The 6 Best Strategies to Minimize Tax on Your Retirement Income

You will have a lot more tax saving opportunities after you retire than before.

If you get a salary, you may have limited tax deductions or tax saving strategies. When you retire, it is completely different.

You can essentially determine the amount of income you will be taxed on once you retire. You can decide:

  • How much you withdraw from your investments.
  • How much you withdraw from your RRSP vs. TFSA vs. non-registered.
  • How tax-efficient your investments are.
  • When you start your RRIF, work pension and government pensions (CPP and OAS).

These 6 best strategies will give you an idea of the flexibility you have to minimize your tax with effective tax planning.

These ideas are most effective if you plan for them at least 5 or 10 years before you retire.

1. Plan to retire in a low tax bracket with the right mix of RRSP and TFSA

Your taxable income can be very different from the cash you receive. You do not really need income – you need cash flow. Income is taxable – cash flow may or may not be taxable.

You can have a lower taxable income by having the right mix of fully taxable, low tax and tax-free incomes.

You are fully taxed on your pensions, RRIF withdrawals and interest, but only partially on tax-efficient non-registered investments and not at all from TFSA withdrawals.

concept image used for article. Subject: how much is enough for retirementThe ideal goal is to have your taxable income below $46,000, regardless of how much cash you get. This is the lowest tax bracket. Even better, if it is under $25,000 for a single person (or under $37,000 total for a married couple), you can also receive the tax-free Guaranteed Income Supplement (GIS).

For example, you want a taxable income under $46,000. Your government CPP and OAS pensions are $15,000 and you have no work pension. That means you can have up to $30,000 taxable income from your investments.

You could achieve this by having no more than about $750,000 in your RRSP and the rest in a TFSA.

With $1 million in investments, if it is all RRSP, you are required to withdraw at least 4%, or $40,000, of which $30,000 is in the lowest 20-23% tax bracket, while $10,000 is in the middle 30-33% tax bracket.

If you have $750,000 in your RRSP and $250,000 in your TFSA, then you can withdraw $30,000 from your RRSP, all at the lowest tax bracket, plus $10,000 from your TFSA all tax-free.

2. Plan to retire in a low tax bracket with tax-efficient investments

If you have non-registered investments, the type of investment affects your ability to stay in a low tax bracket.

You can receive income from your non-registered investments as interest, dividends, capital gains, or deferred capital gains, depending on how you invest.

For example, if you want to stay in the lowest tax bracket and receive $30,000 taxable income from your investments, here is how much cash you can receive:

Income TypeCash To YouEffect on Taxable Income
Dividends$22,000138%
Interest & Foreign Dividends$30,000100%
Capital Gains$60,00050%
Deferred Capital Gains (Est.)$120,00025%

Dividends are “grossed-up” by 38%. Multiply the dividend by 1.38. That means $22,000 of dividends is $30,000 taxable income.

Interest income is straight-forward – $30,000 income is $30,000 taxable income.

Capital gains are only 50% taxed. Multiply by .5. That means $60,000 of capital gains is $30,000 of taxable income.

I’ll explain deferred capital gains in strategy #4. Essentially, they are a mix of capital gains and getting your invested money back. The effect on your taxable income can range between 0% and 50%, depending on how much your investments have grown so far.

3. Plan to avoid the clawbacks

The highest taxed Canadians are seniors with incomes under $25,000. Shocked? This is because, in addition to income tax, they get $.50 of their Guaranteed Income Supplement (GIS) “clawed back” for every dollar of taxable income.

For higher-income seniors, their Old Age Security (OAS) is clawed back at 15% of their income from $75,000-$121,000.

Many other government benefits are clawed back based on your taxable income, including the GST credit, the deductible on your provincial drug coverage, and rent on retirement homes. Governments are increasingly clawing back benefit programs based on taxable income.

This means that the tax strategies wealthy people benefit from because of their high tax rates also work for seniors in the clawback income ranges.

Planning to have a lower taxable income with the right RRSP/TFSA mix and tax-efficient investments saves you much more tax if your income will be in these clawback ranges.

If you realize you will be affected by either of these clawbacks, it might be worthwhile to cash in some or all of your RRSPs before age 65 to avoid the clawbacks. This only works if you can withdraw your RRSPs at a low or moderate tax rate.

The table below shows the tax brackets that affect seniors, once you include these clawbacks. Seniors have more red income ranges with very high tax rates.

