To best answer questions about the Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) withdrawal strategies, I modeled your situation and created some different solutions. This will allow you to see the dollar value of each solution. The solution has a retirement income of $75,000 per year index, and has a lifespan of 91 years, a ROI of 5% and a 3% increase in real estate.
Modeling a withdrawal strategy for retirement
I prepared four different models, each with each building, and the results are shown in the table below. The purpose of modeling is to help you understand, learn and make good decisions. Here is a brief description of each model:
- Basic plan: Delay RRSP/RRIF extraction until age 72, plot only the minimum value, and then use TFSA to fill any gaps between now and age 91.
- Strategy 1: Mary draws $35,000 from her RRIF from now on, and your husband starts earning $10,000 a year, indexing, starting at age 65.
- Strategy 2: If there is any surplus income in any year, add it to the TFSA.
- Strategy 3: RRIF bridges to 70, delaying CPP and OAS until age 70.
| Model | The wealth advantage of basic plans over strategic plans | Advantages of strategic planning over basic planning |
|---|---|---|
| Strategy 1: Early RRIF | $180,000 | $150,000 |
| Strategy 2: Add surplus to TFSA | $110,000 | $330,000 |
| Strategy 3: CPP and OAS @ 70 years old | $65,000 | $420,000 |
The results in the table show that if your goal is to build wealth, the best strategy is to delay RRIF withdrawals until age 72. If your goal is to leave a bigger legacy, you’d better implement one or all of the strategies. What are your goals, wealth building or heritage protection?
If you don’t have children, you may not be worried about keeping your property, and a basic plan may be the best way to do it. In fact, if you are going to leave everything to a charity, the best way to build wealth and legacy is the basic plan.
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How to play different retirement income strategies
Let’s study the results of each solution to explain each solution.
Basic plan
The basic plan builds the greatest wealth because taxes are as long as possible. Just like salary, the money earned from RRSP/RRIF should be 100% taxable, which results in less money invested over time.
In contrast, real estate values are lower than any other strategic model due to taxation. Starting at age 72, there are only the lowest rate withdrawals for the lowest RRIF withdrawal, with its RRIF account at 90 at about $830,000, which will attribute taxes at the time of death to the highest rate.
Strategy 1
Getting RRIF early means paying more taxes today, but less tax on estate taxes. In some cases, this will help you prevent entry into the OAS rebate area, which is not a problem for you as you won’t be giving you rebates.
