Scheduling for Withdrawals
To model this, I’ll assume you have $400,000 in an unregistered account with an Adjusted Cost Basis (ACB) of $250,000, $225,000 in each RRIF, and $135,000 in each tax-exempt savings account (TFSA) have. I also factor in 2% inflation and assume you’re earning 5% on your portfolio. As an example I assume that your husband dies at the age of 90 and you at the age of 100.
With the Canada Pension Plan (CPP), Old Age Security (OAS), and RRIF minimum withdrawals, you should have an after-tax income of nearly $70,000 per year. I will ensure that your TFSA is maximized each year with the money from your unregistered accounts.
Now let’s say you need an additional $20,000 after taxes. Where will the money come from? Your unregistered account or your RRIF?
If you receive the supplement from the RRIF and keep your expenses the same after your husband dies, you have a final after-tax estate of $911,500. Taxes were only $14,900.
If you collect the extra money from the unregistered first, you have a final rebate of $924,633 and only $15,100 in taxes.
There is practically no difference, and I see that often. In such a case, that means you should do your tax planning year after year, rather than trying to pick a strategy that you’ll follow for a lifetime.
Isabelle, if you knew that you were both going to die within the next five years, it would make sense to withdraw a little more from the RRIF account. But you expect a long life.
Also, keep in mind that RRIF accounts will naturally deplete over time if you live long enough. Each year the minimum payout rate of the RRIF increases, and at age 95 the minimum payout rate eventually reaches 20%.
