The $2M Canadian Retirement Plan: 5 Moves That Actually Matter (Without Leaving It to the CRA)

0:00 I really enjoy Taylor Gardner's videos. He did one recently on how he'd invest and withdraw $2 million in retirement. It was 90% global equities in Vanguard's VT fund, 10% cash buffer, withdrawals that grow over time. The math, you know, checks out. He just made the Bill Perkins Die With Zero video without saying so. Someone tagged me in this asking for the Canadian version. I did a short one. A lot of people asked me to slow down and do a longer one where I'd explain each piece. Fair, so here it is.

0:31 I'm Brian, CPA, over 15 years in finance. Take an Ontario couple, both 60, 1 and 1/2 million dollars in RRSPs, $300,000 in TFSA, $200,000 in non-register, paid off home, two kids. Like many Canadians, they just want to live well, watch the kids enjoy some of it, take some trips, not die with $3 million of unmelted retirement income fund sitting there for the CRA to collect half on. Starting with the portfolio cuz that's where people love to start anyways because Tyler did. He did VT 90% right, so one total world fund, 10% in cash. The Canadian version is just as boring, really. The all-in-one ticker for your risk tolerance, so VEQT if you're all equity could make sense here in this scenario.

1:16 XGRO at 80/20 split of equity to bonds, VBAL at 60/40 split, XIC for Canada, a US fund, an international fund, a bond fund. You know, it's broad, cheap, you know, boring beats the clever version here. Here's where a lot of Canadians might go sideways. They load the TFSA with a dividend fund like VDY chasing tax-free income stream. Felix at PWL Capital did a whole body of work on why that's backwards. Dividends are irrelevant to whether a company is worth owning and a yield screen like VDY is it's a bit of a concentrated bet in banks and pipelines dressed up as income. Now, does that mean it's bad and doesn't work at all? Yeah, it could totally work for many people, but you don't need dividends for cash flow. You can sell what you need, make your own dividends. A sold share and a dividend spend the exact same. If going Canadian, especially in non-registered, XIC for your Canadian slice and think in total return always, not just yield. Let's think about asset allocation now. So, where each piece goes and I'll be straight with you. The research puts the benefit of account location at 2/10 of a percent per year. Real small. If holding an all-in-one in every single account is what keeps you invested and keeps it simple, do exactly that. You don't need to do the rest of it. If you like holding each and optimizing and rebalancing, here's the logic. So, your highest growth equities go into the TFSA. It's growth tax-free forever and, you know, every dollar in there is is yours and passes to the next generation tax-free as well. Canadian ex equity, like XIC, sits there cleanly. There's no foreign withholding tax. US can also go great in there, but bonds and US equities can go directly in your RRSP.

3:02 Bonds because they're pretty tax inefficient and the RRSP hides them in that. US stocks because the RRSP is exempt from US dividend withholding tax under the treaty as long as you hold the stock or ETF, which is holding the actual stock itself, directly. The non-registered account gets the most tax-friendly stuff. So, Canadian eligible dividends and capital gains or growth equity, again, taxed lightly here. Have to kind of measure the mix after tax because RRSP technically isn't all yours. The CRA owns a slice of it.

3:34 So, a dollar of TFSA is actually worth more than a dollar of RRSP. The cash wedge, maybe it's not fully optimized, but sometimes not being fully optimized and doing what actually feels comfortable and gives you peace of mind is huge. It's one option for sequence of returns risk and it's behavioral cushion. So, it's not a return booster. A year or two of span, maybe three, is plenty if your floor is already strong. A big permanent pile of cash is just a drag on your overall portfolio. Same portfolio, three accounts, they all have their own job, but don't let the location tail wag the savings dog.

4:11 Five moves somewhat change the outcome, and none of them are that exotic here, of course. So, the tax difference between them is smaller than you'd guess, which I'll prove out at the end. Move one, always build the floor. CPP and OAS, count that for both people. The research points to a barbell, so you take them early or defer to 70. The middle sometimes is a worst outcome. For a healthy couple who can fund the gap, deferring wins plus 42% on CPP, plus 36% on OAS, index for life. The bump in percentage return isn't necessarily just the main reason. Deferring keeps your taxable income low through your 60s, which is exactly the room or space that you need to melt down that RRSP. So, you lower your tax bracket now, and you lock in more guaranteed income later in life.

