Pensions put this couple in enviable position as they shift to living off retirement savings
Ontario-based couple Kathleen*, 62, and Charles, 65, are preparing to start drawing from their retirement savings as their main source of income and are looking to put their registered retirement savings plans to work for them.
Specifically, they’d like to know if Charles should be converting his RRSP, currently worth $1.25 million, into a registered retirement income fund (RRIF) and start drawing income. They’d like to leave Kathleen’s RRSP savings of $600,000 alone until she turns 71.
“If I withdraw more than the annual minimum from a RRIF, can I income split that extra amount with Kathleen? What tax implications should we be considering?” Charles asked.
Beyond converting to a RRIF, he wonders if there’s something else he should do with his RRSP savings.
Kathleen retired from the public sector at the start of the pandemic and receives $650 a month from an employer pension and $600 in Canada Pension Plan (CPP) payments. Charles is entitled to the maximum CPP amount and plans to apply for both that and Old Age Security this year, and then allocate 50 per cent of that to Kathleen to minimize tax. Their monthly expenses are $4,500, but will jump to $5,000 when they open their cottage this summer.
In addition to their RRSPs, 52 per cent of which are invested in stocks and stock exchange-traded funds (ETFs), with the rest in guaranteed investment certificates, bonds and bond ETFs, Kathleen and Charles’ portfolio includes $48,000 in a tax-free savings account (TFSA). This account is invested in a low-cost indexed monthly income fund, as well as U.S. and international mutual funds. They also have $15,000 in a savings account.
Kathleen and Charles are debt free and own their principal home, valued at $1 million, and a $500,000
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