Summary: The spousal RRSP is a great way to reduce current taxes, but if you’re planning on using the money in that spousal RRSP soon, be aware of the rules concerning who declares the income!
Disclaimer: As this article will demonstrate, I’m not a tax expert, lawyer, CPA or anything else. Use with discretion, some assembly required.
I made substantial use of spousal RRSPs during my working life. Spousal RRSPs are a way for the higher earning spouse to take advantage of the lower earning spouse’s unused RRSP contribution room, thus leading to a lower overall tax bill1. All good so far.
Some vocabulary will help with the next bit.
The contributor is the person providing the cash for the spousal RRSP and is the one who gets the tax deduction. Usually this is the higher income spouse.
The annuitant is the person whose name is on the spousal RRSP statements. This is usually the lower income spouse.
What most primers on spousal RRSPs don’t mention is that there is a restriction when it comes to withdrawing from the RRSP2. Paraphrasing the source material:
If the annuitant withdraws from a spousal RRSP within three years of the last contribution, the income from that withdrawal is considered to belong to the contributor, not the annuitant.
What? Why?
As with all things, there’s no free lunch. CRA doesn’t want to make tax avoidance so easy3, so this little detail will prevent the purely hypothetical scenario of a higher earning spouse making a large spousal RRSP contribution in the last year of their employment, and then getting the lower earning spouse to take out that same money at a much lower tax rate when the calendar moves from December to January.
There is one, small, bone that CRA throws our way in this case. Paraphrasing again:
If the annuitant withdrawal is instead made via a spousal RRIF, and the payment is RRIF minimum, then fine, the annuitant can declare that income.
So, as long as our lower income annuitant spouse opens a spousal RRIF, and as long as for the three years4 following the last spousal contribution, that spousal RRIF only pays out RRIF minimums, then all is well. The annuitant spouse declares the income, as expected.
Now of course, this rule may not matter to you. If you’re newly retired and don’t have much in the way of income, then it may not trouble you that you have to declare the income from your spouse’s spousal RRIF/RRSP. It’s just a bit more paperwork (a T2205, looks like).
In my case, I’m only taking RRIF minimums for the time being. So no extra paperwork for me.
I’ve never myself made a withdrawal from an RRSP. That would break my rule of keeping retirement savings firewalled. And it looks to me to be an expensive proposition — your provider will surely charge a deregistration fee, your provider will have to withhold tax, and you have declare the full amount as income in the year you grab it. ↩︎
I have learned to be guided by the humbling tenet of: “If I think I’ve figured out a way to outsmart the taxman, it’s probable that I’m simply demonstrating an incomplete understanding of how it actually works….” ↩︎
To illustrate/clarify: the rule applies in the year the contribution is made, and the previous two years. So the contribution I made in 2024 will be free from all constraints in the 2027 tax year. ↩︎
Summary: The mechanical details of getting paid in retirement require careful review of how your provider allows cash movements between accounts, a handle on how much money is coming in via a RRIF, and, for bonus points, an annual decumulation plan to minimize household taxes.
I covered how I get paid in retirement previously, but this was nothing more than a restatement of how VPW (Variable Percentage Withdrawal) works. My reality is not quite as simple as the Idealized Monthly Routine I laid out in that post.
The actual work required looks more like this:
Actual monthly work needed to get paid in retirement
The first 3 steps are the ones I covered in the last post, and there’s nothing new to talk about there. In brief, you calculate your retirement savings, enter that number into the VPW spreadsheet, and out pops the monthly VPW suggestion (“v”), which is then added to the current value of your cash cushion (“c”) to calculate your salary (“s”).
It’s probably worth noting what specific accounts I hold at my provider to make things a bit clearer1
There are 4 total RRIF accounts (two for me, two for my spouse)
There are 2 non-registered accounts that hold retirement investments (one for me, one for my spouse)
There is 1 non-registered joint account that serves the role of VPW’s cash cushion, which is invested in DYN6004 so I can earn a bit of risk-free interest.
So ideally, my RRIF payments would flow into the cash cushion account, and I would pay myself out of the cash cushion account to my everyday joint chequing account. That is unfortunately NOT how it works.
Let’s pick up the process starting at step 4.
Do the RRIF minimum payments cover the calculated salary?
When I opened my RRIF accounts (and yes, there’s more than one2), one of the questions asked was “what bank account should the payments go to?” Asking for RRIF payments to go to a non-registered account was not presented as an option, and it’s not possible. So already the simple RRIF to cash cushion transaction outlined in the ideal scenario wasn’t possible.
