{"id":298412,"date":"2025-11-21T22:52:07","date_gmt":"2025-11-21T22:52:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/298412\/"},"modified":"2025-11-21T22:52:07","modified_gmt":"2025-11-21T22:52:07","slug":"with-nearly-3-3-million-in-savings-whats-the-most-tax-efficient-way-for-tammy-to-draw-down-her-rrsp","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/298412\/","title":{"rendered":"With nearly $3.3-million in savings, what\u2019s the most tax-efficient way for Tammy to draw down her RRSP?"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Tammy, a self-directed investor with a large allocation in equities, is 64 and has a retirement spending goal of $72,000 a year after tax.Sammy Kogan\/The Globe and Mail<\/p>\n

Tammy is 64 years old, a widow with two grown children. When she retires this month from her banking job, she\u2019ll be leaving behind a salary of nearly $140,000 a year.<\/p>\n

She\u2019ll be entitled to a defined benefit pension of $45,660 a year, not indexed to inflation. In addition to her pension, she has nearly $3.3-million in savings and investments.<\/p>\n

She is asking about tax-efficient ways to draw down her substantial wealth.<\/p>\n

\u201cWhat is my best RRSP exit strategy?\u201d Tammy asks in an e-mail. Is it a good idea to start withdrawing money from her RRSP starting next year, when she retires, up until age 70, when she begins collecting government benefits?<\/p>\n

Are mid-30s newcomers Rafael and Lucia on track to buy a detached home for their young family?<\/a><\/p>\n

The RRSP withdrawals would be designed to supplement her retirement income and avoid heavy estate taxes when she dies. \u201cIf so, how much should I withdraw each year?\u201d She also asks when she should convert her RRSP to a registered retirement income fund (RRIF).<\/p>\n

Her retirement spending goal is $72,000 a year after tax.<\/p>\n

We asked Anita Bruinsma, a certified financial planner and founder of Clarity Personal Finance in Toronto, to look at Tammy\u2019s situation. Ms. Bruinsma also holds a chartered financial analyst designation.<\/p>\n

What the expert says<\/p>\n

Between her pension and survivor\u2019s CPP, Tammy will be earning $52,230 a year before tax, Ms. Bruinsma says. The rest of her income will come from her investments.<\/p>\n

\u201cOnce she reaches 72 and has to start taking the minimum RRIF withdrawals, she will have more income than she needs\u201d based on her spending target, the planner says. She can add surplus funds to her tax-free savings account (TFSA) and non-registered accounts.<\/p>\n

\u201cThis means that over her lifetime, Tammy\u2019s wealth will grow and she will leave an estate that is larger than what she has today,\u201d the planner says.<\/p>\n

Tammy wants to draw down her RRSP in a tax-effective manner and generate income from her investments, leaving her capital intact.<\/p>\n

\u201cShe doesn\u2019t need to generate income from her investments to meet her expenses,\u201d Ms. Bruinsma says. \u201cHer non-registered account will be growing over time, not shrinking, and she won\u2019t be dipping into the capital.\u201d<\/p>\n

Tammy will pay a lot of tax over the long run, the planner says. \u201cWhile there are ways to reduce taxes a bit, there isn\u2019t much she can do to reduce how much she will pay over her lifetime.\u201d<\/p>\n

To get the best outcome, defined by minimizing taxes over her lifetime and maximizing the value of her estate after tax, Tammy\u2019s best strategy is to start taking money from her RRSP next year when she is 65, defer CPP until age 70, reduce her dividend income as much as she can, and defer the capital gains in her non-registered portfolio until death, Ms. Bruinsma says.<\/p>\n

Whether she defers OAS or not doesn\u2019t matter \u2013 it will be clawed back.<\/p>\n

\u201cSpecifically, she should withdraw about $80,000 a year from her RRSP or RRIF \u2013 depending on whether she chooses to convert it or not \u2013 from ages 65 to 71,\u201d the planner says. \u201cThis will give her more money than she needs, but it means she will have lower withdrawals \u2013 and a lower tax rate \u2013 later in life.\u201d She can top up her TFSA every year using surplus funds. The rest will go into her non-registered account.<\/p>\n

For the RRSP withdrawals before age 72, she could convert a portion of her RRSP to a RRIF instead of converting the whole amount. This would give her more flexibility if she decides to lower her RRSP withdrawals later on. If she converts about $550,000 to a RRIF, this should be enough to fund the $80,000 withdrawals from age 65 to 71. If she converts the entire RRSP to a RRIF at age 65, she could be forced to take larger withdrawals than she wants.<\/p>\n

She should reduce her non-registered investment income as much as she can, the planner says. \u201cThis means reducing the amount of dividends she is currently receiving.\u201d<\/p>\n

Can Morton, 69, passively rely on his pensions, RRSPs, CPP and OAS and still maintain his lifestyle?<\/a><\/p>\n

Tammy is a self-directed investor and has had a high allocation of stocks in her portfolio. She recently reduced this exposure because she was nervous about a stock-market decline, but she still has nearly 80 per cent of her savings in equities.<\/p>\n

