Retirement Withdrawals: How Often Should You Withdraw In Retirement?
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- Опубліковано 4 чер 2024
- In this video, we'll go through how you should time withdrawals in retirement. Should you withdraw annually? Monthly? Weekly? The answer is probably different for everyone.
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0:00 - Intro
0:27 - What's The Best Way To Time Withdrawals?
4:14 - Withholding Tax
6:02- Withdrawing At Year End
8:43 - What Works Best For You
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Back when I first retired I had this discussion with my financial planner and she asked me how often did I want my RRIF money. To me it seemed simpler to just get it once a year and then I'd just pay myself from my bank's cash savings account through the year and I'd have an exact record of how much I was spending at each point throughout the year. She then explained about the withholding taxes etc., etc. and I asked: "How do they [the government] expect me to take it out?" She said: "They kind of expect monthly" so I did that. There were no extra fees for doing RRIF withdrawals monthly and sometimes it's just easier to go with the expected and not fight the system too much.
My plan is to turn off the DRIP on our RSP accounts 6-12 months before we retire and start letting cash accumulate. At retirement, we will convert to a RIF. At the beginning of the year we will take out the minimums. At the end of the year we will take out the rest based on our meltdown plan. This second withdrawal will fund our TFSA contributions and minimize the length of time we have to wait to get the tax withheld back. Our plan is looking like we will be in a combined average tax rate if around 8%. It will be nice to minimize the time CRA gets to keep our money.
I know this is about RRIFS but why does this video not mention bank fees of $50.00 for every RRSP withdrawal. Seems like a pretty important thing to mention. 1 time withdrawal per year is $50.00, monthly withdrawals would be $600.00 per year in fees.
Great content as usually! Thank you!
As we are in our first few years of retirement, we find taking it out as we need it has worked so that we don’t over-withdrawal and take more than we need as we figure out what our spending trends are in retirement.
Great advice! Happy to see and hear from Brett!
Excellent video guys 👍🏻 Another consideration is spreading the withdrawals when possible, this way the capital left in the RRIF continues (hopefully) to earn more interest from the market than it would sitting in a bank account.
In Quebec, your numbers for our province are for the CRA withholding only. But Quebec's tax man also withholds an amount, so we don't have any advantage than the rest of Canada. One VERY important strategy is if you want to sell stocks to withdraw some money from an investing account registered or not, pay attention to the dividend cut date if applicable when timing your selling operation. An error of just one day, and you loose the next dividend attribution. Don't ask how I know ;)
I always try to take it out at the end of the year. Sometimes I catch the Santa Claus rally, sometimes not. But taking it out at the end of the year always means the government gets to hang on to my withholding taxes for only 4 month until I file T1 next April.
Two thirds of my LIF is with a broker and i take the max in January. The remaining third is with TD and they give me the minimum monthly. They dont take any tax on the monthly. The diff between what they give me and the maximum i am permitted i take out as a lump sum in December. A lot more tax is withheld and i keep whats left to pay taxes in April. My RRSP i keep for emergencies..... This all seems to work and i try not to look at taxes paid. It makes me ill when i compare my yax bill to my sister who lives in the U.S.
I find your videoes so helpful. I take notes. I am a 64 year old women. Working parttime. Beacuse of you I am meeting with the back next week to learn more and plan.
I suggest you get a second opinion on whatever the bank says you should do, including looking at the funds they've put your money in.
Awesome! I love reading these comments. So glad our videos are helping out - and keep asking questions in the comments as we have a great community here.
You should consider including in your strategy, the income tax on remaining RIFF value on the legacy, to make sure the overall tax paid is minimized.
If you have taxable capital gains, you can offset it with tax loss selling in order to realize any capital losses you might have. That way your planned RRIF payments and your overall taxable income for the year won’t be affected.
Some of us like Kraft dinner :)
I'm partial to Chef Boyardee
Beans on toast! British cuisine at its finest.
