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Retiring With A Pension? This One Decision Can Change Everything (Ep 061) — Transcript

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0:00Hello and welcome to another episode of
0:02Retirement Unpacked. This is our weekly
0:05podcast that we put together here at
0:07Parallel Wealth, answering your
0:08questions. So, if you are watching on
0:11YouTube, listening on any of your
0:13preferred podcasts apps, Spotify, Apple
0:17Music, make sure that you are adding
0:19your questions to the comments on this
0:21episode because they are looked at every
0:23single week and those questions are what
0:26fuels future podcasts for us and we're
0:28happy to answer those for you.
0:30This week I am joined by one of our
0:32newer members on our planning team,
0:33Steve Arnault.
0:35Uh welcome, Steve. Thanks very much for
0:37taking the time here.
0:38>> Thanks for having me, Gordon.
0:39>> We're going to jump into some questions.
0:41So, question number one. I'd like to
0:43hear your thoughts of which is better on
0:46a DB pension, defined benefit pension,
0:48or taking the lump sum payment as in a
0:51commuted pension value. Excuse me.
0:53[clears throat]
0:53You touched on it previously but didn't
0:56compare the two options. Taking the
0:57monthly option is
1:00100% survivor option the best or 66.7%
1:04option the best? And on the lump sum
1:06payment, how do you protect
1:08or hide the cash portion to smooth out
1:10taxes that first year?
1:14So, which is better, defined benefit
1:16pension, monthly pension benefit
1:18payments, or a commuted value?
1:21I'm sorry to lead off the podcast with
1:23this but it depends. Uh we would want to
1:26look at all of your various income
1:28sources. We would want to look at your
1:30plan and one thing that we do quite
1:33frequently with clients who have defined
1:35benefit pensions who are wondering about
1:37this question is we will run an
1:39additional scenario just to show those
1:41two side by side. Really comes down to
1:43the client's goals, comes down to the
1:45client's other sources of income in
1:48retirement. Keep in mind that the
1:50defined benefit pension retirement
1:52benefits that you receive
1:55if you take the commuted value, you are
1:57now taking on the investment risk to
1:59provide same level of income. Okay,
2:02while it is in the pension system, that
2:05investment risk lies with the pension
2:07company. Okay, they must maintain those
2:10funds to a certain degree to meet their
2:13obligations.
2:15And there's actually legislation in
2:16Canada, every jurisdiction across the
2:19country, provincially and federally,
2:20that dictates how much they need to have
2:23available in the pension funds to meet
2:25those obligations. So
2:27which is better? Again, you're just
2:29transferring risk from the pension
2:30company to yourself as far as the
2:32investment risk goes. For actual income
2:34purposes, you can't really say which is
2:36better until you start running the plan.
2:39As for the survivor option
2:42a couple of things come to mind here.
2:43One, if you're a single individual then
2:46take the lower survivor option that's
2:48available to you if there is any at all
2:51and take the higher monthly benefits.
2:53That makes the most sense. The other
2:55thing that we'll do with clients a lot
2:57is run an additional scenario showing
2:59what if one spouse dies prematurely. And
3:02we'll do it for both typically. And then
3:04show, you know, if you had the 66.7%
3:06survivor option, what does that look
3:08like for the surviving spouse long term?
3:10So we're going to see what those numbers
3:11are when we're running our plans. Again,
3:13it's it's not one of those things that
3:15you can kind of give a blanket
3:16statement, this option's better than
3:18this option. I will say in my experience
3:21running those numbers for clients
3:24typically in your late 70s, if you've
3:26retired in kind of that early 60s to 65
3:29range
3:31typically in your late 70s
3:33you break even. And then, you know,
3:35depending on which option you chose,
3:37you're either
3:38in the money because you lived longer or
3:40you're in the money because you died
3:42young enough.
3:43So that's kind of where the break even
3:45point comes in
3:46in my experience with those.
3:49And then maybe Steve, I'll I'll pass
3:51this last portion of the question on to
3:53you and you can add anything that I
3:54might have missed on the first couple
3:55there, but how would you protect or hide
3:59the cash portion to smooth out your
4:01taxes?
4:02How do you think CRA would feel about
4:04you hiding your
4:05receipt?
4:06>> Yeah, I think I'll I'll tackle the first
4:08one of protecting and and anything that
4:10is, you know, above board with CRA. The
4:13primary option would be to use RSP
4:15contribution room if you still have it
4:17available. That's going to allow you to
4:18take the taxable portion that can't be
4:20put directly into a LIF and then
4:22contribute that into the RSP and exactly
4:24offset that portion. Now, if you don't
4:27have RSP room available, then that of
4:29course would be part of the tradeoff
4:30decision between do you take the the
4:32commuted value if you can't shelter that
4:34room? Because aside from the RSP
4:36contribution, there's really not a lot
4:38else we can do. Uh, you would typically
4:40take the additional income, which might
4:41be a couple hundred thousand. That could
4:43be taxed at maybe an average rate of
4:4540%, some at 30, some at 50. And then
4:48you would decide is the net total
4:51commuted value that you get to keep
4:53going to be worth it compared to having
4:55taken the defined benefit pension plan?
4:57And revisiting some of the the points
5:00you made, I absolutely agree that to
5:02really make a decision, you need to run
5:03it through your plan. A few generalized
5:06ideas that that you can consider in
5:08terms of well, why does it matter? What
5:10what differences can happen in a plan
5:12that would make one option better than
5:13the other?
5:14I start by looking at how the commuted
5:17value is calculated. So the pension
5:19company is going to take your future
5:20income. Let's say it's $40,000 a year.
5:23And they're going to say how much would
5:24you need today to provide $40,000 of
5:27income
5:28for the the remainder of your life? So
5:29if your life expectancy is 85, 86 years
5:32old and they usually use a an expected
5:34rate of return between 4 and 5%, how
5:37much do you need today to create 40,000
5:39of of income until you're 85?
5:42And that might be $600,000, $700,000.
5:45You you can look at those two
5:47assumptions that they include in that
5:48calculation, the life expectancy and the
5:50rate of return, and then decide for
5:51yourself how you feel about being on
5:54either side of that. So if you have a
5:55shorter life expectancy because of
5:57health factors, then maybe you take the
5:59commuted value because you're expecting
6:01to pass away at 75, but they're giving
6:03you money as if you're going to live to
6:0485. If you have great health and your
6:06family history is is good, uh then maybe
6:09you take the pension because they're
6:10saying 85 and you think it's going to be
6:12closer to 90 or 95. So that's one way
6:15that you can generally think about the
6:16the tradeoff. The other side is the rate
6:18of return. If you're comfortable with
6:20risk and you want to invest that
6:22commuted value at 6% then maybe you'll
6:24fare better than the pension would have.
6:26But if you're aversion to to risk
6:29prevents you from, you know, buying
6:30equities and you're going to put it all
6:32in a GIC at 3% then you're probably not
6:34going to do better than than the
6:36pension.