The other questions asked by my provider was: how much do you want to be paid? (RRIF minimum, some percentage/amount higher than that, gross/net?)
(If you’re new to the RRIF world, or if you think that RRIFs are just for 71-year-olds, you may want to check out my previous post on debunking this and other myths.)
The amount each of my RRIFs3 pays me monthly is a well-known fact since I opted to collect RRIF minimum from each RRIF — and RRIF minimum is based on my RRIF value and age as of January 1, 2025. It will stay constant throughout 2025. So while simple, the amounts involved aren’t enough to pay my suggested salary. I’m free to ignore the suggested salary and simply (try to) live off my RRIF minimums, but that would be counter to my “you can’t take it with you” ethos. And so, I have to augment my RRIF minimum salary with money from elsewhere.
If your RRIF minimum payments are higher than the salary, then I suppose it makes sense to re-invest those payments somewhere. Or give the money away. Up to you 🙂
Sell required assets in non-registered account and move $ manually
The title is clear enough — sell something in the non-registered portfolio and use it to make up the salary shortfall. But whose holdings4? Which ones?
To help me decide, at the beginning of the year, I played around with tax scenarios using the calculators referenced in Tools I Use to concoct a high level plan on how to best minimize my household’s collective tax bill. (This was a tip my financial advisor gave me; her advice was to try to pay no more than an average tax rate of 15%5).
Capital gains caused by the sale of non-registered assets7
Since the first three items above were already known, there was no decision to make; the tax owing on those was already clear8. The capital gains were the only variable — how much should I take versus my spouse? There was a bit of estimation involved in the actual amounts here (the actual gains would depend on the actual sale price), but it gave me a high level plan for 20259. Any additional income needed would be paid by capital gains realized from MY holdings since my income was forecast to be lower than that of my spouse10.
With the pre-work done, it boils down to making the required sell trade, waiting two days for the cash to settle, and then clicking the right buttons to get the cash out of my investment account and into my chequing account. Should be simple, but if you’ve never done it before, you need to make sure it’s all working as you expect.
Sell required assets in RRIF
Yes, you have to make sure that there’s cash available in your RRIF accounts (and remember, I have 4) BEFORE the monthly payment goes out. My provider would only be too happy to do this on my behalf, charging me their “telephone trading rates” for the trade — something like $30 plus $0.06 a share for XGRO. Compared with “free” if I do the work myself, that’s a pretty decent hourly rate…Do not forget that it takes two days for a trade to settle into cash. Since my provider does not pay interest on cash holdings, I’m highly motivated to keep any cash balance to a strict minimum. I hate not earning money on my money.
Adjust cash cushion up or down by comparing VPW suggestion to calculated salary
In my previous post I talked about moving “v” to the cash cushion and then simply taking 1/6th of it as salary. And that is exactly what I do. But practically, it’s impossible to do this maneuver in exactly the way I describe with my current provider (QTrade). Here are the specific reasons I can’t do what VPW asks me to do:
QTrade RRIF payments must be made to an external bank account. So right away, part of my salary cannot flow through an intermediary cash cushion account.
QTrade does not allow cash transfers between non-registered accounts on their online platform. This means that the asset sales in my non-registered account cannot be moved directly to the cash cushion accounts either11.
I have worked around the limitations imposed by my provider by either
moving money from my chequing account to my cash cushion if the VPW suggestion is higher than my salary (market is moving up)
moving money from the cash cushion to my chequing account if my salary is higher than the VPW suggestion (market is moving down)
I have set up smart-ish spreadsheets to break down all the various movements of money which I will share at some point once I figure out how to make them a bit more generic. I’ve also documented a step-by-step guide for my spouse which she uses as we sit together walking through the monthly tasks12 so that I have confidence she could execute on them if I became incapacitated. There is no substitute for handing over the controls to see where the gaps in knowledge — and documentation — are.
The future
Having witnessed what happens to savvy adults as they get older, I know deep down that this DIY strategy isn’t sustainable forever. There are too many moving parts, and too many opportunities to make mistakes.
At present, I don’t have a future plan mapped out. I have updated my “death binder“, but beyond this, nothing more. I will dedicate more research (and future posts) on that topic.
