Withdrawing RRSP Early Can Save You THOUSANDS (RRSP Meltdown Strategy)

hi my name's adam welcome to the channel thanks for joining us today today we're going to talk about how to do an rrsp meltdown and what that is now there's lots of videos on youtube that talk about rsp meltdown now we have a bit of a different strategy we don't think that you have to borrow money to melt down your rsp we think that there's a much more simple way to do it so i want to walk through that process with you in very simple terms and we're going to go through our financial planning software that we use with our clients to really break it down show you the benefits of it and really in this case we're going to show you how we added 88 000 of income in retirement for this single person with not a whole lot of savings in a very simple manner so let's go through that and break it down in different scenarios quickly before we jump into the content i just want to remind everyone of our master class so if you haven't checked out our master class we'll put a link below what our master classes is basically financial education everything that you did not learn in high school post-secondary school or even in life throat life so we cover everything from budgeting to savings to investing real estate mortgages government benefits how to retire the difference between a financial plan and a retirement plan an estate plan um so all these things we dive deep into there's over 100 videos that i put together uh content downloads all that so click the link below check that out see if that's right fit for you if you're looking to kind of enhance or up your game as far as financial literacy just learn more information and not sure where to go for trusted information our master class is a spot for you so check that out so as i mentioned in today's video we're actually going to use the financial planning software that we use for our clients day in and day out so hopefully it'll give you a good idea of you know how a financial plan should be built out kind of the numbers the detail that you should be getting on your end if you're working with a financial planner here's the type of detail now we've kept this scenario quite simple so it's a single female 59 years old turning 60 in january of 2022 okay so about six months away from now she's turning 60 and planning to retire okay so she's earned 60 000 a year and has worked her whole life okay so she has we've assumed 90 max on the um cpp maximum on the old age security and she's been saving 10 of her 60 000 income for 30 years so she has a bit of an rsp no tfsa so she's basically been putting 10 percent of her income into an rrsp to save a bit of money on tax and to build a bit of a retirement plan so that's nicole's notes of what we're going through today the reason i kept it kind of simple and i will say we put life expectancy to 87 because often i'll use examples that we you know we we will always plant a 95 or even 100 if someone will request it but always 95 and everyone fights back to me in the comments saying but ab no one lives till 95 so why do that so in this scenario again retirement at 60 and i've actually put her death at 87 which is average life expectancy again i know i'm gonna get comments saying it's 81.82 depending where you look but i put it at 87 i think that's more realistic maybe um i want to make this as realistic as possible um so that when you look at those numbers you're like oh no this actually does make sense it does that up because it does a lot of you fight me on rated returns and life expectancy online and all those things do make a bit of a change um in the end game but the reality is these strategies work for 95 of you watching these videos so you know tune in watch how we do this process and and i almost guarantee you you can apply it to your retirement plan moving forward so let's jump into scenario number one now scenario number one is um again retiring at 60 and she's taking her cpp at 60. okay so the the main differences between the three scenarios we're gonna break down is scenario one is cpp at 60 that's cpp at 65 cpp at 70. now if she retires at 60 and delays her cpp that means we need to take more out of the rsp earlier i.e the rsp meltdown we want to draw that out earlier deregistered earlier so let's look at scenario one and i know there's lots of numbers on the screen here um so i want to break it down but this is our financial planning software again not too much detail in here because it's a pretty simple single person uh with really one account in the rsp but let's look at this so as you can see here if i zoom in here in real dollars after tax income she's going to have 32 219 every single year in her pocket in today's dollars okay that number beside the 32 219 so the 32 863 33 520 that's nominal dollars okay so that's not adjusted for inflation but that's the actual dollar amount she'll have in her pocket which is equivalent in today's dollars of 32 219 so as you plan for retirement make sure that your income stream that goes over time is also just for inflation because everything we buy next year is going to be a little bit more expensive than what we buy this year so you need to make sure your income adjusts accordingly okay um so if we back out of here what i want to look at next is her rrsp okay so if i zoom into her rrsp here we will see that it's a fairly consistent a draw out of here so 29 29 30 30 30. so as you can see there it's a very consistent draw out of her rrsp right it's it's pretty level now her tax rates again pretty level as well earlier on it's a little bit higher and then it drops off to seven percent okay so again it averages you know from 65 on about that seven percent through