The table shows the tax brackets that affect seniors, once you include these clawbacks. Seniors have more red income ranges with very high tax rates.

4. Use an SWP to get the lowest tax on your investment income

The lowest tax rate on investment income is on deferred capital gains at almost any income level.

Capital gains are taxed at preferred rates. With tax-efficient equity investments, you can defer the gain and pay capital gains tax years from now, instead of this year.

To get cash flow from deferred capital gains, just sell some of your stocks, mutual funds or ETFs each month. This is called a “systematic withdrawal plan (SWP)”.  You are taxed on the gain that has built up in the investments so far.

If you just bought your investments, then the SWP is tax-free. You are just taking back some of your own money. If you owned these investments for years and they are up hugely, you could be receiving mostly capital gains.

For illustration purposes in the chart, I assumed your investments have doubled since you bought them, so half of your SWP is a capital gain and half is tax-free because it is your original investment.

The chart below shows the marginal tax brackets, including the clawbacks, on different types of investment income. Note that deferred capital gains are always in green low brackets.

The chart shows the marginal tax brackets, including the clawbacks, on different types of investment income. Note that deferred capital gains are always in green low brackets.

5. Invest for dividends only if your income is $25,000-$46,000

Dividends from public Canadian companies actually have a negative tax rate if your taxable income is in this range. That’s right – negative tax.

The danger, though, is that dividends are taxed at an extremely high 62% rate if your income is below $25,000!

You need to be careful because dividends are the highest taxed investment income if your taxable income is below $25,000, but the lowest taxed income from $25,000-$46,000.

Why is the dividend taxed so high for the lowest income? The GIS clawback is on the grossed-up dividend. Dividends are a disaster for low-income seniors!

Dividend tax on low-income seniors is strange – but important to understand. If your income is under $25,000 and you receive a $1,000 dividend, it is grossed-up by 38% and adds $1,380 to your taxable income. The 50% GIS clawback on this $1,380 is $690. This is a 69% GIS clawback, which is reduced by 7% negative income tax on the dividend to get an effective tax rate of 62%.

In short, the government gets $620 of your $1,000 dividend.

If you can plan to have a lower income and keep some of the GIS, then you should avoid dividends entirely. However, if your income will be at least $25,000 without the dividends, then you can take advantage of the negative tax.

For example, let’s say you will get $15,000 from CPP and OAS, and $10,000 from your company pension. Your income is already too high to qualify for any GIS supplement. You can now get up to $21,000 taxable income from dividends at a negative tax rate. That would be $15,000 of cash from dividends (before the gross-up).

If your income is above $46,000, there is no real advantage of dividends. They are taxed about the same as an SWP (deferred capital gains) up to $75,000 of income and then the dividend tax rate leaps to 30% if your income is over $75,000.

Dividend investing has the disadvantage that the negative tax only applies to Canadian companies on the stock market that pay dividends. This can limit the diversification of your portfolio. SWPs with deferred capital gains work with any company anywhere in the world.

Negative tax rates on dividends only exist in Ontario, B.C., New Brunswick and the 3 territories.

6. Defer converting your RRSP to do the 8-Year GIS Strategy

You can get up to $10,500/year of Guaranteed Income Supplement (GIS) tax-free ($12,700 for a couple) from age 65 to 72, if you have no taxable income other than OAS. You can still receive non-taxable income, such as from your TFSA or investments.

This is a cool strategy if you have enough in your TFSA or non-registered investments to give you income for these 8 years. You could plan for this by cashing in some RRSP before you turn 65 to maximize your TFSA or build up non-registered investments.

You could also get income by withdrawing from a secured credit line on your home during these 8 years.

To qualify, you could delay converting your RRSP to an RRIF until the end of the year you turn 71. You can also delay starting your CPP until age 70.

You could also make a large RRSP contribution before age 65 and defer the deduction until you need it during these 8 years to give you the maximum GIS.

At age 72, you have to start withdrawing from your RRIF, but you will still receive GIS for one more year since it is based on the prior year’s income. You will likely lose some or all of your GIS after that.

Deferring CPP to age 70 means you get 42% more CPP for the rest of your life. Delaying converting your RRSP gives it an extra 8 years to grow, during which time it could nearly double.

The “8-Year GIS Strategy” can mean you have a much more comfortable retirement after age 71.

