
Joe Curry (CFP, Retirement Planning Simplified) and Regan Schiller (CFP, Your Canadian Retirement Specialist) examine the intricacies of optimizing retirement income by strategically withdrawing funds from Registered Retirement Income Funds (RRIFs) and other retirement accounts. They explore the benefits of taking early excess withdrawals from RRIFs, even when clients may not have an immediate need for the funds.
They look at savvy tax planning, highlighting the advantages of diverting capital into Tax-Free Savings Accounts (TFSAs) for tax-free growth and withdrawals. They stress the importance of considering lifetime tax implications versus annual tax assessments and consider dynamic withdrawal strategies, such as the "guardrail" approach, designed to adapt to changing portfolio performance.
With expert advice and real-life examples, this episode offers a wealth of knowledge for anyone navigating the complexities of retirement planning in Canada.
What You’ll Learn in Today’s Episode
Early RRIF Withdrawals for Tax Efficiency: The podcast discusses the strategy of taking excess withdrawals from RRIFs, even when not immediately needed, to optimize tax planning. By redirecting these funds into Tax-Free Savings Accounts (TFSAs), clients can benefit from tax-free growth and withdrawals, providing a tax-efficient retirement income source.
Lifetime Tax Planning: The conversation emphasizes the importance of considering lifetime tax implications rather than solely focusing on annual tax assessments. Managing taxes throughout retirement involves leveraging lower tax brackets and utilizing tax-favorable accounts to maximize savings and minimize taxes over the long term.
Guardrail Strategy: The podcast introduces the concept of a "guardrail" strategy for retirement income. This dynamic withdrawal approach adjusts withdrawal amounts based on portfolio performance, ensuring that retirees don't run out of money while also allowing for increased spending if investment returns are favorable.
Deferring OAS and CPP: The benefits of deferring Old Age Security (OAS) and Canada Pension Plan (CPP) are discussed. Delaying these government benefits can result in higher guaranteed income later in retirement, making it worthwhile to potentially take more from RRIFs in the earlier years of retirement.
Budgeting in Retirement: Accurate budgeting in retirement is emphasized as a critical factor in financial planning. Clients are urged to track their spending realistically to avoid unexpected financial difficulties later in retirement. This point underscores the importance of aligning retirement plans with actual expenses to ensure a comfortable retirement lifestyle.
Ideas Worth Sharing
"What we would look at is what is the portfolio's actual standard deviation and what are its historical returns. For the listeners who don't know what standard deviation means, basically, it's a risk measurement on your portfolio, somewhat of an all-in risk measurement that just gives you the variances in your returns that you should expect."
"How you receive your returns has an impact on your withdrawal strategies."
“If you start spending way more than what you were accounting for, it’s one thing that can lead to retirement disaster.
“Delaying the start of Old Age Security (OAS) and Canada Pension Plan (CPP) benefits can increase the total lifetime payments.”
“Making strategic withdrawals from RRIFs can help optimize tax efficiency over the long term.”
Resources in Today’s Episode
Retirement Planning Simplified
Your Canadian Retirement Specialist
Ep # 12 – YRPS – Retirement Income Strategies Overview
Ep # 18 – YRPS – Canada Pension Plan and Old Age Security Timing
Implementing Retirement Income Guardrails to Facilitate (The Right) Spending Raises and Spending Cuts – Michael Kitces
Guardrails to Prevent Potential Retirement Portfolio Failure – William Klinger
Maximizing Retirement Income: How to Determine When Excess Withdrawals Make Sense - Joe Curry and Regan Schiller
When does taking excess withdrawals from registered retirement income funds (RIFs) make sense?
Joe and Regan consider factors such as tax implications and the use of tax-free savings accounts (TFSAs). But will these strategies work for everyone, or are there hidden risks that could jeopardize your retirement?
In this episode, you will be able to:
Discover how the deferral of CPP payments and RIFF withdrawals can enhance your retirement income.
Decode the tax implications and gains involved in managing tax-free savings accounts (TFSAs).
Understand when based on individual circumstances and goals, excessive withdrawals may be a beneficial move.
Explore the dynamics of navigating market shifts using precise return sequences and withdrawal strategies.
Absorb how to leverage the 'Guardrail Approach' - a dynamic withdrawal strategy for portfolio performance management.
Deferring CPP and Spending from RIFF
Thinking about taking a smaller bite from your CPP (Canada Pension Plan) payments and taking a bigger chunk from your RIFF early in retirement? It might sound like you're gambling, but hold that thought! It’s like having a smaller appetizer and going big on your main course. You’re spreading out the feast of your retirement funds. Deferring your CPP payments can help you maintain and potentially increase your net worth, plus give you some nice perks for estate planning.. The advantage of this strategy is that it can help curtail the withdrawal needs in later years, meaning the golden years become a bit more golden!
Taking Excess Withdrawals from RIF
We all know the saying, "it takes money to make money," right? That's essentially what the concept of taking excess withdrawals from a RIF is all about. Picture your RIF like a treasure chest. When you take out more than the minimum amount required, you essentially get to dip into this treasure a little more. But, like any smart pirate, you don't want to recklessly squander this extra loot--you want to invest and grow it! In this case, stashing it into a tax-free savings account (TFSA) is a savvy move. Why? Because anything deposited in a TFSA can grow tax-free. Compare that with your RIF, where any leftover funds at your time of passing will count as taxable income. Taking excess withdrawals can actually hinge on individual circumstances, like if a client foresees a large expense in the future. That way, it can be shifted into tax-favorable accounts. .
The Guardrail Strategy
It's quite like driving down a road, lining your portfolio performance with guardrails to keep it on track, preventing any sharp swerves or going off a financial cliff. This dynamic withdrawal strategy helps set a bracket for portfolio performance, establishing upper and lower limits. If your portfolio stays within these lines, you're golden! But, if your portfolio performance plummets to the lower limit, some adjustments might be needed. Conversely, if it shoots up to the higher limit, who’s stopping you from increasing your spending a bit?
The resources mentioned in this episode are:
Consider taking excess withdrawals from your registered retirement income funds (RIF) even if you don't need the money, especially if you have other tax-free accounts like a tax-free savings account (TFSA) to utilize.
Use the excess withdrawals from your RIF to make tax-free savings account deposits, which offer tax-free growth and are not subject to taxes upon death.
By taking out excess money earlier from your RIF and sheltering it in a tax-free savings account, you can benefit from estate planning advantages and potentially avoid OAS clawback.
Evaluate your individual situation to determine if taking excess withdrawals makes sense, considering factors such as lifetime tax payable, future expenses, and potential unexpected costs.
Consult with a financial advisor to assess your specific circumstances and develop a personalized plan for taking excess withdrawals from your RIF.
Explore different withdrawal strategies, such as dynamic withdrawal strategies or guardrail strategies, to manage sequence of returns risk and ensure a sustainable income throughout retirement.
Consider deferring your old age security (OAS) and Canada Pension Plan (CPP) to increase lifetime guaranteed income, but be mindful of the potential lower tax bracket before starting these withdrawals.
With this knowledge, you can determine when excess withdrawals from your RIFF makes sense.