lifetime now her after um her estate before tax and then tax on estate again we break that down as well so if she said hey look at him if i all of a sudden die at 70 what does my estate look like and i could tell her look you're going to have an estate of 318 000 and because most of it is in your rrsp you're going to pay a fair amount of tax 135 000 so that's the balance so you have just under 200 000 left in your estate for your beneficiaries for charity whoever you're passing that money to okay so again that's important as well especially as you're planning as a single because when you pass away with an rsp you can't pass that on to a supposed commonwealth partner that's going to be taxed at your marginal tax rate your at your you know added your income for that year so just be aware of that okay so if you die early with a large rrsp and you don't have a spouse or common law partner it's essentially close to half of it is going to go to the government okay it's added to your income in the year of death and then taxed accordingly based on the tax rates in your province okay so be aware of that okay so just highlighting this again annual income thirty two thousand two and nine she's gonna pay total tax of 105 185 okay and i'm gonna highlight comparing all three scenarios at the end of this video so stay tuned for that and i'll show you the breakdown of all them because we're going to increase her income um both annually and total income but her taxes increase as well so although the rrsp meltdown is a great strategy to increase your income it can result in a bit more tax but again what's the end goal is it to pay less tax and get less income or get more income even if we have to pay a little bit more tax obviously it's a fine balance between the two but we want to maximize strategy and that means how much money can we get in your pocket based on the assets you've built up okay um so again net estate at 80 if she was passed away early is 118 000. her average tax rate is just over 7 and the total income she's gonna draw is 1.2 million dollars okay so if we jump to the second scenario and here you'll see we have cpp starting at 65 along with the oas okay so instead of at 60 we're now starting it at 65. okay her income has jumped a little bit right it was 32 219 we're now looking at 33 828 okay so as you can see here income jumped a bit which means that the nominal dollar jumped a bit so she's collecting more money okay which is obviously important you know as we put a retirement plan together for a client we want to make sure that we're maximizing that income now one thing to note here right so if our income is increasing but we're not taking any cpp for the first five years where is the income coming from well it's coming from your rrsp again an rrsp meltdown we're melting down that rsp earlier okay so instead of a kind of a level 25 to 30 ish you can see earlier on uh she's pulling out about 40 000 up to 42 000 for the first five years okay and then it drops to 20. okay so we're deregistering her um that money that rsp money a lot earlier okay and then basically by delaying the cpp to 65 it's going to be a higher cpp number which gives us that average higher total after tax in your pocket income every single year again in the scenario till 87 showed 84 here we've run it right till 87 okay average tax rate goes from 7.14 to 7.85 okay so that's important to note as well right she's collecting more money but she's paying a bit more tax on average okay so her average tax rate again is at 7.85 now it was 7.14 so she is paying a bit more tax but again single lady entering retirement she wants to get the most after-tax income that she can get in her pocket again if we're paying more tax but we're still getting more after tax money in our pocket that's a big win okay so again to highlight her income again goes to 33 000 total taxes of 120. estate drops a bit at 80 98 000 again her goal in this scenario is to maximize income so estate is the secondary product of the overall plan again average tax rate jumped a bit but total nominal dollars of total dollars in her pocket after tax jumped to almost 1.3 million dollars now let's go through the third scenario okay now this is a scenario that we would imply enroll at most the time for our clients again there's situations that would tell us otherwise life expectancy things like that but in this scenario you'll see her income is now jumped to 34 000 how did we do that we haven't added more to her savings okay she retired at 60 with a set amount of savings we have not added to that but what we've done is we've delayed cpp now until 70. and as you can see instead of just collecting about 15 000 she's now up to 23 000 per year from cpp that's massive so where does the income come from hopefully you can answer that question by now is coming from your rsp so all we're doing is doing the meltdown for a longer period of time okay so as we look at that you can see the rsp meltdown instead of for five years we're now running it for almost 10 years okay um when her oas kicks in the cpp meltdown or the rsp meltdown excuse me um does pull back a little bit because she has oas income we could delay that till 72. it bumps it a little bit not a whole lot um we like to do cpps70 oas at 65 usually there's a bigger benefit to delay cpp than oas so that's usually the strategy that we'll use but as you can see rsp meltdown earlier it means that she has less rsp later if she dies earlier yes there's less in her state but there's less going to tax so you know that's that's one thing we looked at but at the end of the day we've been able to increase our income from you know thirty two thousand to forty one thousand or thirty four