Creative retirement tax strategies

The number of effective tax-saving strategies is only limited by your creativity. There are more effective strategies, but I believe these are the 6 most effective that almost anyone can do.

Your goal is to receive the cash flow you need for your desired retirement lifestyle, while paying the least possible tax on it.

You can effectively decide your own taxable income. You can plan to be in low tax brackets, avoid the clawbacks, and possibly qualify for GIS.

You have many tools to use in creating strategies. Your tools include your mix of RRSPs and TFSAs, deciding how much to withdraw from your RRIF, TFSA and investments each year, investing tax-efficiently for deferred capital gains or dividends, using tax-efficient withdrawal strategies such as SWPs, using “T-SWPS” to defer capital gains, deferring CPP and/or OAS to age 70, starting CPP early at age 60, deciding on the best time to convert your RRSP to RRIF, accessing your home equity, contributing to your RRSP or cashing in some RRSP before you retire, and the 8-Year GIS Strategy.

If you had a salary all your life, you may have had limited tax deductions or tax saving strategies. When you retire, it is completely different. You have many options, especially if you plan for them before you retire.

This article originally appeared in the January 2018 issue of the Canadian MoneySaver (click here to save 20%).

Canadian MoneySaver

Written by Ed Rempel

Ed Rempel, CPA, CMA, CFP has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner at Unconventional Wisdom & Advice Inc. and popular blogger at www.UnconventionalWisdom.ca. Ed sees what actually works based on 23 years of writing nearly 1,000 comprehensive financial plans. He has been widely featured, including in the Globe & Mail, National Post, Yahoo! Finance, Canadian MoneySaver, Costco Connection, MoneySense, Financial Independence HUB, Investment Executive and The TaxLetter.

44 Responses to The 6 Best Strategies to Minimize Tax on Your Retirement Income

  1. Hi
    I have 60,000 in RRSP non in TFSA yet
    Pension of 35,000 and Im 57yrs old.
    With my CPP + OAS is 15,000 at 65yrs .Pension is now 25,000 at 65yrs because of the Bridge is removed .Would it be smart to draw my CPP at 60yrs and turn it into a TFSA or should I wait to draw my CPP at 65yrs. Or should I transfer some of my RRSP into TFSA now

    • Hi Toddd,

      Sorry, but the answer to your question depends on many factors.

      There are a lot of options for most people. You really need a Financial Plan to get a proper answer.

      In general, taking CPP early to contribute to a TFSA rarely works. Possibly taking it early and contributing to RRSP to offset the taxable income.

      Ed

  2. Great comments for the general public. Of course, for business owners the most effective strategy is a Personal Pension Plan coupled with some permanent insurance purchased by the corporation with lightly taxed corporate income.

    • Hi Jean Piere,

      I disagree.Personal Pension Plans are costly and generally only work for more conservative investors. For equity investors, you can quickly run into the limits, which means you end up with less contribution room than you would have with an RRSP.

      Very few people need permanent insurance and the investing options are usually very limited.

      The best opportunity usually for business owners is to leave their profits in the company (or a holding company) and build up tax-deferred investments to withdraw whenever is the best time. It works something like an RRSP.

      The new tax on small business means you have to be careful how much you build up inside your corporation, but you can usually still build up $1 million or more without running into the new tax.

      Ed

      • Ed…the tax savings/refunds generated by having the ability to contribute a lot more than under RRSP rules means that the cost of the PPP is irrelevant, and in fact puts you in the ‘black’ from day 1 in most cases.

        Moreover, the ‘limits’ you refer to apply to IPPs, not PPPs where one has the option of using the Defined Contribution/AVC side of the plan, and where the ‘limits’ you refer to (excess surplus rules) have no application.

        As for permanent insurance, my understanding is that there are no investing options with Universal Life (not to be confused with ‘whole life’). So that also is not accurate.

        It is not tax optimum to leave profits in the company or holding company under the affiliated company rules and the 1:5 reduction in active business income benefiting from the small business rate due to the Morneau tax measures. Not only does the increase the taxes payable on active business income due to the passive investments generated by retained earnings kept in Opco or Holdco, it also subjects passive income generated at the corporate level to ongoing taxation during the accumulation phase.

        This means that second generation income is mathematically going to be lower than with a tax deferred account.