6:37The other factors that would, you know,
6:39be present in your plan are things like
6:40go-go spending. So a commuted value
6:42gives you more lump sum cash today that
6:45might allow you to spend at a higher
6:46rate early in retirement. If your
6:48household situation is something like
6:50CPP, OAS, and two DB PPs and very
6:54limited liquid assets, you might
6:56consider converting one of the two or
6:58commuting one of the two pensions to
7:00give yourselves more flexibility within
7:02the plan to spend at a higher level
7:04early on before all of your pensions
7:05have unlocked. So there's unique factors
7:08to everyone's situation that's going to
7:10drive which of those two is better uh
7:12and though we would be able to help with
7:14that or any financial planner would be
7:15able to go through your unique
7:17circumstances to figure out what's the
7:18best option.
7:20>> That's right. Yeah, and you know, you
7:22talking there just reminded me as well
7:24that [clears throat] if you take the
7:25commuted value, keep in mind in many
7:27jurisdictions you're able to pension
7:29income split your defined benefit
7:30pension as of age 55. If you take the
7:33commuted value, you're going to have
7:34some in your LIf accounts. If you have
7:36that RSP contribution room available now
7:38some in your RIf accounts, you can't
7:40split that income until age 65. So you
7:43may be looking at a situation where you
7:46don't have the same tax planning
7:49uh abilities based on which option you
7:51go with.
7:52>> Great point.
7:53Let's move on to the next question here.
7:56Uh so can you tell me if my taxable
7:59income for calculating the OAS threshold
8:02includes the full OAS amount when being
8:04clawed or before being clawed back or
8:07does it exclude the clawback portion?
8:09Sorry. So they're asking, is the OAS
8:13that uh is included in the taxable
8:15income for tax purposes, does it factor
8:18in all the OAS that you could have
8:19received or just the OAS net of the
8:21clawback? For example, this client was
8:23receiving or this uh commenter was
8:25receiving $700 per month uh and then
8:28they had $108 that was being clawed back
8:31from the recovery portion and then they
8:33were also withholding 15%
8:36from the uh
8:38portion of the income that they were
8:39receiving. So quite a few moving parts
8:41here. Uh they're wondering, firstly,
8:44what are they going to be taxed on from
8:46a overall tax situation? And then
8:48there's also a question of how do the
8:51clawbacks and the withholding tax factor
8:54into their overall situation? So I'm
8:56going to kind of high-level summary of
8:58how OAS works because I think this is
9:00one of the most misunderstood uh
9:02components of government benefits and
9:04retirement planning.
9:05When you have an initial OAS clawback or
9:08a recovery tax on your payments that
9:10you're receiving, that is not the actual
9:13amount of OAS recovery that you will
9:16ultimately pay. So if you have 50% of
9:19your OAS that has been determined as,
9:21you know, recovery by by the government,
9:24that's only a best estimate at the start
9:27of your payment period. So they're
9:28looking at a previous year's income and
9:30they're saying, you made a bunch of
9:31money last year, so we're going to
9:32assume you're going to make that much
9:34money this year and we think that you
9:36will therefore not qualify for the full
9:38OAS, so we're going to withhold it at
9:40source and we're not even going to give
9:42it to you to begin with.
9:44That's what the 108 is in this client in
9:46this uh individual's situation.
9:49108 is being withheld because they
9:52expect the client's taxable income to be
9:54high once they file next April.
9:58But your actual OAS that you receive is
10:01ultimately determined when you file your
10:02taxes in that next year. So what will
10:05happen is is this individual will let
10:07the the government know, hey, this is
10:09how much I initially qualified for for
10:12OAS based off of how long I've been in
10:14Canada, when I started OAS, and how old
10:16I am.
10:17You're going to include the total gross
10:20full number of OAS, and then you're
10:22going to let the government know any
10:24withholding taxes that were applied,
10:25whether that's the initial recovery or
10:28that's the optional withholding that was
10:30applied to the to the OAS.
10:34And then from there, it's going to be
10:35determined, firstly, how much do you
10:37actually receive of the OAS? So is there
10:40any recovery now that you've reported
10:41all of your taxable income? Yes or no?
10:43If there is, then that reduces your OAS,
10:46and that also reduces how much OAS you
10:49have to include in your taxable income.
10:51So you do not pay taxes on the portion
10:54of OAS that is clawed back or recovered.
10:57And then anything that you had withheld,
10:59so the 15% in this case, that is going
11:01to go to reduce the total taxes that get
11:04calculated. So if you owe $2,000 in
11:07taxes on $5,000 of OAS because you had a
11:12couple thousand
11:13clawed back or recovered,
11:15then you would apply any of your your
11:18withholding tax to reduce that $2,000
11:20tax bill. So
11:22a lot of moving parts with the OAS, but
11:24that's hopefully a high-level summary of
11:26what would happen in this client's case
11:27and in general.
11:29Any thoughts, Gordon?
11:30>> Yeah, the one thing and I'll admit I am
11:33guilty of this, when determining your
11:35OAS clawback or pension recovery tax
11:38amounts,
11:40we will tend to use taxable income as
11:43sort of a a term that we apply to that.
11:45It's actually not based on your taxable
11:47income. It's based on your net worldwide
11:49income. Okay? So that's why your
11:52clawback amount
11:55is is not taxed. The determination for
11:58how much OAS benefits you're entitled to
12:00is based on your net worldwide income,
12:02not necessarily your taxable income. So
12:05just keep that in mind. In terms of
12:06terminology, I'm guilty of it. I use the
12:09taxable income line with clients all the
12:11time, but it's actually your net
12:13worldwide income,
12:15which is determined by a different line
12:16on your income tax return.
12:18And then your tax, taxes owing on your
12:21OAS benefits is based on the actual
12:24taxable income, which comes after your
12:27clawback has been removed. So, yeah.
12:29Absolutely, Steve. Good point.
12:32All right. Moving on to our next
12:35question. My question, I have a federal
12:38locked-in RSP. When I turn 55 shortly,
12:41does it make sense to convert it to 50%
12:44LIF and 50% RIF, even though I am
12:46planning to retire at 65? So, we've got
12:48a 10-year difference here between
12:51conversion age and retirement age. The
12:53reason I am thinking of doing this at 55
12:56instead of when I retire is because I
12:57want to keep the LIF portion as small as
12:59possible. I realize I'll have some
13:01income from the minimum withdrawal rate
13:02from the LIF, which would add to my
13:04taxable income. Would I have to withdraw
13:06from the RIF as well, or can I convert
13:08it into an RSP? So, that's the easiest
13:11part to answer. When you convert or
13:13transfer your locked-in retirement
13:15account to a LIF
13:18and unlock 50% of it in the
13:20jurisdictions that do allow for that,
13:22you can transfer that into either an RSP
13:25or a RIF account, the 50% that is
13:27unlocked. So, if you do not intend to
13:29make any withdrawals from that in this
13:30case because you're still working for
13:32another 10 years, you can absolutely
13:35transfer the 50% that has been unlocked
13:38into your RSP account. It does not need
13:40to go into a RIF account, which would
13:41then preempt you to make minimum
13:43withdrawals at least from that account.
13:45As for whether it makes sense to do that
13:48conversion at age 55 when you're still
13:50earning income at 65, sometimes it can.