thousand dollars so quite substantial so here's a summary this is what i wanna break down is the difference between each scenario okay so again scenario number one is retiring at 60 cpp at 60 oas is 65 which is you know kind of the default a lot of you're going to fall to okay so as you're watching this video a lot of you are going to default to that option hey i'm retiring at 60 i've paid into my cpp forever i'm just going to take it i just want the money and look i've said this in many videos before i get that concept but at the end of the day you need to break down your numbers and make sure you're maximizing your income okay so in this scenario you'll see like you're losing about 2 000 leaving on the table about 2 000 after tax in your pocket for you know 30 or 27 years in this scenario so that's a massive amount of income so make sure you don't jump to conclusions make sure that you put a proper plan together because again you know whether you hire a financial planner or you have a financial planner already that can put a plan together for you spending a little bit of money to put together a proper plan to put in this case almost a hundred thousand dollars back in your pocket that makes a lot of sense to me so make sure you have a proper plan that you can roll out um and follow accordingly so um as you can see here uh again number one cpp at 60 annual income 32 000. okay option number two or scenario two here is cpps65 number three is cpp at 70. you can see the increase in income okay we're about 2300. 23.50 of extra income and that's after tax adjust it for inflation so as you can see down total cash in your pocket and scenario 1 is 1.2 million we're up to 1.3 million so almost 100 000 of more income okay after tax income um because a lot of you can say well adam you're paying seven percent tax here in eight here you're paying more tax that is true you're paying more tax total taxes paid goes from 105 to 127 we're paying 22 000 more in tax in retirement but you need to focus on after tax in your pocket if we're still collecting more money in our pocket after tax that's a win okay so again almost a hundred thousand dollars more in tax for retirement now i can say this if you're a 59 year old uh female male doesn't matter maybe you're a married couple and this is close to your scenario and you can say well adam i was going to take cpp at 60. if i wait till 70 you're going to give me an extra 2 300 every single year for the life of my retirement that is correct that's how this process works so again gives you a bit of a snapshot in how an rsp meltdown works um drawing down your rsp much earlier can be very beneficial for most of you um you know most of you haven't kind of broken this down of rsp early cpp later the other nice thing about this is by delaying cpp what you're doing is locking in guaranteed income at a higher rate for longer okay your rrsp when it's done is done if you take it all out or the market crashes or whatever it is it's gone with your cpp if you delay it and start with a higher number that higher number runs for your lifetime okay that's a guaranteed income and i know a lot of you yeah leave the comments below cpp's not guaranteed it's running out of money that's not the case do your research it's funded for 71 plus the years going forward so do your research before you leave a comment because it is well well funded um it's actually performed quite well as well as far as performance goes so check your data and then leave the comment but cpps will be there forever okay for you so you know if you can delay cpp and guarantee a larger amount if your rsp runs out or whatever it is you have a guaranteed almost like a pension plan for life right so that's another benefit of delaying your cpp and kind of melting down that rrsp earlier again a state after taxes is another thing that we looked at in this video again having less money if you if you pull out your rsp earlier you're going to have less if you die earlier but less money is going to the government as well so it's kind of 50 50 but again you're focusing on income this is a great strategy to use so thanks so much for joining us in this video again gives you a glimpse of what an rsp meltdown is the benefits of it again this is a very very simple plan as far as that goes um you're breaking that down obviously it gets more complex with rental properties and more accounts and all that kind of stuff but again we run the same kind of concepts for most of our clients and it gives similar numbers so you know the more complex your world is probably the bigger the number will actually be so you know make sure as you enter into retirement you have a clear plan because just small tweaks again this just a small tweak bumping cpp in this scenario gave an extra almost hundred thousand dollars through lifetime of retirement after tax in her pocket which of course is substantial so you know make sure you have a plan in place before you enter retirement it will add money in your pocket even if that means spending a little bit of money if you want to find more about our financial planning services we'll put a link below it's parallelwealth.com slash ffs fee for service so you can check that out learn more about our fee for service or find a financial planner in your area that can help you out so thanks for joining us in this video we'll see in the next one you

Channel: Parallel Wealth

Views: 217,096

Keywords: Financial Planning, Retirement Planning, Retirement, Tax Planning, Investing, Savings, RRSP, TFSA, Wealth, Parallel Wealth, rrsp meltdown, rrsp meltdown strategy, rrsp withdrawals, when to withdraw from rrsp

Id: bi1SdCGpoZw

Length: 16min 54sec (1014 seconds)

Published: Mon Jul 26 2021