\u201cThis portfolio generates a lot of income: Last year, she had about $50,000 of income from dividends and interest.\u201d<\/p>\n

It\u2019s not possible for Tammy to completely eliminate her dividend income if she continues to own stocks. She could lower it by shifting out of stocks that have a high dividend payment \u2013 such as banks, pipeline companies and utilities \u2013 and investing in stocks with a lower dividend yield. However, unless she owns only non-dividend-paying stocks \u2013 a higher-risk approach that is not recommended \u2013 she will continue to receive at least some dividends, Ms. Bruinsma says.<\/p>\n

In order to lower her dividend income, she would need to adjust her portfolio and sell some of her holdings. \u201cOf course, this will mean triggering capital gains to make this change, so this tactic should be analyzed from a tax perspective.\u201d<\/p>\n

Regardless, she should be reinvesting her dividend income using the dividend reinvestment program (DRIP). \u201cWhen she needs to start withdrawing from her equity portfolio in her 80s, she can turn off the DRIP or simply sell down her holdings as she needs the cash,\u201d Ms. Bruinsma says. Even if Tammy reinvests the dividends in her non-registered account, though, she still has to pay tax on the income every year. <\/p>\n

She should also reduce her interest income in her non-registered portfolio. This means investing more in stocks than in cash, bonds and GICs. Although she can afford to take on higher risk with stocks because she has more money than she needs, she has to feel comfortable with this. <\/p>\n

\u201cGiven she just sold some of her stocks to move into cash for fear of a market decline, this might not be the best move for her,\u201d the planner says. \u201cThe trade-off for Tammy is if she holds more cash, GICs and bonds to feel less anxiety about her investments, she will pay more in tax.\u201d<\/p>\n

Tammy should delay her CPP payment until age 70. This will give her a bigger payment over her lifetime. Tammy currently receives a survivor\u2019s pension from her CPP after the death of her husband. Once she starts receiving her own CPP, she can only get up to the annual maximum; that is, her husband\u2019s CPP plus her own CPP can\u2019t exceed the annual maximum payment. By taking CPP at 65, she would be giving up part of the survivor\u2019s pension.<\/p>\n

Tammy\u2019s OAS will be entirely clawed back every year. Although she could get some OAS at 70 and 71, she would need to stop her RRIF withdrawals, Ms. Bruinsma says. She would then only have a partial clawback for those two years. \u201cThis is not recommended since the tax savings from the RRIF withdrawal strategy outweigh receiving a few thousand dollars of OAS,\u201d the planner says. Also, if she has converted the RRSP to a RRIF, she will have no choice but to make minimum withdrawals.<\/p>\n

This strategy has her RRSP running out at 97, Ms. Bruinsma says. Tammy never needs to touch her TFSA, and she would only withdraw from her non-registered investments in her later years.<\/p>\n

To lower the taxes on her estate, Tammy could consider setting up donations in her will, the planner says. The estate will receive a charitable tax credit and if she gifts securities such as stocks, mutual funds and exchange-traded funds, her estate would avoid paying tax on the capital gains. She could also gift her securities during her lifetime to lower her annual tax bill and avoid the capital gains tax.<\/p>\n

Client situation<\/p>\n

The person: Tammy, 64.<\/p>\n

The problem: How to draw down her RRSP savings to reduce income taxes \u201cdown the road.\u201d<\/p>\n

The plan: Convert a part of her RRSP to a RRIF and draw on it from age 65 to age 71. Defer CPP to age 70. Consider donating securities while she is still alive and\/or in her will.<\/p>\n

The payoff: The comfort of knowing she has nothing to worry about financially.<\/p>\n

Monthly net income: Whatever she needs to draw.<\/p>\n

Assets: Bank accounts $255,485; GICs $30,000; non-registered stock portfolio $1,044,075; TFSA $197,563; RRSP $1,755,449; residence $1,600,000. Total: $4,882,572. <\/p>\n

Estimated present value of her DB pension: $1.1-million. That is what someone with no pension would have to save to generate the same income.<\/p>\n

Monthly outlays: Property tax $505; water, sewer, garbage $70; home insurance $95; electricity $80; heating $85; security $50; maintenance, garden $100; transportation $565; groceries $300; clothing $100; gifts, charity $520; vacation, travel $500; personal care $200; dining out $200; entertainment $50; sports, hobbies $300; subscriptions $30; doctors, dentists, drugstore $230; life insurance $165; disability insurance $125; communications $90; TFSA $585. Total: $4,945. <\/p>\n

Liabilities: None.<\/p>\n

Want a free financial facelift? E-mail finfacelift@gmail.com<\/a>.<\/p>\n

Some details may be changed to protect the privacy of the people profiled.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: Tammy, a self-directed investor with a large allocation in equities, is 64 and…\n","protected":false},"author":2,"featured_media":298413,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,133,7325,131,132],"class_list":{"0":"post-298412","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-ca","10":"tag-canada","11":"tag-finance","12":"tag-financialfacelift","13":"tag-personal-finance","14":"tag-personalfinance"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/298412","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=298412"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/298412\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/298413"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=298412"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=298412"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=298412"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}