13:54Um,
13:55comes down to what your income looks
13:56like. Now, I would run the numbers just
13:58to determine based on your current
14:00income earned from employment and the
14:03minimum amount you would need to
14:05withdraw from the 50% in the LIF account
14:08that remains, does it make sense? Does
14:10it make sense to trigger a higher income
14:12tax rate on those minimum LIF
14:14withdrawals simply to it sooner. The
14:17other thing to consider is if you're
14:18allowing those LIRA funds to continue
14:21growing tax deferred until closer to
14:24your retirement age, the amount in there
14:26that is eligible to be unlocked is now
14:28higher because the total balance is
14:30higher as well. So down the road, you're
14:32still able to unlock the same amount. If
14:34you don't need the income because you're
14:36still working,
14:38sometimes this is
14:40a situation where
14:43yes, you can do it.
14:44I don't know if it's worth doing. You
14:46know, is the juice worth the squeeze in
14:47some cases? But really it's going to
14:49come down to that um
14:52current income tax rates that you're
14:54paying right now with the earned income
14:57that you have coming in.
14:59Uh because the other situation that I've
15:00sometimes seen is people will do this
15:02conversion. They've got some RSP room
15:04available because they are still
15:05working. So they take their minimum LIF
15:07out and then they just contribute it to
15:09your RIF. You're actually
15:11using your RSP contribution room twice
15:13in that instance
15:15um because when you had your original
15:17pension, your RSP contribution room
15:19available to you was reduced by the
15:20amount that went into the pension fund,
15:22right? So you're kind of using your
15:24doubling up on your RSP contributions
15:26essentially um from that sort of uh
15:29example.
15:30Um but really in terms of whether it
15:32should be done
15:33comes down to your earned income, I
15:35would say, and we run the numbers just
15:36to see if it makes sense.
15:38Um what do you think, Steve?
15:40>> Yeah, I think I agree with all of that.
15:42Uh this is a case I think where a lot of
15:44the times in financial planning and in
15:46life in general, we have these rules of
15:48thumb. Like you know, we want to work
15:50down the LIF as quickly as possible so
15:51that we have flexibility in our other
15:53accounts.
15:54That is a general goal and it's because
15:57of a reason. So we're not winding down
15:59the LIF for the sake of winding down the
16:01LIF. We're winding down the LIF for the
16:03ability to have flexibility in our
16:05withdrawals in the future.
16:06If the way that we create flexibility in
16:08our withdrawals is to force ourselves to
16:10withdrawing for 10 years while you're
16:12working, we're kind of you know, we're
16:14we're
16:15achieving our goal, but we're we're at a
16:17at what cost, essentially. So, it's not
16:19about,
16:20you know, you reducing the lift for the
16:22sake of reducing the lift, we're doing
16:24that for strategic reason related to tax
16:26planning. So, the question then comes
16:27back to the tax planning opportunity. Is
16:31the client's marginal tax rate while
16:33they're continuing to work lower than
16:34what it would be in retirement? If so,
16:36then this makes sense. If it's not, then
16:39they should likely wait, deferred till
16:4165, unlock at that point, and then start
16:43taking the the lift minimum.
16:45A couple of points, if they are going to
16:47go ahead, then they could uh I you know,
16:51contribute the minimum back into the RSP
16:53if they have the room, and that's going
16:55to be a wash in terms of taxable income,
16:57but it's going to move that money over
16:59into the the RSP. That only works if
17:01they have that room and they're not
17:03going to use it otherwise before
17:04retirement.
17:06The other piece is if they're taking the
17:07lift minimum,
17:09they can choose to move the difference
17:11between that minimum and the maximum
17:13each year into the RSP as well.
17:16So, if you're taking a lift minimum as
17:18taxable income, you can also transfer
17:21the difference between what you take and
17:22the maximum over to the RSP to to
17:24continue to unlock as much as possible.
17:26Now, in this case with a federal plan,
17:28the maximum's fairly low, so it's not
17:30going to be a material improvement, but
17:32um just goes to show there's lots of
17:34potential options when when you do start
17:36to dig into um specific strategies.
17:40>> Yeah, and and that second piece that you
17:42were just talking about, keep in mind
17:44too that this is all manual admin work
17:47you will need to do on an annual basis.
17:49So, if you're looking at your retirement
17:50plan as
17:51trying to be as simplified as possible,
17:54that might not be the route to go,
17:56right? All of these things, there are
17:57dollars and cents reasons to do some of
17:59these things, um but again, it's
18:02I like Steve what you were saying about,
18:04you know, what's the overall goal? The
18:06overall goal is not unlocking as much of
18:09the lift as possible. The overall goal
18:10is being as tax efficient as possible in
18:12retirement. Uh and so,
18:15doing the one just to do it uh isn't
18:18necessarily achieving your goals, you're
18:19just
18:20kind of creating some more
18:22uh some more admin work for yourself and
18:24not maybe necessarily seeing the
18:27long-term benefit of it if it's not
18:29going to suit your retirement plan
18:31overall goal.
18:33>> Exactly.
18:34All right, next question. Uh this is a
18:37comment that relates to deferring CPP.
18:40So the the commenter said looks great,
18:42but what happens when one dies out of
18:44the blue, bang that CPP and OAS is gone
18:47and you have drawn down all of your
18:48savings. So a very important point. The
18:51the commenter below that also mentions
18:53this is a an important factor to
18:55consider in all circumstances where
18:57you're deferring CPP and OAS and we
18:58would agree.
19:00The way that I approach this and and the
19:02framework that we often use is
19:04let's start by maximizing the most
19:07likely circumstance. So most likely
19:10you're going to pass away sometime
19:11around life expectancy of 85 86.
19:15Most likely you're going to earn rates
19:16of return on your investments somewhere
19:18around 5%.
19:19Most likely you're going to spend
19:20somewhere around your target spending,
19:22let's say it's 80,000 a year.
19:24And so let's try to improve the
19:26likelihood of you achieving all of those
19:28goals given those circumstances. That's
19:30kind of the first step of of financial
19:32planning.
19:33And then we look at okay, well we're
19:35looking good for the most likely
19:37circumstances, but what happens if
19:38things don't go as expected? What if
19:40investment returns are lower? What if
19:42inflation is higher? What if one of the
19:44clients pass away early?
19:46And we look to see whether there's a gap
19:48in those circumstances. So if one client
19:51passes away early, is the surviving
19:53spouse having to make significant
19:55sacrifices in the plan because we
19:57haven't prepared for that and that's
19:58what we would then address.
20:01Now when we go to address a shortfall in
20:03a in a what if scenario, there's lots of
20:05ways that we can do that and we want to
20:07find the most efficient way for each
20:09circumstance. So in this case it might
20:12be that the clients you know find that
20:14if if one of them pass away early
20:15because they've deferred CPP and OAS,
20:18they would have a shortfall as the
20:19surviving spouse.
20:21And so you might say okay, let's not
20:22defer CPP and OAS. That's one option.
20:24Another option could be a term life
20:26insurance policy that protects that
20:28initial period of retirement and allows
20:30them to get further in and build up more
20:33of their government benefits on a
20:34deferred basis.