I'm turning 71 this year. My plan is to withdraw from my RRIF at the beginning of the year and invest the maximum amount in TFSA. My RRIF will not be a huge amount and I can comfortably live on my pension income. Until beginning of this year I had 100% of my money in mutual funds and now 30% is in GICs with interest from 4.75 to 5.09%. Even though I used to be a mutual funds broker and considered myself to be an aggressive investor I don't want to take so much risk any more. There are no fees on RRIF withdrawals.
FYI anybody, TD Bank uses the cumulative RRSP withdrawal amount for the withholding tax.
Thanks for the info. I will keep this in mind
I like to spread my withdrawals out over the course of the year to lessen any loss of dividends. If I am taking $50,000 this year, I spread it out quarterly so I can get the most bang out of my dividends, and also increase my chances of selling at a high. If you have a portfolio of good dividend paying stocks, you could miss out on a lot of $$$ by cashing out as a lump sum. The alternative of course, is to take your withdrawal in a lump sum at the end of the year, but then you have a big wad of cash sitting in your bank account, which is too tempting. Better to keep it working for you as long as possible, imho.
I am not yet 71, get monthly RRIF payments - less than $5,000 a month but much more than $15,000 a year - and I only pay my estimated taxes owning (about 16% on withdrawals). I've been doing this for the last 9 years and when I do my taxes at the end of the year typically I get a refund but occasionally a small amount owning. Either way CRA doesn't seem to have a problem with me not paying any higher withholding tax rate. I don't know the ins and outs of it, my financial planner set it all up, but that's how it's working for me.
That sounds like a great way to do it. Definitely want to minimize the amount of $$ being handed over to CRA.
When switching to a rrif. at age 71, how does the withholding work? First year is around 4% you have to take out. Have no idea what to do or how much of that 4% do I recieve, monthly. Every year it goes up? Does the govt. Automatically withdraw the holding tax or do I wait till income tax time when taxes get done?
Sandra.
I don’t believe tax is withheld on the annual mandatory amount, which generally comes out as a lump sum in January, but your financial institution/advisor should be able to confirm.
RRIF minimum withdrawals start the year after you set up your RRIF. They are based on your current year age at Dec 31and then increase each year. The minimum dollar amount is calculated based on your prior year Dec 31 RRIF total value multiplied by your current years age RRIF withdrawal factor. No tax is withheld at source on the minimum withdrawal dollar amount.
Tax is withheld at source according to the
There is also the idea of you take it out at the end, your account has all year to possibly grow, knowing it is not at high risk in retirement. But also the dollar cost average that when you do it monthly some investments are up and some down and it balances out during the year, versus once and maybe there is a big loss short term and when you take it out than there might be a bigger hit?
The idea is to have that
Money outside of investment if you’re taking it out within a year or two . You sell investments but don’t take it out at once . You don’t want to sell investments in the worst moment.
Agreed, but you still leave most in a balanced fund, even bonds are considered safe, but with interest rates up and down can affect them too. You still want your money to grow, considering you could be slowly pulling it out for the next 25 years.
@@raymikes1234 I know I won’t. My money will be in interest bearing cash account. Regardless, similar point. Avoid losing money that you need for spending .
At the end of the day it's about when you want the tax paid. Either way, you will still be paying the same amount of tax you owe and get back the refund you are owed (if any). Less withholding tax doesn't mean you pay less taxes for the year. You will just owe any balance when you do your taxes. Figuring out your taxes is pretty simple - tax brackets shift ~1% every year and you can easily find out the tax rates (fed/prov), age amount etc.., just use Google - all the info is out there. Example: You can know how much you expect to get back (or owe) the NEXT year (2025) (when you do your taxes in April) from all the withholding tax etc that you paid in 2024 and add that (or subtract, if you owe) to/from your income stream for 2025 year... and it rolls on like that throughout your whole retirement. A simple Excel sheet can keep track of it all for you.
Interesting topic. I am thinking of flipping my RRSP into a RIFF now ( age 60) . My advisor questioned why i would do that as a WD from my RRSP didn't have fees either. I've stopped making contributions for my RRSP last year. Only doing monthly TFSA now but made my last RRSP contributions this year for tax purposes. Im seriously thinking about the RIFF. But i really don't need the money right now as i have a pension with a bridge to 65. Should I take the RIFF minimum and just flip it into TFSA?
