In the scenario where you’re living to 99 and 100, the tax and probate on the final estate drops to the 3% to 4% range, again the TFSA is larger and the RRIF is smaller. Drawing the extra $45,000 and $70,000 early from the RRIF resulted in less final tax but also a smaller estate.
What marginally worked was drawing enough to deplete the RRIF by age 90. There was no difference with the 3% return scenario, but the 7% scenario had a $31,000 advantage.
In the age 99-and-100 scenario, there’s still no difference with the 3% return solution, but, interestingly, the 7% return solution now has a disadvantage of $65,000 when life expectancy extends. It appears it would be better to stick with minimum RRIF withdrawals, should your wife to 100.
To me, the more interesting results are in the scenario for ages 90 and 75. Say, if you both live to 90 and 91, earning a 5% return, your final estate is worth about $2,172,000. If your wife passes at 75, and you continue spending $120,000 per year indexed, the final estate when you’re 90 is $695,000, about $1,477,000 less than if you and you wife die at 90 and 91. That is almost unbelievable.
What happened?!
It wasn’t tax that cut the value of your estate; it was the loss of CPP and OAS. Lifetime CPP and OAS dropped by $511,800, forcing you to draw more from your investments to make up the difference, leaving less money to grow and compound tax-free.
When does depleting a RRIF make sense?
There’s a clear advantage to drawing money from your RRIF early, when you know your wife could pass at 75. But here lies the question: Do you plan for a shortened life expectancy or a longer-than-expected lifespan? My suggestion is to plan for an extended life expectancy and make the minimum RRIF withdrawals, if that is all you need to live an enjoyable retirement. If you pass in the near future from a terminal health issue comes up or you’re in your late 80s or 90s, it may make sense to begin drawing larger amounts from your RRIF.
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About Allan Norman, MSc, CFP, CIM
With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.
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