20:35And so we would look at, you know, what
20:37is the cost to the main plan, the most
20:39likely outcome,
20:40and what is the, you know, the the
20:42benefit to the exception plan, the the
20:44what if or alternative case. So
20:47absolutely we want to look at
20:49alternative scenarios where things don't
20:50go as expected.
20:52And we have options like taking CPP and
20:54OAS at 65 which we would consider,
20:56but it's about finding the most
20:58efficient way to address those
20:59shortfalls and concerns in alternative
21:02scenarios.
21:03>> Yeah, absolutely. We do a lot of what if
21:05scenarios built around this and it's not
21:07necessarily so much to say, okay, if
21:09this happens, this is what you're doing.
21:11It's to say, okay, if this happens, you
21:12can do this to overcome that shortfall
21:15or this is what it looks like if that
21:17situation arises. So in this event, one
21:20spouse dying prematurely,
21:22we've
21:24used up some of your other savings. We
21:25were relying more in the the later slow
21:27go and no go years on that dual CPP and
21:30OAS. So we take some of that out.
21:33Obviously when one spouse dies,
21:35[clears throat] but if we find that, you
21:37know, one spouse dying and we deferred
21:38CPP and OAS to 70 and we melted down
21:40your RSPs, if you've got say a 40%
21:43shortfall
21:45and then we make an adjustment to say,
21:46okay, well, what if we didn't defer, we
21:48kept everything at age 65 and you're
21:50still at a 36% or 33% shortfall, well,
21:54yeah, you will technically have more
21:56money if you take your CPP and OAS at 65
21:59in this event,
22:00but you still don't have enough to
22:02achieve your goals in spending for just
22:04that one individual. So it does come
22:06down to a lot of just knowing how these
22:09things will impact your retirement plan.
22:12And anytime there is a major financial
22:14change which includes, you know,
22:17selling a house, receiving an
22:18inheritance, or a spouse dying, a
22:20partner dying, that 's a very good
22:23indicator of a time when you should get
22:24a plan update done so that we can then
22:26so we can say going forward from here,
22:28this is what things look like. We know
22:30what your CPP survivor benefit looks
22:32like. We know what other assets you
22:34still have available. So the what if
22:36scenarios are there to
22:39show you where you stand in the event
22:41one of those things happens.
22:43But for premature death,
22:46the statistics still show that the
22:48greater risk is the longevity risk, not
22:51the premature death risk, right? So yes,
22:54it can happen. We all know people who
22:55have died in their 60s, 50s, early 70s,
22:59but we also all know a lot of people who
23:01have lived well into their 80s and 90s
23:03as well. So the longevity risk based on
23:06latest statistical data shows that that
23:08is the greater risk compared to a
23:10premature death risk. Should you know
23:12how you are going to deal with a
23:14premature death? Absolutely, which is
23:15why we run the additional scenarios so
23:17that you have that information.
23:19Um
23:20and also sometimes it's not
23:22quite a change. You know, occasionally
23:25we'll see okay, well surviving spouse,
23:27you know, you were spending as a couple
23:29$8,000 a month after tax just as an
23:31example.
23:33And when one of you passes away, the
23:34surviving spouse needs to reduce that by
23:35$1,000 a month after tax. Might not be
23:38such a a great difference that either
23:41spouse in this case would care
23:45to plan for, right? Rather than planning
23:47for the more
23:48um efficient, the more long-term kind of
23:52age 95 as a uh last
23:56uh income year kind of goal. So
23:58um yeah, I
24:01see where everyone comes from when
24:03they're thinking, you know, if I've
24:03spent all of my money and and often
24:05times with our RSP meltdowns, it's gone
24:07by early 80s.
24:09Uh if I've spent it all by then, you
24:11know, what happens if so and so passes
24:13away? It's something you should know
24:14about, um but I don't know if you should
24:16change all of your retirement plans
24:18based on that alone unless there's
24:20something in the medical history that
24:22determines that it's a more likely
24:24scenario in your event, which we would
24:25plan for and and done in the past for
24:27sure.
24:28Next up, Steve, we have
24:32uh can you clarify that the LIF maximum
24:35can be based on last year's returns for
24:37all jurisdictions. It's my understanding
24:39that federal registered LIFs don't get
24:41this option. And so what's this person
24:45asking the question is referring to is
24:46there are some jurisdictions in Canada
24:48with locked-in accounts that will allow
24:51you to take out more than what's the
24:55published maximum percentages based on
24:57your age. And the
25:00new maximum you have available is either
25:02the maximum based on that percentage,
25:04the calculation based on your age and
25:06the balance in the account at the
25:07beginning of the year
25:09or what you earned in investment income
25:11the previous year. Okay, that can become
25:13your new maximum. Now, it is restricted
25:15by jurisdiction and I never remember
25:18them off the top of my head, so I am
25:19going to read them out for you. So the
25:22jurisdictions that do allow for you to
25:24change your maximum from the
25:27published calculation based on your age
25:29to your investment returns from the
25:31previous year are British Columbia,
25:33Alberta, Manitoba, and Ontario. Okay,
25:35those are the ones that will allow you
25:37to do that.
25:38Person asking the question is correct.
25:39Federal locked-in accounts do not
25:42qualify for this. You are stuck uh with
25:45the maximum percentage based on your age
25:48and the balance in the accounts. Other
25:50jurisdictions that follow that uh
25:52federal way of doing it, New Brunswick,
25:55Nova Scotia, Newfoundland, Quebec for
25:57those aged under 55.
26:00Um and then it's
26:03no maximum for other jurisdictions like
26:05Quebec over age 55, Manitoba over age
26:0865, Saskatchewan. So uh it's all over
26:11the place. If you do a quick Google
26:12search based on the jurisdiction that
26:14your pension is housed in,
26:16um then you'll be able to see
26:18whether you fall under that. But as of
26:21this recording date, those four
26:23jurisdictions, BC, Alberta, Ontario
26:26and oh now I forgot the other one,
26:28Manitoba
26:30are the only ones that you are able to
26:32adjust your maximum withdrawal rate to
26:34what you earned last year. And really,
26:36it's just a
26:38Steve, a way for
26:41you know, those jurisdictions to say to
26:42the the people who own those locked-in
26:45funds, you know, if you're stuck with
26:47this amount, like say the amount is 6%
26:49maximum, 6 and 1/2% even that you can
26:51withdraw this year based on your age,
26:53but you earned 15% you may never run out
26:56of money in that account. You might not
26:58ever be able to draw the whole amount
26:59out. So it's really a way to mitigate
27:01that overperformance, I would say in
27:04terms of investment returns.
27:07>> Yeah, absolutely. And you know, to the
27:10point about the current jurisdictions,
27:12these things are constantly changing.
27:14It's about a biannual check-in that we
27:16would make in terms of have things
27:18shifted? Are there new opportunities for
27:20unlocking rules or maximum rules? So I
27:23would encourage anyone that is about to
27:25retire or is going to retire in the
27:27future, just because you thought you
27:29understood your account at the time that
27:30you got it or or even a couple years
27:32ago, just check the most recent rules
27:34when you go to retire. And if you're in
27:36retirement, you know, every couple of
27:38years, it doesn't have to be, you know,
27:39an annual January 1st priority, but just
27:42check in from time to time to see
27:43whether there are new unlocking rules or
27:45eligibility so that you have flexibility
27:48for those accounts.