For your benefit I have not mentioned the USD variants I have of a few of these. This post is long enough as it is, and I presume that most readers don’t hold assets that are traded on US stock exchanges. ↩︎
My own RRIF and my spousal RRIF account for two, and my spouse has two as well. Total four. They are with the same provider. Spousal RRIFs are generated from spousal RRSPs, in case you were wondering. If you deal with more than one RRIF provider (I would NOT recommend that), you’ll also have to consider that. All this to say that I saw 4 distinct payments made to my joint chequing account on Friday last week, one for each of the 4 RRIFs. ↩︎
I keep saying “my RRIFs” for simplicity, but all 4 RRIFs (2 in my name, 2 in my spouse’s) are treated the same way. All four payments end up in our joint chequing account. ↩︎
Both my spouse and I have non-registered accounts. My spouse’s was funded via a spousal loan I set up years ago to achieve some degree of income splitting. ↩︎
After years of thinking of taxation in terms of what I paid on the LAST dollar I earned, this was admittedly a very different way of considering the problem. ↩︎
Most of my dividend income (via XGRO and AOA) is buried in my RRIF and TFSA to avoid any taxation of it ↩︎
Because I make a lot of use of HXS and HXT in my non-registered portfolio, I earn no dividend income; it’s all capital gains… ↩︎
If you’re not aware, RRIF payments are treated as no-special-treatment taxable income, reported on a T4-RIF form by CRA. ↩︎
Since I get paid monthly, I could always adapt if my assumptions were radically off. ↩︎
I could have also paid the extra from my TFSA holdings, but my advisor suggested that this is the LAST bucket to use in retirement. ↩︎
Summary: In a previous post, I talked about preparing your portfolio for retirement. But now that the paycheques have stopped, how do I get paid from my DIY portfolio?
I got (retirement) paid for the first time today! This is indeed a cause for celebration, at least personally. As a DIYer who is self-funding retirement1, it’s not exactly sitting back and waiting for the cheque to arrive2. There’s a fair bit of work that has to be done if you want, as I do, a monthly salary.
If you’ve simplified your retirement portfolio, this is probably as simple as logging in to your online broker’s portal and looking at what you’re worth today. For more complex scenarios (like mine, because I am test driving a new provider) you’ll need some sort of spreadsheet. Mine is based on this template. I don’t include day to day chequing accounts or anything like that. My retirement portfolio remains firewalled from all the daily puts and takes.
Generate v, the VPW Suggestion
This uses the VPW worksheet available over here. Basically, you enter a few parameters (how old you are, what your asset mix3 is, what your retirement savings are and what pensions (CPP, OAS or employer) you may have now or in the future. Predicting future CPP was made easier for me by using CPP Calculator. The first time you fill in the worksheet, it’s a bit more effort, but most of it (aside from retirement savings) doesn’t change much (if at all) month to month. Enter all the parameters, and out comes v, the monthly VPW4 “suggestion”.
Now, if this is the very first time you’re running through this, meaning that it’s your first month of retirement, there’s one additional step, and that is creating what the VPW folks refer to as a “cash cushion”. I think of it as a shock absorber myself, and my DIY enthusiast neighbour5? He thinks of it as the source of a cash waterfall you drink from monthly.
Whatever you choose to call it, the cash cushion, as the name implies, sits between the VPW suggestion and your retirement salary, dampening possible month to month swings caused by swings in your net worth. A sudden drop in the stock market won’t translate immediately to a sudden drop in your salary, and by the same token, a sudden rise in the stock market won’t translate immediately to a sudden rise in your monthly salary.
Creating the cushion the first time is easy. Just take 5 times what VPW suggests and put that in your cushion. That ought to be a firewalled account that pays decent interest.
Put v in your cushion and pay yourself 1/6th of the total
In the very first month, the astute reader will note that my salary is v, the VPW suggestion. As time goes on, the salary will vary with my retirement savings, and the cushion acts like a moving 6 month average function.
That, in essence, is what the monthly routine looks like.
The reality behind the scenes takes quite a bit more steps due to factors like
How many RRIFs you have (personally, I have two…or maybe three6)
Whether or not your scheduled RRIF payments cover your VPW-generated salary (mine do not and probably will not ever do so)
The time lag between asset (stock/ETF) sale and cash availability7
The ability (or not) to easily move money around between accounts8
I will show you the actual work behind the scenes in a future post, but be aware and take the time to work through the details before you pull the plug for real.
