New RIF Minimum Withdrawal Rules

August 17, 2015

If you are withdrawing the minimum from your RIF, you have a few options to consider this year.

Changes to required minimum annual withdrawal amounts as result of regulations introduced in the Federal Budget released April 21, 2015 may provide you with some additional options if you have opted for the “previous” minimum required withdrawal amount.

Specifically, the budget introduced a reduction to the prescribed required minimum annual withdrawal factors for RRIF annuitants 71 to 94 years of age. This reduction will result in decreasing the amount that RRIF annuitants will be required to withdraw as a minimum amount during those age years.  Since this change was introduced well after the start of the year but is effective for 2015, you have a few options for 2015:

  • Minimum Amount – You can choose to take this year’s minimum payment based on the old calculations, in which case you do not need to do anything further.
  • Adjust Payments – You can choose to adjust any minimum payment(s) not yet paid to reflect the new lower calculation. In this case we will require formal updated instructions from you.
  • Re-contribute – If you have already, or by the end of the year will have received the required minimum annual withdrawal amount based upon the old factors, you have the option of re-contributing the excess amount to your RRIF. The deadline to make a re-contribution is March 1st, 2016. You will be issued a T4 for the amount withdrawn and an offsetting contribution slip for the re-contribution for your 2015 tax filing. Please retain this letter as confirmation of the excess amount eligible for re-contribution.

No action is required on your part unless your payment(s) are based upon the minimum required withdrawal and you wish to take advantage of the lower required minimum withdrawal for 2015, or wish to re-contribute the excess withdrawals for 2015.

If you do want to decrease your minimum RIF withdrawal amount and/or re-contribute the allowable amount from what you have already withdrawn, please give us a call.

Retirement Planning calculations for the DIYer!

June 11, 2014

I am less and less a fan of the “Quick and Dirty” plan because I find the calculations more dirty and not worth the quick! But for those of you that really want to know how to put together a very rough “number” for what you will need to retire, here goes.  No, it’s not exactly simple, but based on some valid rules of thumb and a real planning approach.

1 – First you can’t get around starting with exactly what your retirement expenses will be– not hard – because they will be pretty much what you spend now less what you spend on kids, working and investing plus adding the other things you want to do in retirement.

2 – You now have to inflate these costs by 3% a year until retirement.  The cost of living goes up about 30% every 10 years so this represents about 3% annually.  So if you are 10 years from retirement, multiply your retirement expenses by 1.33 to get your future retirement costs.

3 – Next you need to get to the income you will need to provide from your invested assets.  Do this by subtracting any pension income you will get and about $14,000 per full CPP pensioner and $8000 for OAS.  (I’ve taken the liberty of giving you inflated CPP and OAS numbers.  These do assume you contributed to CPP for at least 30 years (not counting child rearing years) and you earned above approximately $50K in today’s dollars.  If your income was lower, cut the CPP number in half.  Everyone though, will get OAS although some will get it at age 67.  Note that you could start CPP earlier, don’t recommend it unless you don’t have a reasonable life expectancy.

Now one more thing, need to add how much tax you will pay because you only spend after tax money.  For this purpose we will assume equal income splitting which means each of you pay the least amount of tax.  Add 16% of your expenses for income taxes.

This income number (inflated living expenses less pensions + income tax) should be the income you will need to provide from your invested assets.

4 – A halfway decent guess of the amount of money you will need to have invested to provide this income, assuming you plan on bouncing your last cheque at age 95, and spending all of your retirement assets by the time you expire, and are willing to accept the long term outperformance of equities, can be derived by dividing this income number by 0.7.  If you are not willing to invest 80% or more of your portfolio in stocks in order to provide a rising income during a 39 year rising cost retirement, good luck to you, you will need twice as much.

Example – Quick retirement plan

1 – Current expenses:

       Utilities, taxes, insurance maintenance                      = $1500/m

      Cars (2) + replacement, gas, maintenance, insurance =$2,000/m

     Personal – groceries, phones, entertainment              = $1,500/m

     Annual vacation                                                           = $1,000/m

    Estimated retirement costs                                      = $6,000/m


2 – Inflated future retirement costs

     10 years from retirement = X 1.33                          = $7,980/m

     Annual future retirement income need  ( X 12)      =  $95,760

    Add income tax  ( X 16%)                                      =+ $15,321

    Less 1 full CPP and 1part time CPP                    =- $21,000

(1 X$14K+0.5X$14K)

   Less 2 full OAS                                                       = – $16,000  

   Net income needed at retirement                          = $74,081


3 –  Amount of invested assets needed ($74,081 /0.07) = $1,058,300


The questions now are: How are you doing against that number and what do you need to do to get there?

Enjoying today is more fun than planning for tomorrow

The “fear of loss” phenomenon is part of our psychology likely evolutionary.  For thousands of years, most people didn’t have much, so losing anything was painful and possibly life threatening.  This phenomenon impacts our ability as long term investors because of the volatility we need to accept.

One of the reasons we have such volatile equity market is this “Fear of Loss” phenomenon which translates for investors to a measurable fear of loss two to three times greater than the desire for gain.  Adding to this (and because of it) the way media reports on market movements fuels the fear – (equity markets typically crash, plummet, spiral downward, lose multiple percent of their value etc.).   This fear of a risk or loss is important when it comes to how we care for our children and ourselves – it doesn’t work when it comes to investing and spending our money.  Understanding this and being able to identify when you feel this particular fear is a key factor in successful investing.

We know intellectually (because we’ve seen the charts) that declines in stock markets are temporary and equity markets have and will recover and continue their permanent long term growth.  The thousands of businesses whose shares are traded on markets such as Walmart, Ikea, Loblaws etc. simply will not go out of business regardless what their stock price does at any point in time.  Despite the undisputed historical facts, many investors continue to struggle emotionally against experiencing a decline in their portfolio anyway.  Even when the facts demonstrate that avoiding the declines reduces the long term return or gain.

An article you can download  from the link below describes the results of a US study on another related area affected by this “Risk of Loss” phenomenon which I believe is of greater concern. Most of us would rather spend our money on what we enjoy today rather than save it and have a more secure tomorrow.

We know logically that if we spend too much today and not save enough for tomorrow, we risk a financially unsecure future.   But not spending on our wants today means giving something up, or a loss, today.  The future it too far away and always uncertain.

Another area this phenomenon hurts most investors is with our current wants and needs.  Although one of the top fears is running out of money in retirement (a long term need), many investor will not reduce spending now (on our wants) and increase contributions to retirement plans.  Reducing spending now is always giving something up we enjoy and will lose.  It means decreasing some of the money spent on fun things like entertainment and travel expenses.  So where are you when it comes to saving or spending?

140528 Article – Going broke top fear