The Perfect Moment...

Once a week or so the perfect moment occurs....the laundry is done (but not put away yet...shhhhh...don't tell anyone), I've had my hike and fresh air, the cats are asleep, supper doesn't need to be thought about yet, the housework is as done as it's ever going to be, music is playing from my iPod in the background,  and with coffee in hand I can relax to do whatever I want...sweet!

Yes, we were walking into the past today...

this area is within city limits...and in my part of the city!...

not a lot of colour this time of year but beautiful just the same

in an austere sort of way.

So, what to do, what to do...

Well, if you're a numbers geek like I am (and I know that you are!!) then you'll search for an online RRIF calculator and figure how much you'll have to start withdrawing from your RRSPs at age 71. Yup, that's what I did too! Isn't it fun??

It's strange to realize that right now I'm living on far less than what I'll be living on when I turn 71. But let me back up a little...in a year and a half, when I turn 60, I'll start to draw on my Canada Pension Plan (CPP); then at age 65 I'll lose some (around 13% I think) of my CPP but will start getting the OAS (Old Age Supplement) and then at age 71 my RRSPs will convert to an RRIF and that will increase my yearly/monthly income. Isn't it nice to know I still have a few "raises" to look forward to!?! I just better darn well live long enough to reap the benefits of my labours or I'll be some MAD!! It would make more sense if I could access all of my money NOW and then have it gradually reduce until I'm in my 90s. Let me use it while I'm still young enough to enjoy it!! But no...as we all know the government doesn't use common sense...

For 25 years (or more) I've done everything in my power (and made a lot of sacrifices) to max out my RRSP room come tax time. I think only once I had to borrow in order to make my contribution. Eventually I got smart (and started earning enough) and made automatic monthly transfers into my RRSP finally getting ahead of the game. 

I've thought about taking money out of my RRSPs and putting what's left after the taxman takes his share into my TFSA but I read an article that said if you have a choice in paying taxes NOW or in the FUTURE then do it in the future. That makes a lot of sense to me. I'll be in a much better position to pay the taxman at age 71 than I am now. So I'll let the money sit and earn interest for another 13 years and then enjoy the bump in income when I hit 71. I have enough in my TFSA for any emergencies that might arise in the meantime and in only 1.5 years my CPP will kick in. 

If these are my lean years I can't wait until my "fat" years!! 

No More RSPs For Me

Big Pile of Locked-in Money

I do not enjoy giving the government my hard-earned money. Before I even see my paycheque the government has taken their cut which amounts to about $3,000 a month. As if that wasn't enough I pay huge taxes on just about everything I buy from gasoline to groceries. GST, PST, and now HST. Oh, I'm not done yet...there's also all the other little or not-so-little fees throughout the year for things like a fishing license, a new sticker for my car's license plates and so on.

So, I try to find ways to hang on to more of my money hence I've been a faithful contributor to an RSP account for over 20 years. Because my employer takes off a big chunk every month for my teacher's pension I haven't had a ton of contribution room in my RSP each year therefore I don't want to lose a lot more of my money to withholding taxes when it's time to withdraw.

Yeah, here's the kicker. Putting money INTO an RSP really helps out at tax time - I've gotten some juicy refunds over the years. However, I didn't do the smart thing and reinvest that refund - if I had I'd be sitting on a pretty nice cushion of savings right now. No, being a single parent meant I used that refund to catch up on bills, buy my daughter a new pair of ghillies for her highland dancing and pay off credit cards etc. 

BUT, using another highland metaphor - EVENTUALLY YOU HAVE TO PAY THE PIPER!!  Yes, the government was nice to you when you put your money IN, but when you take it OUT they want more than their fair share.  See chart below for taxation rates depending on the amount you withdraw.

Withholding Taxes

Funds withdrawn from an RRSP will be charged withholding taxes. This amount must be held back by the plan administrator and remitted to the government on your behalf.

Effective January 1, 2005, the following withholding tax rates apply:

Amount of RRSP Withdrawal	All Provinces Except Quebec	Quebec
Up to and including $5,000	10%	21%
$5,000.01 to $15,000	20%	26%
More than $15,000	30%	31%

You will receive a T4 RRSP receipt for any funds withdrawn during the year showing the amount to be included in your taxable income and the credit for the withholding tax.

YIKES, right? Just think a minute. $15,000 x 30% = $4,500!!! Whoa Nellie!!

My plan, then, is to only withdraw $5,000 per year so that I pay the lowest taxation rate of 10%. So for every $5000 I withdraw I will only receive $4,500. HOWEVER, that's not the end of the story unfortunately. The gov't has a mighty long arm here in Canada and when TAX Time rolls around again the next year I will have to declare that $4,500 as income because when I put it into my RSP it was DEFERRED income. Soooooooooooo if my income is too high the gov't will take some more of my $4,500. It's so frustrating!!!

So I have a plan. You know me, I've always got a plan. I will retire in June 2014. The following year, 2015, I will withdraw $5,000 from my RSP and put it into my Tax-Free Savings Account (TFSA).  My income will be drastically lower due to living on a reduced pension so HOPEFULLY I won't have to pay any more tax on my RSP withdrawal come tax time. 

I will put off collecting Canada Pension until at least age 65 in order to keep my income lower. Once I've got all of my money out of RSPs and into TFSAs I'll start to collect my Canada Pension Plan which will be a higher monthly amount than it would be if I started collecting it at age 60.

So I can no longer put any money INTO RSPs as it's going to take me up to ten years to withdraw my $$ at $5,000 per year. From now on my savings will go into my TFSA, so I'm really, really hoping that the contribution rate of $5000 per year gets doubled to $10,000 per year after the Federal Election.

Other factors in my decision:

• I want to have the control over my money, not the gov't (yeah, right!)
• I want to have access to my RSP funds in the years before I'm eligible for OAS (Old Age Supplement) and before accessing my CP (Canada Pension Plan). Once I hit 65 I will be receiving CP & OAS as well as my teacher's pension. It will be the years from 58 to 65 that will be the leaner years, income-wise thus making it the ideal time to withdraw funds from my RSP and keep tax rates at their lowest. (Not that 10% is low by any stretch of the imagination!!)

So that's my story and I'm sticking to it! I hope.