        PPPs notionally increase someone’s lifetime registered limits by about $1 M over 30 years. All financial planners should at the very least run the numbers first before dismissing this extra tax advantage with the back of the hand.

        JP

        • I think its disingenuous for you to come here and spout your comments about PPP out of context without disclosing your interests. The way you conduct yourself here is very telling of how you run your company.

          The costs to administer a PPP make it less preferred to building up a tax-deferred investment portfolio (invested in something that does not generate passive income to maximize deferral).

  3. When you are mentioning the income received and then applied to your strategies are you talking about individual income or combined spousal income ??

    • Hi John,

      Great question.

      In the article, I refer to individual income. The issue can be more complex, because the tax brackets are individual, but most of the clawback taxes are on family net income.

      I considered having multiple tables with family income assuming each spouse has the same income, but I’m trying to keep the article from getting too comlex.

      Ed

  4. Hello, I have over 300K in non-registered savings, 100K in RRSP, 15K in TFSA. My house and a rental property are mortgage-free and I have no other consumer debts. I am currently 50 and work retirement is scheduled in 5 years. The work pension is expected to pay me around 70K per year when I turn 55. What would be the best strategy to minimize tax after retirement and before starting collecting CPP and OAS? I had contemplated taking 1 or 2 years off without pay before retirement and use up some of my RRSP and savings. Your thoughts and feedback is much appreciated.

    • Hi Peter,

      You have a lot of options. You would need a Financial Plan to get a proper answer about your best option.

      For example, questions include how much income you need and when, take your CPP & OAS early or late, max your RRSP or drain your RRSP, what to do with your rental property, possibly use your home equity, possibly commute your pension, etc.

      A couple general comments;

      – Your large pension means you will likely run into the OAS clawback with other taxable income. Being tax-efficient with other investments will be important for you.
      – You should definitely max your TFSA.
      – Paid off rental properties are generally not very good investments and very tax inefficient. Rent is fully taxable. you can usually get more income at much lower tax rates from other investments. Tax-efficiency is important for you, so you should consider selling your rental property to diverify your investmnents.
      – You may be able to do the “8-Year GIS Strategy”. You would have to commute your pension. Complex topic, but it could work for you, since you plan to retire by 55.

      I hope that’s helpful, Peter.

      Ed

  5. Wow. I think the article would be way too complex for people with little or no knowledge of some of these topics. I am still trying to get my head around SWPs and your explanation of deferred capital gains. I feel the article could have been much more clear.

  6. I agree. A lot of theorems/concepts used are undefined.

    Not a good teaching tool. Easiest to understand by author himself.

    • Hi Daniel,

      I agree it is an involved and complex topic. This article is meant to be an introduction to the best ideas.

      After reading it, hopefully you can see which strategies might work best for you. Then do more research – or get advice.

      Ed

  7. Hello,

    I am 55 years old and should be employed for another 10 years when I would like to retire.
    My retirement income will include 41K in pension
    I have RRSP and contribute to this account every 2 weeks, but don’t have TFSA yet. I have also rental income from the house – that’s why RRSP to lower the tax payable on income rental.
    Could you advise the strategy for the next 10 years to diversify it better?

    Thank you

    • Hi Bogd,

      I would need to know a lot more to give you a proper answer. You would need a Financial Plan to have a clear answer.

      A couple general comments:

      – With a $41K pension, you will end up above the lowest 20% tax brackets. Your pension is probably “integrated with CPP”, which means that you get $41K from your pension + CPP< but add your OAS and you get into the middle tax bracket that start at $47,000. Therefore, tax-efficiency on other income is important for you.
      – Contributing rent income to your RRSP is generally a good idea.
      – Based on the infomration you gave, you may or may not be in a higher marginal tax bracket today than you will be after you retire. Therefore, it's hard to say whether RRSP or TFSA will be better for you.

      Ed

  8. Over my head. Too bad; it seems to be sheer folly not to take advantage of these tips, yet it’s too difficult for me to grasp and apply it in such way so I can truly benefit from them.
    Sad that the tax laws are written in such a esoteric language that the average Joe and Jane are simply left behind.

    • Hi Peter,

      I agree it is a complex topic.

      There are a lot of opportunities for most people to significantly improve their income and save tax.

      If you don’t understand, it is probably worthwhile for you to get advice.

