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Thread: Retirement advice please

  1. #1
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    Default Retirement advice please

    My mom went to go see a new financial advisor the other day as she is 65 and some of her RRSPs are coming up for renewal.

    She doesn't have much RRSP's and didn't make much while working. Her government supplements per month will maybe be around 800 a month. She has about 12k coming up for renewal at the end of the month. The advisor recommended that she withdraw the 12k and put it in a TFSA. He explained that their will be a 30 percent withholding tax on that amount.

    Since her monthly net income will probably not reach 20k she will get that withholding tax back when doing her taxes the next year. He suggested is as once she starts taking out all of her RRSP in the next 3 years she will be eligible for more government assistance once they see she has no RRSP left.

    Can anyone validate this or offer better advice?

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    What he said is basically true. I'm assuming that when you say renewal, that you mean they are in some sort of GIC.

    The GIS is based on income, and RRSP is taxed as income.

    http://www.taxtips.ca/seniors/gis.htm

    If she is still working (you didn't say whether she is or not), she could consider taking out the RRSPs after she stops working. She has no requirement to take out the RRSPs until she is 71.

    You'll have to consider all forms of income to maximize the GIS payment. Investments, CPP, etc.

    This is all assuming she doesn't need the money from the RRSPs right now.

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    She currently still is working but only part time. She intends to either not work or work 10 hours a week. It's not much money but it keeps her with something to do.

    The advisor did say that in the longer run her gis will increase once her RRSP runs out.

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    It's a good strategy to avoid the RRSP to RRIF conversion at 71.

    "Her government supplement" - You need to be clear on what this is. CPP+OAS+GIS?

    If she is collecting GIS right now, the 12K withdrawal will probably means no GIS will be given up for the following year. CPP+OAS won't be impacted.

    Say $800/mth is her only income source, that's $9600/year, so tax free. When you withdraw those $12K, that will push her income to $21600 for the year. 1st 11K is tax free. But you will have to pay 25% for the remaining $10K.

    So $3.6K will be withheld for taxes on withdrawl and $1.1K will be refunded.

    Originally posted by jabjab
    The advisor did say that in the longer run her gis will increase once her RRSP runs out.
    Not having full picture, he is kinda right.

    GIS goes away at certain income level. RRSP/RRIF withdrawl or collecting CPP will consider as income and may impact if you are collecting GIS.

    GIS is prorated and you get $0 when you hit $17K/yr income (not including OAS)

    So say she's collecting $400/mth OAS and takes out $12K RSSP, she pretty much get NO GIS for the year after at almost $16K of income.

    You should have planned this in the late 50s if RRSP amount is large. But it's not too late at 65 if amount is small.
    Last edited by Xtrema; 02-08-2017 at 05:57 PM.

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    So the goal should be to maximize TFSA and have 0 RRSP?

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    CPP is already a known amount of 500 but we still don't know what the OAS will be. She called the government a few weeks ago and they simply told her it's still in processing.

    Her only source of income will be CP0 and OAS but the GIS has yet to be determined as well. It sounds like she should wait and see what she knows what her OAS and GIS will be and withdraw accordingly to minimize the tax hit?

    I wonder if it's just better to convert her account to a RIF?

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    Originally posted by max_boost
    So the goal should be to maximize TFSA and have 0 RRSP?
    That's one strategy to avoid RRIF because TFSA withdrawl isn't consider as income. Only for folks retiring now because TFSA is relatively new and they may not have maxed it out.

    That's why you need to review around late 50s because CPP starts at 60 and OAS/GIS starts at 65 and RRIF starts at 71.

    So you need to start planning the most efficient way to maximize benefits and minimize taxes.

    Unless you are super loaded and doesn't need any of the government programs at all.

    Originally posted by jabjab
    CPP is already a known amount of 500 but we still don't know what the OAS will be. She called the government a few weeks ago and they simply told her it's still in processing.

    Her only source of income will be CP0 and OAS but the GIS has yet to be determined as well. It sounds like she should wait and see what she knows what her OAS and GIS will be and withdraw accordingly to minimize the tax hit?

    I wonder if it's just better to convert her account to a RIF?
    https://www.canada.ca/en/services/be...s/tab1-19.html

    She should qualify for $1100/mth OAS+GIS combined (consider she is widowed or single, different as a couple, and CPP is the only income) where $530 of that is GIS.

    She should have pulled the money out between age of 60-65 to minimize taxes.

    You need to calculate what her RRIF situation will be like and how it will impact GIS. If it's not much, it may be a better route.

    https://en.wikipedia.org/wiki/Regist...nt_Income_Fund

    Here's the percentages on RRIF to get you started. So for example, if you have a $1M RRSP at 71, you have to pull $60K out of it on the 1st year. With CPP and OAS, that would put you into a $74K income tax bracket. There will definitely be no GIS.

    Doing what your advisor says, it could be short term pain for long term gain. $2500 in taxes is nothing if RRIF is going to take away $500/mth of GIS for the rest of her life.
    Last edited by Xtrema; 02-08-2017 at 06:23 PM.

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    Does the entire amount of the RIF count as income or can you just withdrawal the minimum each year?

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    Originally posted by jabjab
    Does the entire amount of the RIF count as income or can you just withdrawal the minimum each year?
    Once converted, you have to draw minimum percentage set out in that table and that count as income and will lower your GIS amount.

    ex $50k coverted to RIF, you will have draw ~$3000 the 1st year and the $3k count as income which also make you lose $2400 in GIS for the year.

    That's why you either have a giant RRSP proflio or clear it before you start collecting GIS. It sucks being in the middle. Have a tiny bit of money is the same as having no money in Canada.
    Last edited by Xtrema; 02-08-2017 at 09:58 PM.

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    So in my mom's case where she doesn't have much RRSP (maybe 35k total) she is better off withdrawaling for short term pain (loss of gis) but once all withdrawn then she would be eligible for GIS again

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    Originally posted by Xtrema


    Say $800/mth is her only income source, that's $9600/year, so tax free. When you withdraw those $12K, that will push her income to $21600 for the year. 1st 11K is tax free. But you will have to pay 25% for the remaining $10K.

    Just need to clarify this statement, the remaining 11k will be taxed at 15% at the federal level while only approximately 3k will be taxed at 10% at the provincial level.

    Assuming she gets no other non-refundable credits, she would owe around $1950

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    If she only has $35k in rrsp and she is 65. She can turn the rrsp to a rif and take advantage of some credits for the first $2000 in rif pension income. https://www.bdo.ca/en-ca/insights/ta...or-rrif-to-cl/

    Essentially she can take $2000 per year with very minimal taxes.

    That might have a smaller impact on GIS then to take it out in one go.

    Not sure is she is single or married/common law as that has different grids for GIS:

    https://www.canada.ca/en/services/be.../payments.html
    Last edited by s2k_boi; 02-11-2017 at 12:00 AM.

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    Mom just got notified that she is NOT eligible to GIC based on her income of 2016 (when she was working part time). She is already approved for CPP and OAS approx $1,000 a month.

    She has the option to submit a estimated 2017 income and be reassessed.

    I think she has to viable options:

    1. Start to withdrawal from her RRSP but enough only enough to keep her income lower than 20k

    2. Don't start withdrawing from RRSP till 71 and reapply for the GIC based on her projected income of only $1,000 a month.

    thoughts?

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