In my opinion, it’s a question of taxation. If you have a pension but also RSP savings, you may want to balance the RIF withdrawals over time to smooth out the taxation.
In particular, if at the time you pass, or in the case of a couple, the last spouse passes, the remaining funds in a RSP/RIF are counted as income. If significant holdings remain in the RSP/RIF the tax could be substantial.
I would consider it a good opportunity to start my RIF and take at least the minimum, especially if I were looking for a source to fund my TFSA.
If I were you, I would ask my advisor for a full tax plan throughout my entire retirement and ensure adequate steps are being taken to smooth taxation, including potential estate taxes at end of life.
@@James_48And that's my dilemma. Taxes. I've already considered everything you suggested
Do you actually save anything if the institution keeps withholding tax at 10% if you are doing it multiple times? Or at the end of the day, tax time is the tax you have paid the same anyway
Difference being if you take money out on December 30th you file taxes in March and that’s it. If you take money on Jan 1- government has your money for over year - that you could have earned interest on for a year!
Monthy withdrawals from a RIF can trigger brokerage charges and RIF withdrawal fees that can be substantial over “26 pay periods”. Is there a RIF withdrawal method that won’t trigger hundreds of dollars in fees each year?
I was charged $50/transaction for RRSP withdrawals but my financial planner reimbursed/reversed those charges. Then after two years of doing this we moved funds into a RRIF account and I don't pay any fees for RRIF withdrawals.
I guess I shouldn't say I don't pay any fees as planner is getting percentage of AUM so I don't pay per transaction fees but they are definitely getting payment. 😆
Yes. Manage everything yourself in a low cost investment account where there are no charges for RIF and LIF withdrawals, and minimal or no fees for selling units of your ETFs.
Why not go self directed. I use Scotia ITrade and there are no fees on scheduled RRIF withdrawals.
No withdrawal fees on income accounts like RRIF and LIF
Withdraws should be the same as grocery shopping. Do it when you need to and then only take what you need for the next several weeks. I would not by food for Christmas in June. So why take out funds if you do not have a need for them.
Were the RRSP withdrawal fees mentioned? That' a reason to do larger lump sums.
The withdrawals fees I saw on RRSP withdrawal fee was only applicable on deregistering funds and since you are not deregistering a RRIF when withdrawing funds fees were not applicable to RRIF withdrawals has been my experience.
Fees not applicable on a RRIF. Just RRSP
RRSP withdrawal fees are one of the reason I moved my RRSP to WealthSimple from my bank.
WealthSimple has no fees for RRSP withdrawals.
Note: I’m not ready to convert my RRSP to RIF as I’m semi retired and 55 years old.
@@mark-old-man-golf good to know! I'll consider switching RRSP to WS.
@@swyllie30 FYI the last time I checked WS didn't offer a RIF so you'll be switching again when the time comes.
I have a question related to RRIF withdrawals withholding Tax. If the annual difference between my obligated minimum amount and the increased amount I wish to withdraw is less than $5,000, Based on my research, my Federal Tax rate should remain at 10%. Additionally, I could also choose to increase the Federal tax rate to 15%. Is my statement accurate ? (Note: I live in Ontario Canada and I am less than 71 years old).
When you do your tax return for previous years (in retirement), what's your avg. tax rate? My tax software (Quick Tax) gives me mine, and based on that, that's how much I'll look to take off when I'm withdrawing RRIF $$. Definitely want to minimize how much I'm leaving with the tax man. I"d rather get a small refund, or have to pay a small amount. In my 1st full year of retirement, my wife and I withdrew $$ from our RRSP's, and the bank took 30%. We had large tax refunds as a result....which is not ideal since you're basically giving the CRA an interest free loan till you get your refund.
If I take the lump payment at the beginning of the year and not monthly, can I put that lump sum in high interest cashable GIC? Knowing I will have to pay income tax on the interest. Does this make sense?
You can do what you want with it.
My monthly income streams (RRIF and pension) are coordinated to achieve maximum tax efficiency AND meet income requirements…though tax efficiency was the main driver. It was fairly straightforward but required some number crunching at the outset and studying the tax tables. TFSA withdrawals are a bonus. I ‘m not rich enough to have any non-reg accounts.