I’m delaying CPP and OAS until much later to get more monthly money of inflation-indexed protection. ↩︎
Or an envelope of cash, apparently. The things you get when you type “paycheque” in the search engine… ↩︎
All VPW cares about is how much of your savings are in stocks AKA equity. More stocks = higher returns = more risk. ↩︎
VPW also supports quarterly or annual calculations. I’m sticking with monthly since it’s much closer to what is typical cash flow management for my household. ↩︎
One spousal RRIF based on the spousal RRSP my spouse contributed to, one personal RRIF based on my personal RRSP. I also have a USD personal RRIF but my provider treats it as part of my personal CAD RRIF. My portal shows three accounts, but I only get two payments. ↩︎
I learned, sadly, that my current provider offers no way to move money between non-registered accounts without resorting to a phone call. As I have already reached my hold music limit for 2025, there’s no way I’m going to put up with that. And so the chequing account comes into play as a way to move money around at the cost of delay. Dear QTrade, please fix this. ↩︎
Summary: Variable Percentage Withdrawal (VPW) is a safe way to draw down your retirement investments, and feels a lot more reasonable than relying on a fixed budget.
When I finally decided to pull the plug on the “working to earn a living” world, (and you can read about how I came to that decision here) I was still left with lingering doubts over my retirement spending plans.
Of course, I had prepared a retirement budget as part of the exercise.
Of course, I had hired an advisor to take a look at the numbers.
And as a result, of course, I had a tidy year by year breakdown of my inflation-adjusted budget and net worth. The charts always look something like the one on PERCs home page.
But my own experience made me really uneasy about this approach — in 2023 that forecast showed I couldn’t retire until 2027, but then back-to-back stock market silliness (in a good way) allowed my 80/20 investment portfolio blow through “the number” two years early!
So, on the one hand, hooray for me, but on the other hand, the story could have happened in precisely the opposite way with a (temporary, they are always temporary) market meltdown, and the moneyengineer.ca domain would have been snapped up by the Canadian Mint, and I’d still be working for a living. The variability of year to year returns isn’t a big deal over a long period of time, but it makes a huge difference in the immediate future1, and by “immediate” I mean, “how much will I take out of my retirement portfolio this month?”
VPW offers you a sustainable salary in retirement; if the market is doing well, you can afford to spend more, but if the market is doing less well, tighten the belt.
VPW uses your net worth, your age, your portfolio and any current or future pensions to dynamically calculate what you can afford to spend in a given month, quarter or year.
The key is “dynamically”. Every month, quarter or year, you calculate your net worth, and the VPW Accumulation and Retirement worksheet generates two numbers: what you can afford to spend, and what that number would look like in the event of a market meltdown.
And all of a sudden, my unease evaporated. This was just like REAL (pre-retirement) LIFE! I’ve never had a “constant” budget, I’ve never had a “constant” salary, and I’ve never been able to predict what either would look like 6 months from now, let alone 15 years from now. So why pretend I had all the answers in retirement? VPW gives a boring, emotion free algorithm2 for doing the work, and is perfectly aligned with my boring, emotion-free algorithm for investing.
In future posts, I’ll talk a bit about how the mechanics of VPW work in practice with my own situation. NB: my first VPW-calculated retirement payment will be in January, 2025!
Interested readers should take a look at the many writings out there on “sequence of returns” risk. Basically, it’s the risk that the retiree gets really unlucky and suffers a big stock market meltdown at the very start of retirement, the worst possible time. ↩︎
As a recent and relatively young retiree, I get this question a lot. I’ll try to break down the significant steps in the journey….
It started with knowing how much I actually had saved and tracking it
When you have multiple accounts across multiple providers, this can be more difficult than it should be. The full list circa 5 years ago looked something like this:
So yeah, a lot of accounts to keep track of. Not to mention that the RRSPs and TFSAs still had active monthly contributions, so aside from stock market changes, the actual amount being invested kept changing, too.
I built a partly-automated Google Sheets spreadsheet to keep track of everything. The template I used is over here if you’re interested.
Knowing how much I had saved for my retirement allowed me to start charting progress, and even allowed me to build models with calendar predictions for hitting milestones.
Then, I started researching how others figured this out
A book that made a lot of sense to me at the time was Fred Vettese’s great book, “Retirement Income for Life“. This started me down the rabbit hole of the many, many forecasting tools out there. A small sample included:
These tools provided me with three very important pieces of information.
First, it forced me to think about what retirement might look like from a budget perspective. What will I spend per month/per year in retirement on housing, utilities, transportation, entertainment, medical expenses, charitable giving, clothes, subscriptions….the list can be very long.
Second, it also forced me to think about how income would work in retirement. Would I radically change what I was investing in? Would I still earn money part-time? How much would that bring in? For how long?
Third, every simulation I ran showed me that I was quite close to retiring. But honestly, the amount of effort I put into running the numbers through these free tools was not very high. So I was still not feeling very sure I really had a handle on things.