      Ed

  9. If you have Mutual Funds in Non Registered investments you may be able to take a TSWP instead of a SWP. This TSWP is usually up to 8% of the investment and is solely comprised of return of capital so is not taxable – it lowers the Adjusted Cost Base of the investment.

    • Hi Joanne,

      Good point. A T-SWP is another option.

      Whether a T-SWP or a SWP is better for you depends on many factors. A T-SWP usually has lower tax for about 12 years, but then higher tax after that, plus a huge capital gain when you sell.’

      The problem comes in because the cash flow from a T-SWP reduces your Adjust Cost Base (as you said). Once your ACB reaches zero, the full cash flow you get is all considered a capital gain.

      Then when you sell, your ACB is zero, so the full value of your investments is all a capital gain – even if the investment value is the same as when you bought it.

      T-SWPs work when tax-efficiency for the next few years only is very beneficial for you. You generally get lower tax for about 12 years and then higher later.

      There are planning opportunities. I use it sometimes to help clients get GIS. Every 12 years, we sell and rebuy the investments. They get a large capital gain, but most is taxed at a low bracket. They lose GIS for one year, but can continue to get it for the next 11 years again.

      Ed

  10. 2018-04-12 Excellent article, which confirms we (spouse and I) pay more than our fair share of taxes.

    NO OAS
    NO GIS
    NO GST credits
    NO Age 65 credit amount & Pay 40% tax on CPP

    • Hi 65,

      Your situation is not the worst problem to have. You will obviously have quite a high retirement income and comfortable retirement.

      You probably still have a variety of options and tax-efficiency will make a big difference for you.

      Ed

  11. I am more confused how to proceed forward than ever. Having literally no financial background to speak of this is far too confusing to me. I would have preferred submitting my info and getting some advise breaking down more examples so I can find my category.

    thanks for listening

    • Hi B,

      It is a complex topic with many options. I would need to know a lot about your situation and life goals to be able to give you a full remmendation on the best things for you to do.

      To get individual advice like you requested, you really need a Financial Plan.

      Ed

  12. As I see it, one of the problems with this article is that it adds an extra layer of confusion by talking about the GIS. My assumption would be that any senior contemplating tax efficiency strategies such as SWPs, TSWPs, dividends, etc. would unlikely qualify for the GIS. (By the same token, someone who qualifies for the GIS would probably not be contemplating tax efficiency strategies.) So, for starters, you could eliminate all reference to the high tax rates for seniors making under $25K and focus on what applies to the rest of us.

    • Hi Rob,

      In real life, I have seen quite a few people with large portfolios that either get GIS or can plan to get it.

      For example, I have prepared several Financial Plans for couples planning for a real freedom retirment. They plan to sell their expensive home in a big city to move into the country (or to a lake) and clear close to $1 million. They can then retire in their early 50s to travel the world, and they can qualify for the “8-Year GIS Strategy” if they invest tax-efficiently and plan properly.

      I have helped sevearl couples with multi-million dollar portfolios that planned well and get the GIS.

      Anyone that collects GIS and has any investments needs to be careful. Every RRSP withdrawal or interest is taxed at 50-70%, including the clawback tax.

      I talk with quite a few dividend investors that plan to retire on just their dividends, thinking that they can collect $50,000/year in dividends tax-free. That does not work at all once you reach age 65.

      Ed

  13. Good article, as usual. The whole SWP concept to me is a little flakey. If I understand it properly, I’m paying low taxes because I’m basically getting back my original investment that I’ve previously paid taxes on, and then paying normal capital gains on the gains. To me, this SWP term provides no value, and is just confusing.

    Other than that, very good ideas for when to invest for dividends, when to consider early RRSP withdrawals, and potentially using line of credit and deferred CPP to get some GIS between ages of 65 – 72. I really enjoy your articles!

    • Thanks, Mark.

      I’m glad you found it useful for you.

      The SWP concept is highly-effective. It is the best method for most retired people to get cash flow from their non-registered investments.

      Most retired people mistakenly believe they need “income” when they actually need cash flow. They end up buying income-producing investments, such as dividend stocks, REITS, bonds or GICs.

      If instead, you invest in the best portfolio based on your risk level (hopefully with a good equity allocation) and then just take a SWP for the cash flow you need, you are better off in every way.

      YOu have:

      – Full control and flexibility to chose your exact desried income.
      – Better growth in your investments.
      – Better diversification, including global diversification.
      – Lower tax.
      – Lower clawback taxes.