4:59 National Institute on Aging has shown for years that Canadian takes CPP, Canadians take CPP too early. Under 5% actually wait till 70. So, if you're both maxed, that 70 floor is around $75,000 a year, which is pretty wild. Most people aren't maxed, of course, so run your own number. The logic doesn't change. When not to defer is poor health, you're single with no dependents, high interest debt maybe, or you just cannot fund your gap any other way. So, taking it earlier and sleeping fine is totally reasonable. Move two, as always, is kind of going to be to melt down the RRSP, and the shape of it matters more than the size. So, go material early for this couple, for this situation. The bridge year is 65 to 70.

5:45 You've got no CPP and OAS in this case. There's a ton of room in those low tax brackets, so fill it up. Put enough of the RRSPs that each of you lands around, let's say even a hundred grand of taxable income. Federal is about 14% up to about 58,000. Then you can ease back on the throttle in the 70s once CPP and OAS switch on. Your own pension starts filling up those lower tax brackets, so you ease off the RRSP or RRIF and let it ride. So, what do you do with the cash that you pulled? Because there's going to be extra here for them.

6:17 Stuff the TFSA for both of them up to their limit each year. Top up the non-register with the rest. Maybe give some to the kids if you've got more than you'll use. I'll do a separate video on that, but looking at a down payment for a mortgage, putting it in their TFSA early on in their career. There's other options as well. But for them, pulling heavier in those bridge years and those low taxable income years, lighter after 70, you're not draining it to zero. You may want to keep the tax shelter in place. And there's two of them, so a death happens, it's not going to be taxed on the that initial death. And the numbers kind of support this behind on all the math. You can watch the bridge years draws come out, the TFSA fill, the RRIF settle at a size where the forced minimums don't really end up hurting them. Move three is pension income splitting, which seems obvious obviously, but a lot of people don't or can't perceive that benefit of what that gives them both. So, from 65, the RRIF income qualifies for this. Form T1032 every year up to half of your eligible pension income move to your spouse's return. What an advantage for couples. I'll do a singles video later cuz this is massive here. But you split that melt 50/50, or really what gets you both into the lowest tax bracket possible. Again, let's say each one shows maybe a hundred grand on their own return, so two sets of low tax brackets instead of one here to melt down that RRSP.

7:40 It's an amazing opportunity. Then you get your credit, too. The pension income tax credit gives you each a federal tax credit on the first $2,000 of eligible pension income. There's the age credit and a full basic personal amount on both of their tax returns, too. These two both sit well under that OAS clawback threshold when RRIF minimums start. Part of that reason is because they've managed made a plan deferred OAS in this case, drew down early. This is the cleanest tax arbitrage in the Canadian system, and a lot of people don't know or find out about it until it's too late. Move four, maybe don't touch a TFSA. Obviously, you can, it's your money, but it compounds tax-free as long as you both live. Fill it with your highest growth holdings. Broad Canadian equity like XIU again sits here efficiently, no foreign withholding tax.

8:27 Or international or US is totally fine, too, as long as it's growth-oriented. Name your spouse successor holder, not just beneficiary. The successor holder means the account becomes theirs intact the day you die. That's only eligible for a spouse or common law, so same room, no probate. Also, for this couple that probably wants to think about managing an estate, maybe not doing life insurance, this is one of their best options to do that generational wealth transfer tax-free. So, max out TFSA.

8:56 Also note, Quebec is the exception here, so there's no designation on TFSAs there. So, you direct it through your will. Just be careful or mindful of that. Talk to your notaire. Move five is spend that meltdown. The hardest move on the list, is just kind of the easy part of sticking to the plan. David Blanchett and Morningstar found real retirement spending falls 1 to 2% a year through your 70s. So, it's not flat, it actually drifts down. It doesn't quite offset with inflation, but you could kind of think of it like that. Bill Perkins, who wrote Die with Zero, calls it the memory dividend. A trip with the family at 65 is worth so much more than a RRIF withdrawal at 85. It's the same dollars, totally different life. Cash gifts to adult children are tax-free in Canada, fund the grandkids' RESPs, and the government hands you an extra 20% for doing it along the way, and you feel good about it. The down payment now, maybe look at that while you're around to see them in the actual house.