27:49And then coming back to the comment that
27:51we made earlier about the lift maximum
27:54transfer to the RSP.
27:56Let's say that you are in one of these
27:58jurisdictions and you had 15% returns
28:00last year, but you don't want to take
28:0215% from your lift because of tax
28:04planning,
28:05you can transfer the difference between
28:06what you do take and what you can take
28:09into your RSP. So again, minor things to
28:12go towards earlier point is the the
28:13juice worth the squeeze? Depends on how
28:15much you're you're talking about and
28:18how interested you are in the
28:20administrative side of things.
28:22>> Yeah, and we also were saying, you know,
28:25any major financial change should
28:26precipitate a plan review. There have
28:28been rumors lately of Ontario, province
28:32of Ontario looking at potentially for a
28:34greater than 50% unlocking. I don't know
28:37if that's going to come down the pipes
28:38and and be set in stone, but something
28:41like that particularly for retirees who
28:43have not yet unlocked their accounts.
28:46Something like that would be
28:48absolutely an example of when you might
28:50want to look at getting your plan
28:51updated to see if you need to make
28:53adjustments to how you're going to treat
28:55those accounts going forward.
28:57>> Yeah, absolutely.
28:59All right, next question. So my question
29:01is that I have a survivor benefit. How
29:03does that apply? So this is related to
29:05CPP.
29:06So they have a CPP survivor benefit.
29:09They're wondering how the three children
29:12that they raised would factor into their
29:15their future benefits and how taking
29:19if I wasn't contributing the maximum
29:21amount, can I still bump those years? So
29:23a couple of questions here. The first is
29:25related to how CPP is generally
29:27calculated. So they look at your
29:30historical contributions, how many years
29:32did you contribute in, how close were
29:34you to the maximum in each of those
29:36years, and then they determine what
29:38percentage of the maximum that you could
29:40have contributed in did you earn? And
29:43for everyone, there's a number of
29:44dropout years that you can exclude from
29:46that because you might have been in
29:47school or on leave.
29:49And then for anyone with children where
29:51they were the primary caregiver from you
29:53know the birth until
29:56the they're under seven, for as long as
29:57they're under seven, you can drop out
29:59additional years from your employment
30:01history in order to not be penalized
30:04from a CPP tax or CPP calculation
30:06standpoint for having helped to to raise
30:08your children. So in this case, their
30:11CPP benefit will be based on a
30:13combination of their historical
30:15contributions less the standard dropout
30:18years less any adjustment for their
30:21child rearing years.
30:22And then in terms of how their benefit
30:25factors in with survivor benefits, you
30:27receive the CPP survivor benefit until
30:30you start taking CPP yourself. So you
30:33would have some benefit calculation up
30:35until your 65. Then it would be adjusted
30:38and there would be a new calculation
30:39from 65 onwards.
30:41And then once you start taking CPP
30:42yourself, that's when a new calculation
30:45is used and the combined survivor
30:47benefit and personal CPP pension is kind
30:51of recalculated and a total value is
30:53determined for what that individual will
30:55receive going forward. So CPP survivor
30:58benefits are paid until well, they're
31:00paid all the way along, but the
31:01calculation differs depending on whether
31:03you're pre-65 or post-65 and whether
31:06you're taking CPP yourself or not.
31:09>> Yeah, and that is one kind of the reason
31:11why I picked this question as well.
31:13It is one of the the
31:16the planning scenarios that we will run
31:19quite frequently is when someone is
31:20receiving CPP survivor's benefit, you
31:23know, trying to figure out the most
31:24optimal time for them to begin their
31:25CPP. Again, it it brings in all of the
31:28various income sources that you have,
31:30but we will run the numbers
31:32all different ways, starting your own
31:34CPP retirement benefit at 65, at 70,
31:37deferring until 70 and just collecting
31:39your CPP survivor's pension instead of
31:41adding your retirement benefit to the
31:42equation in those years. We want to know
31:45how that's going to impact everything
31:47else in your retirement plan. And so
31:49that is one of the scenarios that we
31:51will run very frequently for folks who
31:53are currently receiving survivor's
31:55benefit and haven't yet begun their own
31:57CPP retirement benefits
31:59because there is a cap, right? So for
32:03people who may have a a lower expected
32:05CPP benefit coming to them as their own
32:07retirement benefit, maybe it makes sense
32:10to add those two benefits together
32:12sooner, right? If you need the
32:13additional funds, if it's going to work
32:15in your plan.
32:17But if you are already expecting a
32:19higher CPP retirement benefit yourself,
32:21then the value of that survivor's
32:23portion comes down because you are
32:25capped at the maximum that one single
32:27individual can
32:28earn in CPP benefits as a total. So we
32:32do run those all the time. Again, it
32:34comes down to integrating the survivor's
32:36benefit and your own CPP retirement
32:38benefit with all of your other sources
32:40of income and how much you want to spend
32:43as well, right?
32:45All right, on to the next question.
32:50An RSP contribution in the example where
32:53real property is sold does make sense to
32:55help offset a capital gain, but are
32:57there not some other good reasons post
32:59retirement to use up some of that RSP
33:01room?
33:02Or were you talking post year one
33:04retirement only? A contribution could
33:06make sense near the end of the year you
33:08you retired if your income tax that
33:10first partial year of retirement is say
33:1210 to 15% higher, a good money in money
33:15out spreads than projected in the
33:17following years of retirement.
33:19And we see this question an awful lot. I
33:22will
33:23typically run this scenario for clients
33:26pretty frequently just because it's
33:28in your head that you know, if I'm
33:31contributing to my RSP, my taxable
33:32income is now lower, I'm going to see
33:34that
33:36income tax refund coming because my
33:38withholding tax as I was working was
33:40based on that higher taxable income and
33:42now I have money coming back to me
33:43because I didn't actually have that
33:44taxable income amount. So we see it
33:47quite often. Now when we run these
33:49scenarios quite frequently, we will see
33:52that in those years of retirement,
33:56you're not necessarily seeing a benefit.
33:58In the last year of working, sure
34:02there's occasions where it makes sense
34:03to make that last RSP contribution in
34:06that last year when you have employment
34:07income. Now when we look at the numbers
34:10on that, sometimes the net tax benefits
34:13does not work out if you do that. So you
34:15will have that reduced taxable income,
34:17that reduced tax bill in the last year
34:19of of working,
34:21but long term for the rest of your
34:22retirement plan, you might end up with a
34:24net increase in how much tax you pay
34:26either
34:28on estate tax because you died too soon
34:30with a higher balance in your RSPs or in
34:33lifetime income tax because of that
34:35higher balance in your RSP RIF account,
34:37we now have to draw it out longer or at
34:39higher amounts, which leads to a higher
34:40tax bill during retirement.
34:42During retirements, we are typically
34:45looking at melting down your RSPs. So,
34:47if you're making contributions as you're
34:49trying to melt it down,
34:51you're not melting down anything.