CRA considers total withdrawals/withholding tax for the year, not individual withdrawals.
Our monthly income streams (RRIF & Pension) end up with way too much tax being withheld but unfortunately that is where we are at until we turn on CPP & OAS. Not overly happy with giving government so much money upfront only to get it back on our annual tax filing but that is where we are at this point. I wish you could state how much withholding taxes you wanted on your RRIF withdrawals. After all if you don't do proper estimations CRA will put you on quarterly tax installment submissions anyway so not understanding why this isn't an option.
@@DoneByD If you haven't already done so, have a look at making your withdrawals quarterly. I set our minimum withdrawals to come out on December 15th, but we actually make ad hoc withdrawals in January, April, July, and October before the scheduled December 15th withdrawal. As the minimum withdrawal has already been made by December 15th, Questrade simply don't pay it out! Our total annual withdrawal costs are around $150, and that is for selling the ETFs. I also use the withdrawals as an opportunity to re-balance as needed.
As said in the video, it can be a lot of work, including as you mentioned, avoiding having CRA put you on the installment plan. I've received the installment letter several times from CRA, but I then make sure we're each owing just under the $3,000 trigger; but that's even more calculations!
@OptimisticHominid I will have to touch base with my planner on taking payments on an adhoc basis to see if I can force taxes down to 20% level.
That is what we actually did when I was withdrawing RRSP funds before we set up the RRIF. We made 3 withdrawals of $5000 to stay at the 10% level.
I track our income and taxes paid monthly anyway so not a huge deal to track for me. I like doing that stuff anyway. Since this is the first year of RRIF for us I have projected 2024 income and taxes that will be paid and we would be getting a refund in neighborhood of $6500. That amount of overpayment is what I don't like with current monthly method for sure.
Thanks for your suggestion, I will definitely explore as I hate giving more money to government than I have to or before I have to. I would rather have to owe a little at tax filing.
@@DoneByD You're welcome. Paying out $6500 before you need to is a few hundred dollars of lost interest! If it's difficult to manage the ad hoc withdrawals, consider splitting the RRIF between two different institutions. There might be transfer-out fees, but if you crunch the numbers you can decide if it will be right for you.
@@DoneByD I tell my banker how much tax I want deducted (as a function of my effective tax rate) from my RRIF withdrawals and he does the math. I withdraw more than the minimum. I ask for more taken off than less as I’d rather have a modest refund at the year end rather than ending up paying yet more. But this is a personal choice. The point being you should be able to state how much you want withdrawn so there are no surprises at year end.
If RRSP is a federal program!
Could someone please explain why the withholding tax is lower in Quebec than the rest of the country?
Because there's 14% Quebec withholding tax on top of the federal withholding tax amount (we do a separate provincial tax return so the provincial income tax is always separate).
Interesting that quarterly payments were not discussed. That is what my financial advisor arranged.
That’s approximately what we do. Take enough to last us about a quarter, then we don’t have to worry about it for a while.
@@wayneandrews1022 Same here, but ad hoc amounts so I don't actually schedule them else the tax withheld will be based on the total annual amount.
You can set up many ways.
Not until the excess liquidity still sloshing around due to post pandemic fiscal stimulus entirely depletes & it could take time but when the end comes it will be a very violent end…yes but Jeremy will take interests to below 0 like the good old times…not happening ever because of a new structural vastly different world…the danger with such predictions is that it is nearly impossible to precisely predict the sequence of Events, their relative interferences & the Extent in either DIRn affecting asset value-pricing…so any prediction that comes true is due to a lot of luck as well & since there is always someone or their Mother predicting something or the other, they can feel like they are the Genius they never were & secretly thank their luck. And I am most certainly not telling on them…
i take it at tax time cause thats when i need more than my monthly income
Due to bank fees, lump sum makes more sense
Shouldn't be fees on a RRIF, just RRSP
Look at WealthSimple Trade as there are no RRSP withdrawals fees.
@@mark-old-man-golf last time I checked they don't offer RRIF.