Physician Nearing Retirement Wonders Which Assets to Spend First?
Cristina has always lived well within her means and has a considerable RSP balance as well as a fully funded TFSA, a small investment account as well as significant assets in her corporation and a partner with similar assets. They intend to continue their quiet lives in retirement perhaps sprinkling some of their good fortune on their six grandchildren.
Review of her finances show that further contributions by Cristina or her spouse to their RSPS may not be an ideal choice as they could comfortably live on the present combined RSP assets alone for at least 25 years. Investments within RSP accounts make sense as they generate a tax deduction and grow tax free, but it is essential to understand that withdrawals are taxed as income at your marginal rate. Larger withdrawals particularly if you have sources of income other than from your RSPS can result in a higher tax bill.
Instead of waiting until the mandatory age of 72 to convert her RSP to a RIF (retirement income fund), Cristina and her partner did so at age 65 and now live solely on that income. She is still working, but plans to leave that income in her corporation and no longer pay herself a salary or dividends from her corporation unless required for some major expense not covered by the income from the RIFs. The addition of CPP (Canada Pension Plan) in her 70s will have to be considered, but she suspects that she and her partner will not qualify for OAS (Old Age Security) payments . If they eventually deplete their RIFs, they would then draw funds from her investment account and then corporate dividends. Based on current estimates, even if she lives well into her nineties, it is unlikely she will ever spend her TFSA which she can then gift tax free to whomever she wishes.
KEY CONCEPTS:
RSPs are a great investment option, but you can go too far.
Figure out what you require, add a cushion and then relax.
Money should not be an end in itself, but just a tool to provide options