34:53So,
34:54that's kind of defeating the point of an
34:56RSP meltdown. There are certainly, you
34:59know, in those years if you have a large
35:02capital gain that we are triggering for
35:04whatever reason, whether it's you sold a
35:05property or you have a large
35:06non-registered account and we're trying
35:08to trigger some capital gains in there
35:10on purpose. If you've got RSP
35:12contribution room available, yes, that
35:14offsetting
35:16income portion is going to make sense a
35:18lot of the time. Obviously, we'll run
35:19the numbers both ways. I still have a
35:21lot of clients who if we are triggering
35:24a capital gain in a non-registered
35:25account and they see the difference, the
35:26comparison between
35:28doing the RSP contribution and not,
35:30sometimes it just long-term doesn't
35:33work out to provide that much or any
35:35benefit.
35:36But yeah, there are certainly some cases
35:39when you would want to trigger it in the
35:40future, but adding to your RSP account
35:43while simultaneously melting down your
35:45RSP accounts,
35:46you can't really do those two things at
35:48the same time. And so it's typically not
35:50a good strategy to continue those
35:52contributions after retirement.
35:55>> Agreed entirely. I think the the only
35:57other example that I could think of
35:59where you may
36:01contribute to an RSP during retirement
36:03is if you have any corporate assets that
36:05you're looking to to wind down, you
36:07know, paying yourself dividends from the
36:09corp and then putting that into RSP.
36:11If you leave it in the corp, it's going
36:12to be taxed on an ongoing basis at the
36:14highest marginal rate, whereas if you
36:16can get that out and shelter it in the
36:17RSP, you're going to be able to grow
36:19that money tax-free on a deferred basis.
36:22Now, you know, you might wonder, well,
36:23why wouldn't you just do that in an
36:24earlier year? So, I think the situation
36:26where you have RSP contribution room in
36:28retirement and a good reason to
36:30contribute is is very uncommon. So,
36:33most of the time it just makes sense to
36:35to start the drawdown and and manage
36:38the the money coming out instead of
36:40still looking to put money in.
36:42>> Yeah.
36:43>> All right.
36:44The next comment uid:0
36:46>> um, what I'm considering doing is only
36:49contributing to the RSP for the last
36:51couple years of employment, not the
36:53TFSA,
36:54and intentionally leaving uh as much
36:57TFSA contribution room as possible
36:59within the plan to aggressively melt
37:01down the RSP.
37:03So combined with spouse, we're near 1.5
37:05million right now, providing more money
37:08than required and contributing that
37:09excess to the TFSA in retirement. Is
37:11this a good strategy?
37:13So I want to kind of break this down
37:15into two
37:16questions. The first is, should I take
37:19RSP money out, or sorry, should I make
37:22RSP contributions in my final few years
37:24of working, right? If if I'm going to
37:26put money in and then take it out
37:27immediately, does it make sense to
37:29contribute to my RSP in the final few
37:32years of retirement? And in a lot of
37:34cases, yes, that's when you're in your
37:36highest taxable income level. You know,
37:38you've probably paid off the the
37:39mortgage, your kids might be out of the
37:41house. So you've got the cash flow and
37:44the taxable income for it to make sense
37:45to contribute to the RSP.
37:47The fact that you're taking it out the
37:48next year is not a problem because in a
37:51lot of cases you're going to put it in
37:52at say 30, 40, 50% marginal tax rate,
37:56get a large refund,
37:57and then turn around and take it out a
37:59few years later at hopefully a, you
38:01know, 20 30% tax bracket where you're
38:04getting that that difference in tax
38:06rates paid and refunded
38:08as additional cash flow that you
38:10wouldn't have had otherwise. So RSP
38:12contributions in the later stage of
38:14retirement absolutely make sense even
38:15though you're going to turn around and
38:16withdraw it.
38:17The other question of should I leave
38:19TFSA room for that meltdown? I would say
38:22if you have money to put into the TFSA,
38:25you should put it in kind of as soon as
38:26possible. So I wouldn't intentionally
38:28leave a buffer in the TFSA because you
38:31might as well just start earning the tax
38:33deferred growth on any money that you
38:35have today.
38:36But if you can't contribute to both RSP
38:38and the TFSA, then of course you would
38:41kind of max out the the RSP,
38:44wait until you retire and then
38:45immediately deregister that money, put
38:47it into the TFSA and make the difference
38:49in in the tax rates back as a as a
38:51bonus.
38:53>> Yeah, and that's my
38:55that's my thought here. You know, the
38:57power of the tax-free savings account is
38:59that ongoing tax-free growth.
39:01By waiting on that, you're giving up
39:04sort of the the benefit of those few
39:06years from that contribution room. So I
39:08would
39:10prefer to see the money going into the
39:11TFSA instead. Again, flexibility-wise,
39:15you know, it's great that you're getting
39:16the income tax refunds while you're
39:17working and and making those RSP
39:19contributions.
39:20Um but in retirements, TFSA is fully
39:23flexible for us. So if we need to draw
39:25income down, if you're planning on a
39:27renovation in the first couple of years
39:29of retirement, for example, we don't
39:30want all of those funds, hopefully, to
39:32be coming out of that taxable registered
39:34accounts like your RSP just because now
39:36you are triggering income tax on all
39:38those dollars you're taking out when it
39:40might not be your regular kind of
39:42spending year.
39:43Um
39:45we would like to see some flexibility.
39:47It just helps with your plan long-term
39:50to have that, but also just the tax-free
39:51growth. And you know, there are some I
39:53think the the person
39:55replied to a comment down below where
39:56they're looking at the TFSA as sort of
39:59sort of inheritance money for the next
40:01generation as well.
40:03It's a great method for building up that
40:06sort of estate value if you don't need
40:08all of your money in retirements, and
40:10the extra couple of years that you had
40:12at the beginning there of tax-free
40:13growth are certainly going to help
40:15contribute to a higher estate value
40:17long-term for for your heirs that that
40:20comes down the road. So yeah, I would
40:23prefer to see the TFSAs maximized if you
40:25have the funds to do so,
40:26right? Um it might be a situation too
40:28where you don't have the funds to do
40:30both, so maybe you do the RSP
40:31contribution
40:33as much as you can this year. Whatever
40:35income tax refund you get as a result of
40:37that contribution, that goes into your
40:39TFSA when the tax refund hits your bank
40:42account, right? That's kind of the
40:44maximum compounds your investment
40:47dollars kind of strategy as well if you
40:49can't do the max to both in one single
40:52year.
40:53Next question, wouldn't it be better to
40:55delay your old-age security so you can
40:57do a larger RSP
40:59meltdown without reaching the OAS
41:01clawback thresholds? If you delay CPP
41:04but not OAS, your large RSP balance
41:07could leads to your OAS being partially
41:10or even fully clawed back. And yes, that
41:13is true, right? That's why
41:15uh we do run the numbers for CPP and OAS
41:19at various ages when you're going to
41:21start them. It also plays into your
41:24overall RSP meltdown strategy.
