All posts by Jonathan Chevreau

New to a RRIF? Make sure you have enough cash and consider dialing down risk

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My latest MoneySense Retired Money column has just been published and covers something that was a new experience for me: starting and managing a RRIF or Registered Retirement Income Fund.

You can find the full column by clicking on the highlighted headline: How to make sure you have enough money to fund your RRIF withdrawals. 

At the end of the year you turn 71, those with RRSPs are required either to cash them out  (not recommended from the standpoint of taxes), to to annuitize orto convert it into a RRIF, or Registered Retirement Income Fund. The latter is the most popular action and recommended by experts like The Successful Investor’s Patrick McKeough.

            However,  as I’ve discovered since my own RRIF started up this past January, the sweetness of the RRSP tax deduction over the decades is offset by the sourness of having to pay taxable withdrawals on your new RRIF.

            In my case, I am a DIY investor who uses one of the big-bank discount brokers to self-manage the taxable distributions and to manage the remaining investments, most of them carryovers from the RRSP.  While accumulating funds in an RRSP is a matter of making annual contributions and reinvesting dividends and interest, a RRIF represents a departure from the psychology needed to build an RRSP for the future. Suddenly, regular selling is necessary. The RRIF rules mean that in the first year you’ll have to withdraw something like 5.28% of what your balance was at the start of the year (rising to 5.4% at age 72 and every upwards each passing year).

Payments can quarterly, monthly or any frequency you choose

          If you choose monthly payments, as I did, that means every month you have to have 1/12th of the required annual distribution in the form of ready cash to be whooshed out monthly on whatever date you specify. As most retirees will be getting other pensions near the end of the month, I chose mid-month for the RRIF distribution. You also need to choose the percentage of tax you wish to pay to Canada Revenue Agency: I picked 30%, which automatically leaves your account each month. The remaining 70% transfers out into your main chequing account, ideally at the same financial institution where the RRIF is held: It’s easier that way.

Setting regular tax payments

          You also need to choose the percentage of tax you wish to pay to Canada Revenue Agency: I picked 30%, which automatically leaves your account each month. The remaining 70% transfers out into your main chequing account, ideally at the same financial institution where the RRIF is held: It’s easier that way. Sure, you could set the tax at 10% or 20% but if you have other sources of taxable income, like taxable dividends and other pensions, I’d rather not have the unpleasant surprise of a larger-than-expected tax bill a year from April. Once you have a year of RRIFing under your belt, you may see fit to adjust the 30% upwards or downwards. Continue Reading…

“Unretirement” — more than one in four near-retirees plan to work in Retirement to make ends meet

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My latest MoneySense Retired Money column has just been published. You can find it by clicking on the highlighted text here: Why “unretirement” may be the fate of so many Canadians.

Even before the Tariffs threats emerged under Trump 2.0, Canadian seniors were starting to find the economic uncertainty and rising living costs to be unmanageable. No surprise then that many seniors approaching Retirement Age are delaying their exit from the workforce.

According to a report by HealthCare of Ontario Pension Plan, 28% of unretired Canadians aged 55-64 say they expect to continue working in retirement to support themselves financially.  Here’s a screenshot from the HOOPP survey:

 

The Healthcare of Ontario Pension Plan (HOOPP) commissioned Abacus Data to conduct its sixth annual Canadian Retirement Survey in the spring of 2024.  The latest survey finds “persistent high interest rates and a rising cost of living continue to have a significant negative impact on Canadians’ ability to save and manage the cost of daily life, threatening their retirement preparedness.” While all Canadians are struggling, “women and those closest to retirement are especially hard hit with lower savings and higher levels of financial stress.”

While most Canadians are struggling to save amidst a high cost of living, HOOPP finds women are particularly affected. Half (49%) of all Canadian women have less than $5,000 in savings and almost a third (28%) have no savings (compared to 33% and 17% of men, respectively), similar to the 2023 results

 

The MoneySense column also looks at more recent Retirement surveys that also reveal anxiety about rising costs of living. One is from Bloom Finance Co. Ltd., conducted by founder Ben McCabe after Trump’s Tariffs started to kick in this year.

A Bloom study conducted with Angus Reid found 46% of Canadians thinking of working part-time in Retirement. That’s in line with a Fidelity survey in 2024 that found half of Canadians plan to delay Retirement. According to the Bloom Report [in March 2024], 67% of Canadian homeowners over 55 were concerned their savings would not sustain their quality of life through retirement. Only 29% considered downsizing or alternative living situations to access their home equity earlier than expected. 59% of the same cohort agreed accessing micro-amounts of their home’s equity would help maintain their desired living standard. Continue Reading…

Retired Money: Tax Brackets, Income Thresholds, Inflation Factors & other things retirees need to consider going into 2025

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My latest MoneySense Retired Money column looks at a variety of tax and savings limits changes that are effective early in 2025. Click on the highlighted headline for the full column: What retirees need to know about tax brackets for 2025.

As the column notes, at or near Retirement taxes and inflation are the two big threats to preserving enough wealth to last a lifetime.  The tax burden hits home with the annual tax-filing deadline in April, but the time to start thinking about the yearly ordeal is before year-end.

The complexity of this task is compounded by almost-annual changes to tax brackets, the Basic Personal Amount, OAS thresholds, inflation adjustments and much more. For starters, I recommend reading an excellent article by CIBC Wealth’s tax guru, Jamie Golombek, which appeared in the Financial Post here on Nov. 23rd, shortly after the Canada Revenue Agency released its new tax numbers for the year 2025.

 Let’s look first at inflation, the second serious scourge retirees face if they live long enough. Here, a useful tool suggested by certified financial planner Morgan Ulmer is Statistics Canada’s Personal Inflation Calculator, which lets you compare your personal inflation rate to the general CPI.

