Tag Archives: RRIF

Retired Money: How to boost Retirement Income with Fred Vettese’s 5 enhancements

Posted By |

 Once they move from the wealth accumulation phase to “decumulation” retirees and near-retirees start to focus on how to boost Retirement Income.

The latest instalment of my MoneySense Retired Money column looks at five “enhancements” to do this, all contained in Fred Vettese’s about-to-be-published book, Retirement Income for Life, subtitled Getting More Without Saving More. You can find the full column by clicking on this highlighted headline: A Guide to Having Retirement Income for Life.

You’ll be seeing various reviews of this book as it becomes available online late in February and likely in bookstores by early March. I predict it will be a bestseller since it taps the huge market of baby boomers turning 65 (1,100 every day!): including author Fred Vettese and even Yours Truly in a few months time.

That’s because a lot of people need help in generating a pension-like income from savings, typically RRSPs, group RRSPs and Defined Contribution plans, TFSAs, non-registered investments and the like. In other words, anybody who doesn’t enjoy a guaranteed-for-life Defined Benefit pension plan, of the type that are still common in the public sector but becoming rare in the private sector.

The core of the book are the five “enhancements” Vettese has identified that help to ensure that those seeking to pensionize their nest eggs (to paraphrase the title of Moshe Milevsky’s book that covers some of this ground) don’t outlive their money. Vettese says many of these concepts are current in the academic literature but have been slow to migrate to the mainstream, in part because few of these “enhancements” will be welcomed by the typical commission-compensated financial advisor. That in itself will make this book controversial.

Each of these “enhancements” get a whole chapter but in a nutshell they are:

1.) Enhancement 1: Reducing Fees

By moving from high-fee mutual funds or similar vehicles to low-cost ETFs (exchange-traded funds), Vettese explains how investment fees can be cut from 1.5 to 3% to as little as 0.5% a year, all of which goes directly to boosting retirement income flows. One of his takeaways is that “Tangible evidence of added value from active management is hard to find.”

2.)  Enhancement 2: Deferring CPP Pension

We’ve covered the topic of deferring CPP to age 70 frequently in various articles, some of which can be found here on the Hub’s search engine. Even so, very few Canadians opt to wait till age 70 to collect the Canada Pension Plan. Because CPP is a valuable inflation-indexed guaranteed for life instrument — in effect, an annuity that you can never outlive — Vettese argues for deferral, although he (like me) is fine with taking Old Age Security as soon as it’s available at age 65. He argues that for someone who contributed to CPP until age 65, they can boost their CPP income by almost 50% by waiting till 70 to collect.  “You are essentially transferring some of your investment risk and longevity risk back to the government, and you are doing so at zero cost.” Continue Reading…

Which accounts to tap first in Retirement?

Posted By |

Retirees, or those close to retirement, may have several buckets from which to withdraw income in retirement.

There may be assets in RRSPs, taxable or non-registered investment accounts, TFSAs, and possibly corporate or small business assets. At retirement you need to consider which of these accounts to tap into first.

To further complicate matters you might also have income from a workplace pension, not to mention government benefits such as CPP and OAS (and when to apply for these benefits).

The natural inclination, both from a behavioural and a tax planning perspective, is to put off paying taxes for as long as possible. For Canadians, that means leaving assets inside their RRSP(s) until age 71, converting their RRSP into a RRIF, and beginning RRIF withdrawals in the year they turn 72.

Delaying CPP and OAS

Also worth consideration is the incentive for retirees to delay their application for CPP and OAS until age 70. Do this and your CPP benefits will increase by 42 per cent and OAS benefits will rise by 36 per cent versus taking these entitlements at 65.

Tax-Free Savings Accounts (TFSAs) have been around for less than a decade but already play a critical role in retirement planning. Money saved inside a TFSA grows tax-free and you pay no tax on withdrawals. For retirees, an added benefit of TFSAs is that any money withdrawn does not affect means-tested programs such as OAS and GIS, so there’s no chance that a clawback will be triggered by this income.

Continue Reading…