      I call these SWPs “self-made dividends”. They are better than ordinary dividends in every way.

      Here is an article about it: https://edrempel.com/self-made-dividends-dividend-investing-perfected/ .

      Ed

  14. The Perminant insurance comment is totally untrue as there is no financial gain from universal or whole life products they are wealth robbers .

    • Chris,

      I agree. Very few people have a permanent insurance need. The investment choices are very limited and you can invest much more effectively.

      These life insurance strategies for business owners really only work if you are not going to spend your income and it is only for your kids.

      Ed

    • Hi Kevin,

      Yes. You convert a LIRA to an LRIF or LIF (depending on your province), which are mostly like RRIFs.

      The difference is far less flexibility. You have a maximum withdrawal every year (not just a minimum like with a RRIF), you can never take lump sum withdrawals, and you can’t make contributions.

      You can “unlock” 50% of a LIRA when you convert it to an LRIF. This means you can transfer half to a regular RRIF and half to an LRIF, which gives you more flexibility.

      Ed

  15. Ed
    Thanks for your excellent article. I’m going to be one of those low income seniors in 4 yrs so this info is helpful. I do feel like speaking with someone regarding a Financial Plan would be helpful. Could you point me to the type of Professional? I have found that most Financial Planners are resellers of Mutual Funds/Insurance. Few understand the complexities of OAS/GIS and CPP and how to work those to my best advantage.
    Thanks for any thoughts.

    • Hi Heather,

      Yes, unfortunately, almost all financial planners just sell muutual funds or life insurance, and do not offer comprehensive financial plans. The financial plans are so beneficial to detail your life goals, help you make life decisions when you see which goals are and are not affordable for you, and work out the best possible way for you to achieve the life you want.

      Your Financial Plan is the GPS for your life.

      I offer a Free 30-Minute Consultation, if you want to discuss whether or not we are a fit to work together. It is here: https://edrempel.com/free-30-minute-consultation/ .

      Ed

  16. Ed,

    You have completely missed the boat on this article and your other articles in support of this article. I feel you are confusing people, especially those that are relatively new to investing, and are doing a disservice to readers. I have over 35 years of investment experience and I find it very difficult to understand the pertinent points that you are trying to get across. Rest assured, your articles rate as some of the most confusing I have ever come across.

    I could write pages and pages to dissect what you have written. But I will try to keep it short and focus on only some of the major points:

    • You are advocating investors to buy growth stocks, since you speak mainly of capital gains in your article. However, this is a forum for those in retirement or planning for retirement, so many of your readers need reliable sources of income; capital gains cannot and should not be depended on.
    • In the event of a downturn or market sell-off, like 2008, investors will be forced to continue selling off their principal at a time when share prices will be at reduced prices. As a result, they will need to sell a higher percentage of their capital. Dividend investors will continue to receive income and barring any issues with the dividend payers, will not have to sell any of their principal. They have the luxury of “getting paid while they wait”.
    • This term “self-made dividends” is just bad. This is the first I have ever heard of this term. To be clear, they are not self-made. Second, they are not dividends; they are capital gains. You really should stop using it. I can imagine new investors getting thoroughly confused and trying to differentiate between eligible and ordinary dividends, and now “self-made”.
    • You were not clear at explaining deferred capital gains or where they come from. You should be discussing and using the term Return of Capital (ROC) and providing a clear example. Also, you appear to assume that everyone has investments that will have Return of Capital. This is not always the case.
    • You have not made it clear that most of this applies only to:
    o unregistered money
    o investing in Canada
    o those concerned about any clawbacks

    e.g. what if I invest some of my LIRA into dividend paying stocks? No dividend tax credit, but no tax bill either. Plus the potential for continued growth of dividends if I invest in companies with good business prospects and management

    Up until recently, I looked forward to receiving this newsletter and have even recommended it to others but after this article, I think it is time I unsubscribe. You need to go back to the drawing board and hit the reset button. Although I was the first to provide you feedback on this, I see that there are lots more comments on the site now, most of which are not favorable. You have left a torrent of confusion in your midst.
    Jim needs to get involved as it is his reputation at stake as well.

    • Hi Ron,

      A couple comments. My article is purely educational to help readers understand the most effective planning and investment strategies.

      “Self-made dividends” (also called “homemade dividends”) is not a new term. It has been talked about for many years among financial planners. I admit it is not well-known in the investment industry.