41:26Um keep in mind your OAS clawback
41:28thresholds is north of $90,000 for an
41:31individual uh at the moment based on
41:342026. That number does adjust every
41:37year. Uh but based on 2026, that's you
41:40know a lot of taxable income that you
41:41would need to bring in from your RSP
41:43meltdown before your OAS clawback or
41:45pension recovery tax gets triggered to
41:48begin with. In some cases, if you're
41:49just going over that clawback,
41:52you know maybe you just do it anyway,
41:54right? If you wanted to be collecting
41:56some OAS benefits, if it's going to help
41:57you sleep at night, I know Paul talked
41:59about this a couple of weeks ago uh on
42:01one of our other podcast episodes, if
42:03it's just going to help you sleep better
42:04at night to be receiving some kind of
42:06government benefit at age 65, even if it
42:09means you're going into clawback
42:10territory by a couple hundred, a few
42:12hundreds
42:13uh dollars per year, something like
42:15that, maybe it's still worth it for you
42:17because you're able to go through
42:18retirement with a little bit of a an
42:20easier mind as time goes by. We can show
42:23you the numbers all day, what's going to
42:24be the most optimal,
42:26but the best retirement plan is going to
42:28be the most successful retirement plan
42:30for you to implement, okay? So if that
42:32means that
42:34you're going to feel better knowing that
42:35you've got most of your old-age security
42:37benefits coming from an age 65, then
42:40maybe that's the plan that's best for
42:41you. Optimally, there's always a dollars
42:43and cents argument to be made for
42:45deferring those benefits. You will get
42:46more,
42:47um but it's not necessarily
42:50the best choice for everyone,
42:52psychologically. And retirement is
42:55a little bit of math, but a lot of
42:57psychology.
42:59>> Agree entirely. Nothing else to add.
43:01>> Perfect.
43:03Um well, next we are going over to our
43:06what we learned segments. We've got Matt
43:08from our team joining us. He's going to
43:10be talking about some
43:12uh strategies that you might want to
43:13consider as we move towards the end of
43:16this 2026 year for tax planning
43:18purposes. So we'll take it over to him.
43:21Okay, we've got Matt here on our team
43:24who is joining us for our what we
43:26learned segment. This is a segment where
43:28we bring in one of our planners on the
43:29team just to kind of talk about some of
43:31the situations that
43:33pardon [clears throat] me that we've
43:33seen in recent uh plans that we've done
43:37with clients. So Matt, let you take it
43:38away. What are we talking about today?
43:41>> Talking about uh capital losses or
43:43rather realizing capital losses. Feel
43:45like it's a uh
43:47it's a topic that gets discussed at this
43:48time of year typically.
43:50Um
43:52but the idea there, right, is uh if you
43:54do have a large non-registered portfolio
43:57and depending on what you're holding in
43:58that portfolio, there might be some
44:00positions where, you know, you
44:03well, the position hasn't gone up, you
44:05um have an unrealized loss there.
44:08Depending on if you have realized gains
44:10earlier throughout the year in 2026, um
44:14there may be an opportunity, right, to
44:17maybe consider selling or uh realizing
44:20that loss to help offset some of the
44:22gains that you realized uh
44:24earlier this year. And
44:27on that note as well, something that
44:28came up with a client recently is they
44:30actually realized significant gains
44:32selling a property back in 2023,
44:35which is where I think this gets a
44:36little more interesting because you
44:38could potentially
44:39carry back significant losses if we had
44:41them this year. Of course, you don't
44:43want the losses, but
44:44if you were to realize them this year,
44:45you could carry them back
44:47three calendar years
44:49to help offset the significant gains
44:51that were paid
44:52back in 2023 for instance. So,
44:55uh was interesting to consider and look
44:57at in that particular case and you know,
45:00realize some of the tax savings on that
45:02front.
45:03The one catch and one thing that I think
45:05people need to be mindful of is that
45:07superficial loss rule. And what that
45:09entails is well,
45:11let's say you do have you know, a gold
45:14position or a silver position that was
45:16booming last year
45:18and hasn't had a great year so far for
45:20example, right?
45:22And let's say you bought in January
45:24and if you do sell that position
45:26to realize the loss and then you rebuy
45:28that position or a similar position,
45:30right? So selling one gold ETF, buying
45:32another gold ETF
45:34very similar
45:35it could be deemed a superficial loss
45:37which the CRA basically goes ahead and
45:39cancels out that loss. It says no, it
45:41never happened. You rebought it right
45:42away. We don't like you doing that.
45:44So the idea being you would have to wait
45:4630 calendar days
45:48before repurchasing that or your spouse
45:50repurchasing it
45:52or purchasing it in another account. So
45:53you do have to be mindful of this
45:56for that
45:57loss to be available to be used and
45:59claimed. So
46:01one thing that would need to be
46:02navigated is that 30-day rule.
46:04And of course the risk there is if you
46:06do sell that position at a loss and it
46:09goes to the moon in that 30-day period
46:13maybe that's not the outcome that was
46:14desired. So that is the risk. It's not a
46:15sure win or a sure benefit
46:17if you do end up
46:20moving forward with that, right?
46:22>> I found that you know, if it's a
46:23position that you're looking to get out
46:26of anyways and there is this side
46:28benefit, like if you're selling
46:31a stock in a certain company that you
46:32just aren't interested in carrying
46:34forward anymore, maybe you've
46:35you know,
46:36purchased shares from another company in
46:38the same kind of sector and so you're
46:40just kind of shifting your exposure in
46:42that sector from one company to another.
46:44If you're already getting out of that
46:45company and there's a loss available
46:47there then you know, this is a side
46:48benefit, right? That you can use to
46:50utilize that.
46:52As you kind of were talking about the
46:53superficial loss rule is one that sneaks
46:56up on people quite often.
46:57>> Oh, yeah.
46:58>> And particularly the spouse part of that
47:02or partner part of that, right? So, it's
47:04not just you re-purchasing
47:07you know, in the same or different
47:08account. It's also your spouse or
47:10partner in the same household
47:11re-purchasing as So, you can't really
47:13you know,
47:15CRA has been around for a while. They've
47:16seen it done every which way.
47:19You know, it's it's not often that
47:21you'll find kind of a loophole that
47:22hasn't tried to been tried to be exposed
47:25yet. So, that's one piece that you need
47:27to watch out for for sure because then
47:28otherwise that loss goes away. The tax
47:30bill you know, stands. The refund goes
47:33away if you were putting it towards any
47:36prior years.
47:37So, definitely something to keep in mind
47:38for sure.
47:41Yeah, awesome, Matt. Well, thank you
47:42very much for that. Definitely timely
47:44with you know, just
47:46a few weeks now, a handful of weeks left
47:48in 2026. If tax loss harvesting is
47:50something that
47:52fits with your plan or your strategy,
47:54it's something you're going to want to
47:55take care of
47:56well before December 31st because
47:58everything needs to settle by December
47:5931st. So, very timely topic and thanks
48:02for very much for joining us today.
48:04>> Yeah, pleasure.
48:06>> All right. And we're back with this
48:08week's tip of the week.
48:10So, thanks for the info. My 29-year-old
48:13son is in the military and will be
48:14getting a government pension.
48:17He has his TFSA and first time home
48:19buyers maxed out.
48:21Where where should he invest his money
48:24since RSP won't help him because he'll
48:26be making quite a bit with his military
48:28pension?