9:56 They don't need the inheritance at 60. Plus, doing all the probate and estate, that it's a challenge. So, here's a piece that nobody puts on a slide is what happens when the first one of you dies. The RRIF rolls straight to the survivor, name your spouse a successor annuitant, and the account just continues on, tax-deferred, there's nothing that triggers on that first death. And that's when you kind of turn on the jets for the RRIF withdrawals and get more aggressive. So, survivor is a single filer now, so you've got less years before that second death to draw down that RRIF hard and to keep it off that final return going to your kids or beneficiaries.

10:35 Melt gently while you're both alive, keep the tax structure alive. Obviously, income split as much as possible during your 60s, but melt hard after that first death. You almost never want it all gone though at 71. And why you build a floor at all? Because a real risk isn't dying too young, it's living too long, actually. So, for a 65-year-old Canadian couple, there's roughly a 50% chance one of you lives to see your 90s. And the longer you live, the longer you're likely going to keep on living statistically. The floor at 70 is one thing that keeps paying no matter how long you live, and no matter what the market does in your 80s, it's really quite nice to have the longer you live.

11:16 So, if that still keeps you up at night, you have two more levers to think about to de-risk living too long. You have the ALDA, which you can carve a hundred and eighty thousand dollars out of your RRIF and turn it into a guaranteed income that starts at 85, longevity insurance for that tail end. You can also do a plain annuity earlier to build yourself a private pension. Just know that annuity pays a commission and index funds don't, which is why one gets pushed and the other one doesn't. You also have the reverse mortgage is a real tool, but that would be a last lever if everything kind of went wrong under these circumstances.

11:52 None of this is truly hard math, per se. One of the hardest parts is switching from savings mode to the spending mode. Thaler called it mental accounting. You spend 40 years filling up your RRSP, your TFSA, non-reg, watching it shrink on purpose feels scary and feels kind of like a failure even when it's a plan working exactly as it was designed. Dying with the mentality of zero, you don't have to actually draw it down to zero. It's not reckless, it's actually permission. The funnier kind of honest part of this is I ran the couple through my planner at both ways of melting or kind of doing nothing, and the strategy saves them about $200,000 in lifetime income tax. So, it's around $400,000 once you count that terminal tax on the retirement income fund at the second death. On a $4 million estate, super real, but it's, you know, maybe 10%, so it's not the fortune some headlines promise. But again, I want $200,000, so it's not nothing. And notice where it kind of lives is most of the savings is at terminal riff tax.

12:56 It's not really your income tax along the way. You're not really beating CRA in this game. You're shrinking the riff before it gets deemed disposed and spreading it out over time. The biggest lever's the estate and your own goals, too, of what you want to optimize or maximize for. Drawing the RRSP down, stuffing the TFSA, maybe keeping it simple, spend more in the years you can actually use it and your knees work well. The CRA was always going to be the biggest competing beneficiary on that riff, so it's better to spend it with the people you can and the people you love while you can. And a real question for this couple to think about or sit with is not how do I pay the least tax, it's what do I want this money to do?

13:38 Maybe it's leaving more to the kids. Maybe it's spending more, taking trips now. Maybe it's helping your kids sooner and stop guarding a number you'll never get to use yourself. And there's no wrong decision. The best decision is the one that works for them. It's optimizing too hard, you'll spend your 60s running spreadsheets instead of living. The point was never a perfect plan. It's one that works well for that. A good plan you follow beats a perfect one that you don't every time. Optimized and happy are not the same thing despite all the podcast telling you otherwise. So, that's the plan. Defer the pension, melt gently and split it maybe a little more aggressively up front. And if someone dies early, maybe melt melting the rest of it a little bit more aggressively, filling the TFSA, maybe leaving it alone, maybe using it for a roof in a weird year. Spend on trips you actually enjoy. Post the full breakdown of the planner and the walk-through, Excel and Word guide to go along with this. Link through the for the community is through calmmoneycoach.ca.

14:36 Please like and follow, and please let me know other scenarios you want me to break down like this.