Q: We seem to be in a financial dilemma. Different perspectives on RRSPs at a time when my husband is retired and I am going to retire. He has a pension, I do not. The accountant is of the opinion that we should start converting our RRSP monies into cash, which is what I anticipated we would do upon retirement. Our financial advisor [feels] that we should deplete our savings completely and then turn to our RRSP fund at RRIF age [of 71].
Where do I turn to get solid financial advice as I feel that we need an investment advisor however I am uncertain whose interests are being looked after.
A: It’s tough making financial decisions when you get conflicting opinions. But it’s not uncommon. One of the problems with generic or rule of thumb advice, however, is that it doesn’t necessarily apply to you, no matter who is giving it. So let’s focus in on some of the specifics in your case, Lea.
First off, assuming your husband’s pension is a defined benefit pension plan, he’s eligible to split up to 50% of his pension income with you on his tax return. This means that you don’t necessarily need to worry about withdrawing from your RRSP simply because he has a pension—you can equalize your incomes retroactively by splitting his pension income between the two of you when you file your taxes each year.
I think, Lea, the question of whether you should withdraw from your RRSP is a much broader one. Do you need the cash flow, for example? Beyond that, I like to consider whether early RRSP withdrawals allow someone to pay less total tax over their lives than deferring withdrawals until 71. Sometimes, if you defer your RRSP withdrawals, the income you draw from your RRSP may put you into a higher tax bracket. Seniors whose income may exceed $70,000 need to be particularly mindful given their RRSP withdrawals may cause a clawback of their Old Age Security pension, which acts like an extra 15% tax on income.
Early RRSP withdrawals may also allow you to continue to contribute or draw down less on your TFSA account and build tax-free rather than tax-deferred (RRSP) income that will ultimately be taxable.
However, there is not a one-size-fits all answer to when early RRSP withdrawals make sense, Lea. I think your accountant and investment advisor are both giving generic advice or opinions from the sounds of it, potentially without any specific perspective.
A retirement plan is a way that a retiree or soon-to-be-retiree can determine the best way to draw down on their retirement assets, how long they will last, how much they can afford to spend, what rate of return they need on their investments and so on. Unless your accountant or investment advisor has prepared a retirement plan for you, they’re both guessing as to when you should start your RRSP withdrawals.
No doubt your investment advisor has a conflict of interest to want the RRSP they manage left intact as long as possible. Unfortunately, investment advisors don’t always give the best financial advice anyway. Their primary skill is investments. Financial planning and investments require different skills. See if they have an in-house financial planner who can validate their recommendation, Lea.
Some accountants and many investment advisors can produce simple retirement plans to give you a rough sense of what the right “answers” are. A professional financial planner may give you a more thorough and unbiased assessment.
If a financial professional gives you an opinion, don’t be afraid to ask them how they validated that opinion. And while there are not a lot of financial decisions that are outright right or wrong, there is always more right and less wrong.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.