      Respectfully, I think you would have no difficulty understanding them if your mind was open. You seem to be really sold on the conventional wisdom of dividend investing.

      Self-made dividends is a very practical concept. They are not complex. Just invest in a broad, tax-efficient equity portfolio. When you retire and need cash flow, just sell a bit every month. Sell an amount that is within a reliable withdrawal rate. That’s it. Easy.

      They are better than ordinary dividends in every way. (https://edrempel.com/self-made-dividends-dividend-investing-perfected/ ).

      Self-made dividends are taxed at lower rates. Ordinary dividends have 2 big risks – over-valuation and lack of diversification. Self-made dividends avoid these risks and have a list of major advantages:

      1. You decide the amount of dividend you receive.
      2. You can start, stop and change the dividend any time you want.
      3. You are not forced to pay tax on dividends when you don’t need the cash.
      4. You can invest properly based on risk/return, instead of chasing yield.
      5. You can avoid buying expensive investments to get a higher dividend.
      6. You can properly diversify globally, instead of having all your investments in Canada.
      7. For seniors, the clawback of government benefits from ordinary dividends is 5-6 higher than on self-made dividends.
      8. You pay less tax than on ordinary dividends (or sometimes no tax).

      Three important facts:

      1. Retirees don’t necessarily need income. They need cash flow. Income is taxable cash flow.
      2. The stock market is reliable over the long-term, even when you are withdrawing regularly from it. I researched 150 years of history and my findings are here: https://edrempel.com/reliably-maximize-retirement-income-4-rule-safe/ .
      3. Many people can plan to get GIS or OAS. It’s not just people affected by clawbacks, but anybody that can plan to be. I have helped several clients with multi-million dollar portfolios get GIS.

      Open your mind to self-made dividends. It is a simple & effective concept.

      Ed

  17. Yes Ed’s writing is one unto it own. Once you find his flow then You’re good to go. This is info that’s not for everyone, I think it’s great. Look differently and see what you could make…
    Its a blast to learn how to be more efficient. I’m looking at retiring at age 45 or 50 (now 35) and will have a mix of corporate, non reg, small rrsp, , maxed TFSA. Want to keep what I can and not waste because of ignorance.

    I follow an indexing stagegy with my investments and tend to think that I should allow each investment vehicle show their talents. Let TFSA be flexible to increase $ w/o tax rate , rrsp for long term compounding likely no more contributions to keep smallish, corp for income splitting and initial tax deferral, and non reg for rest, swp.

    Ed any advice for how to plan allocations to each vehicle over time? I still have time to make adjustments.I’m DIY diehard and have worked many individual calculations to smooth income over the years. Tentatively I’m planning to empty ccpc first then non reg. Take pensions early, leave rrsp to 71 and scoot under the oas clawback the whole way. Any suggestions would be awesome. My portfolio follows tax advice of Canadian couch potato and justin bender for where to place investments.

  18. Ed, a question about OAS clawback rates. As you mention, it is 15% for each dollar above ~$75,000. However in you chart you only show an 8-10% “tax” rate for OAS. Can you clarify please. I would assume it is still an incremental 15%.

    • Hi Rossco,

      Good question. The clawback tax is 15%, but OAS is taxable. When your OAS is reduced, your taxable income is lower and your income tax is reduced, depending on your tax bracket.

      8-10% is the net clawback (net of income tax).

      Ed

  19. Please note, if some reader has not done so already, OAS “claw back” is based on the Net Income line of your tax return and not Taxable Income line.

  20. I have invested my RRSP in 3 year enhanced growth product on July 30, 2016 and maturity of the product is August 19, 2019.I will turn 71 on June 01, 2018 and by the rule need to convert my RRSP to a RRIF by December 2018. An as per government rule I do need to take any RRIF withdrawals until December 2019.
    My question is – how my RRSP investment will be converted to a RRIF.
    Please advise.

    Regards,
    Andrew

  21. Hi Andrew,

    Sorry, but I get a chuckle about the marketing with an “enhanced growth GIC”. It’s like a super-sonic turtle! 🙂

    You won’t have a problem, Andrew. Your bank converts the RRSP to a RRIF this year, keeping the investments the same. in 2019, you have to withdraw at least the minimum amount, but your GIC comes due in 2019, so you can start your withdrawal during the year.

    Ed

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