I paid for a professional assessment
One habit of mine is that unless I have money invested in something, I’m unlikely to follow through. I want to learn piano, so prepaying for a year of lessons provides me with the incentive to put in time at the keyboard every day without fail. The same held true for making a retirement plan. Until and unless I put some money against it, I was likely to keep putting off making a decision. So I started searching for an independent financial planner who specialized in retirement. Someone local to me was Retirement in View5 and with appointment booked and payment sent, I was on my way to have a pro look at what I had concocted. How did I pick this provider? I had a short list of must-haves:
They didn’t sell products, only services. Providers who sell products (e.g. mutual funds, ongoing subscriptions) are always going to have some degree of a conflict of interest. I wanted to pay for advice, not stuff I didn’t need.
They had professional designations (CFP is the usual one)
They seemed to have a clue about retirement
The process of producing a detailed plan forces you to put a stake in the ground with respect to the questions I raised in the previous section: what’s your net worth, what’s it invested in, what’s your budget, what’s your work plan and so on.
The net result of the assessment from two years ago was that I was in good shape to retire two years from now, in 2027. It also provided me with the specific, per account totals I should have in place in my retirement savings. Those totals became my obsession, since they represented “the number” I needed to retire. The assessment also gave me a realization that the mechanics of withdrawing from your holdings isn’t trivial if you’re also trying to reduce taxes (and who isn’t, right?). The big things I learned from my encounter were:
I had become accustomed to thinking of taxes in terms of marginal rates, i.e. the rate of tax you are paying for the last dollar you earn. For retirement, it makes a lot more sense to think of overall tax rates, meaning the average rate of tax you’re paying. And since RRIF/RRSP income is treated differently from capital gains income which is treated differently from dividend income, you can play with sequencing to have some control over your annual tax bill.
Start with drawing down your RRSP6 holdings. Otherwise, by the time you start collecting CPP and OAS, you’re going to be paying a lot of tax, and maybe foregoing the income-tested OAS.
Delay CPP and OAS as long as possible, since this income may be the only income you have that is inflation-adjusted. (ok, this wasn’t really new, just about every pundit out there recommends you do this)
Some Lingering Doubts, But Onward!
And so, in 2023, I resigned myself to retiring sometime in 2027 and continued doing what I was doing, namely tracking my retirement savings and contributing to TFSA and RRSP. I even built a little “number tracker” to show how close I was to the targets I had for retirement.
And then, in 2023 and 2024, the stock market had back-to-back banner years, and early in 2024, barring a total disaster, it was looking quite promising that I would hit “the number” in the next 6 months. What? The assessment I paid for showed quite clearly that I shouldn’t have hit that number until 2027!
I realized that ALL the modeling, ALL the assessments, ALL the forecasts are based on static assumptions. Static inflation. Static growth from your portfolio. Static spending budgets, adjusted for inflation. And while static assumptions certainly make modeling easier, real life does not work that way, proven, in my mind, by the fact that my portfolio was a full 2 years ahead where it was predicted to be 2 years prior. And sure, you could build models that account for all kinds of changes, but you’re at that point building guesses on guesses. It all left me feeling rather unsatisfied.
Regardless, at that point, I made the decision that I would “officially” retire at the end of 2024 as long as the numbers held up midway through 2024. And they did. And I did.
But there was still the nagging problem I felt. 2023 and 2024, were certainly to my advantage, but what about the next two years? And the ten years after that? What happens if the stock market were to take a large beating the week after I stopped collecting a paycheque? Would I have to stock up on cheap ramen as a fallback?
It was in the last 12 months or so I discovered the concept of VPW — variable percentage withdrawal. A concept that much better models the real world. More on that next time.
My provider (QTrade) treats US dollar and Canadian dollar accounts completely separately. Other providers blend them into one account. There are pluses and minuses for each. ↩︎
Totally funded by a fully documented and interest-paying spousal loan. A topic for another blog post, but it’s a way to split income with a spouse. ↩︎
In order to get automatic per paycheque contributions and automated matches, I had to use Manulife, a fate I would not wish upon my worst enemy. ↩︎
“Deferred Profit Sharing Plan”. Not sure how common this vehicle is anymore, but my employer included it as part of my total compensation. Their modest RRSP matching contributions had to go into this separate account which is for all intents and purposes an RRSP account, except for the fact that you cannot touch the funds until your employment is terminated. I’m 22 days into my retirement, and still waiting for my funds to arrive… ↩︎
The Money Engineer 