48:29So, it's great to hear that they're
48:30already maxing out a lot of their
48:31accounts.
48:32The RSP is is a good conversation.
48:36Yes, they will have a a large defined
48:38benefit pension plan, but you know, we
48:41want to look at a wide range of of
48:43possible options and and outcomes.
48:45There's a great comment below just kind
48:47of outlining that
48:49they they may not work in in the
48:51military or in their current role for
48:53the majority of their career. Like they
48:55might change. So, you know, it's always
48:57great to see other people's
48:59It it helps to share experiences. So,
49:02thank you to everyone who shares
49:03questions and comments to help each
49:05other and and to, you know, get through
49:07all of these circumstances as best as
49:08possible.
49:10So, on that point of maybe they don't
49:12work in their pension roll all the way
49:15until they retire, that would be one
49:16reason to still contribute into the RSP.
49:19Another thing of note with the RSP is
49:21that the defined benefit pension plan is
49:23going to create a pension adjustment
49:25that is going to impact how much room
49:27their son earns on an ongoing basis to
49:29contribute in the RSP. So, it it's to
49:32some degree a small point where they
49:34might only have four or 5,000 a year
49:37that they can even put into the RSP if
49:38they wanted to. So, their their RSP
49:41eligibility will be reduced because of
49:42the pension,
49:43but they may still want to contribute
49:45into that RSP. And there's a few reasons
49:47that come to mind that, you know, would
49:49would lead to that.
49:50One is maybe the the client would want
49:52to consider retiring early. So, you
49:55know, they could spend a couple of years
49:56drawing down that RSP before their
49:58pension starts and they could get that
50:00money out at low tax rates and it could
50:01help fund their their earlier
50:04retirement. It's one thing that we
50:05regularly mention is, you know, a lot of
50:07people target retirement at their
50:09pension date because that's an easy
50:10number. It it makes sense logically, but
50:13maybe it makes sense to revisit the idea
50:15of do I want to retire early? Do I have
50:16the resources to be able to do that? And
50:18having made contributions to the RSP
50:20throughout the working period could
50:22provide that flexibility.
50:24Another thing to note is even if the
50:26client is at similar tax rates when they
50:29put the money in and when they take it
50:30out in retirement, there is still a huge
50:33advantage to the RSP because of the tax
50:34deferred growth.
50:36So, as an example, if if the client's
50:37going to put 50 or 5,000 a year into
50:40either an RSP or a non-reg,
50:42if that money sits in a non-registered
50:44account, it's going to get taxed on an
50:45annual basis and that's going to kind of
50:47drag down the value over time. So, even
50:50money going in and out at similar tax
50:52rates is going to be an advantage to the
50:55the RSP.
50:57Uh there's other considerations. The RSP
50:59could be used for the home buyers plan
51:01to get an extra 60,000 out if they're
51:03planning to to purchase a home.
51:05Um,
51:06so yeah, lots lots of reasons that they
51:08may still choose to contribute to an RSP
51:10even having that defined benefit pension
51:12plan.
51:13they were not going Yeah, sorry, go
51:15ahead.
51:15>> No, go ahead. You're on a roll.
51:17>> [laughter]
51:18>> If they were not going to to contribute
51:20into the RSP, if they wanted
51:21alternatives, you know, there's there's
51:23an RESP if they have a child, there's
51:26the potential to make accelerated
51:28payments on their mortgage. So if you
51:30have a mortgage at 4 and 1/2% and you
51:33make an accelerated payment, that's the
51:35equivalent of earning about a 7% rate of
51:38return on on a non-registered investment
51:40account because you earn 7% on your
51:42investments, you pay
51:443% in taxes, you're only left with 4%.
51:46So sometimes making accelerated mortgage
51:48payments can be a huge benefit to to the
51:51household finances. Or the other thing
51:53is they might just want to take this
51:54into their lifestyle. Like, you know, if
51:57if they're already maxing out a lot of
51:58accounts, they've got their defined
51:59benefit pension plan, they're
52:00contributing to the CPP, they'll have
52:02OAS.
52:03You know, maybe they just take that
52:04money and and put it into their current
52:06lifestyle to be able to enjoy their time
52:09as much as they can even today.
52:11Any thoughts, Gordon?
52:12>> Yeah.
52:13Yeah, I like that. The the point that
52:15you made about the home buyers plan was
52:16kind of what I
52:18honed in on with this question. You
52:20know, they're already saving in the
52:21first time home buyers savings accounts.
52:24So it obviously is an intent at some
52:27point to hopefully purchase their own
52:29property. This essentially is allowing
52:31you to kick start that down payment
52:33piece a lot a lot further than just what
52:36will be saved in the the first home
52:38buyers account.
52:40So that was what kind of jumped out at
52:42me. Also the the comment there about
52:45potentially not being with the military
52:47for that entire time.
52:49If there is a a change in career path,
52:52then having some of those additional RSP
52:54savings makes a lot of sense if there is
52:56no defined benefit pension at the new
52:59employer, right? So if the the whole
53:01pension structure of your retirement
53:03changes, you're going to want to those
53:05RSP funds invested so that you can use
53:07those instead to rely on as income, an
53:10income source during your retirement
53:11years.
53:12Um
53:13and yeah, I I love the idea of just, you
53:17know, enjoying life as well. So that's
53:19that's another thing to to keep in mind.
53:22A 20 29-year-old individual who is
53:25maxing out all of these various
53:27investment account types that they have
53:30available to them uh is fantastic to
53:32see. Unfortunately, it takes a long time
53:35for a lot of Canadians to get into the
53:37habit of putting that money away. That
53:40delayed gratification
53:41peace is sometimes a a later in life
53:44learned habit and so it's really nice to
53:47see that. Uh and with Remembrance Day
53:49right around the corner here this week,
53:51I wanted to include this as well just to
53:53say thanks to your son for his service,
53:55but also thanks to all the military
53:56families out there. This is a great
53:58example of it's not just the person in
54:01service who is
54:03involved here. You know, in this case
54:05we've got parents who are looking out
54:06for their
54:07young adults who is is
54:11putting themselves uh in that position
54:13really for
54:15the the benefit of us all. So wanted to
54:17thank
54:18service members in Canada. I wanted to
54:20thank their families specifically as
54:23well because you don't get maybe
54:24necessarily as much of the credit as you
54:26should for all of the support that you
54:28provides behind the scenes too.
54:30Uh hopefully that will help out with
54:33your son here going forwards. I will
54:35thank Steve for joining me on this
54:37episode of the podcast. And again, thank
54:39you to all the listeners and viewers. If
54:41you have questions that you would like
54:43us to address, please pop them into the
54:44comments section and hopefully we can
54:47get to them on a future episodes. Take
54:49care.
54:50>> Thanks for joining us on this week's
54:51episode of Retirement Unpacked. If you
54:54found today's conversation helpful,
54:56don't forget to subscribe so you don't
54:57miss next week's episode. And remember,
55:00the ideas we talk about are general in
55:02nature. They may not fit your personal
55:04situation. Always consult a qualified
55:07financial planner before making
55:08decisions about your retirement. Take
55:11care, and we'll see you next week.

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