Ulmer, of Toronto-based Caring for Clients, sees the higher tax brackets and inflation adjustments as an “opportunity for retirees to build a savings reserve.” CPP is indexed to inflation yearly while OAS is indexed quarterly.  So “if a retiree is able to increase their spending at a rate that is less than CPI, the difference could be saved as an emergency reserve or invested in a TFSA.”

 Inflation and Tax Bracket changes

 Back to some key data cited by Jamie Golombek.  The inflation rate used to index 2025 tax brackets and amounts will be 2.7%: just over half the 4.7% in effect in 2024.  The good news is that the Basic Personal Amount (BPA) on which no federal tax is levied rises to $16,129 in 2025: It was $15,000 in 2023.

All five federal income tax brackets are indexed to that 2.7% inflation rate. In 2025, the bottom federal tax bracket of 15% will apply to incomes between zero and $57,375. The second lowest bracket of 20.5% will apply to incomes between $57,375 and $114,750. The 26% bracket applies to income between $114,750 and $177,882, while incomes between $177,882 and $253,414 will attract a 29% federal tax. After that the federal rate will kick in at 33%.

Below is a table summarizing that information prepared for MoneySense:

MoneySense.ca

 Don’t forget there will be additional provincial taxes on top of the federal haul, also indexed to inflation at various provincial rates.

 What is relevant for those in the Retirement zone is the higher threshold on Old Age Security: in 2025, according to Canada.ca, OAS begins to get clawed back for taxable income of $90,997.  OAS benefits disappear entirely at $148,451 for those aged 65-74 in 2025, and at $154,196 for those 75 or over. Note the OAS clawback is based on individual incomes, not household income.

Deferring CPP and OAS till 70

 Matthew Ardrey, portfolio manager and Senior Financial Planner for Toronto-based TriDelta Financial, agrees that tax brackets, whether federal or provincial, “become more of a consideration in retirement.” For many Canadians receiving employment income on a T-4, there is little we can do as retirees to keep income in the lower tax brackets. But there’s plenty to think about when considering tax minimization and decumulation strategies. Referring to Golombek’s article, Ardrey says that using federal brackets only, taxpayers can receive $57,375 of income and pay very low rates of taxation, especially when the $16,129 basic personal amount is considered.”

Retirees under age 70 can defer CPP and OAS until 70 and try to live on withdrawals from their registered plans instead. With no other income, taxpayers could have almost $50,000 of after-tax income, or $100,000 for tax-paying couples. Continue Reading…

Franklin Templeton 2025-2035 Outlook: Stocks will beat bonds, EAFE/EM may edge out North American stocks

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Stocks are expected to outperform bonds over the next 10 years but EAFE and Emerging Markets will probably do a little better than U.S. and Canadian equities, portfolio managers for Franklin Templeton Investment Solutions told advisors and the media in its 2025 Outlook session held Thursday in Toronto. The twice-annual economic outlook marks the 70th year that Franklin Templeton has operated in Canada: Sir John Templeton’s famous Templeton Growth Fund was launched in Canada in 1954. It has been in the U.S. more than 75 years.

Senior Vice President and Portfolio Manager Ian Riach [pictured left] said in a presentation distributed to attendees that “expected returns for fixed income have become slightly less attractive as yields have moved lower over the past year. EAFE and Emerging market equities [are] expected to outperform U.S and Canadian equities.” The most likely path to stable returns will be through “a diversified and dynamic approach,” he said.

Shorter-term Macro themes

Addressing major shorter-term themes, Riach said the United States continues to lead in Growth, while Canada is improving and the rest of the world is “challenged.” Inflation continues to trend down but some areas are faster than others. Fiscal policy “remains supportive” while “central banks remain data dependent.”

Addressing Canadian economic growth, Riach said Canada’s  inflation backdrop “continues to surprise to the downside” and is now at target levels as leading indicators continue to improve from weak levels. Thus far, Canadians holding mortgages have not yet been impacted by higher interest rates, based on the cumulative share of mortgages outstanding in February 2022 that have been subject to a payment increase.

Economic Growth in Europe and Asia. 

European sentiment is improving but remains at weak levels while Asian manufacturing “has started to fall,” he said. Economic growth in China remains weak: “Consumer sentiment has yet to recover from deteriorating property sector and labor market imbalances.”

Addressing Emerging Markets ex China, Riach said weakening leading manufacturing indicators will “challenge upside potential of cyclical regions broadly.”

In the United States, AI-related stocks (Artificial Intelligence) continue to power U.S. earnings growth expectations. However, Riach said, “this has been broadening to the ‘forgotten 493’ somewhat.” (i.e. away from the Mag 7.)

 

Inflation much improved

Worldwide, inflation is much improved and is now below Central Bank targets, Riach said.

 

Asset Allocation

Moving to recommended portfolio positioning, Franklin Templeton is overweight equities, underweight bonds and neutral on Cash. Within stocks, it is overweight Canadian and U.S. equities, Underweight EAFE (Europe Australasia and Far East) and Neutral on Emerging Markets.

The second major presentation was delivered by Jeff Schulze, Head of Economic and Market Strategy for Franklin Templeton’s ClearBridge Investments. Schulze [pictured on right] is known for his “Anatomy of a Recession” analytical work, which assesses 12 variables that historically foreshadow recession.

However, as the chart below shows, the recession dashboard is currently signalling expansion rather than recession:

 

Addressing employment, Schulze said that while the pace of job creation has slowed substantially over the past few years, “it has settled in line with the pace experienced during the previous economic expansion.” As a result, U.S. consumer spending is robust.
Continue Reading…