Stop Overcomplicating Your Retirement (Do This Instead) | Retirement Unpacked Ep 050

Retirement Planning Software & “AI” (DIY)

Presenters’ takeaways

• Two Canadian DIY retirement planning software tools were mentioned:
  • Optimal
  • Advice (spelled with two I’s)
• Caution: software and “AI” can be a good starting point, but may contain serious jurisdiction/eligibility errors.
  • Example given: incorrect unlocking guidance for a locked-in pension.
• Recommendation:
  • Play around to get a starting point, but don’t assume it replaces a professional review.
  • Analogy: tools vs. a mechanic.

Other notes

• Some retirement planning software is only available to licensed financial advisors/planners, limiting consumer options.
• Estimated number of Canadian tools: ~10–20.

Disclosures

• The presenters state they receive no compensation from Advice or Optimal (as discussed).

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OAS Clawback Management (T1213 / T1)

Framework / method discussed

• Use Form T1213 (OAS) to request that OAS not be clawed back, based on expected future income rather than CRA using past tax returns.

Example

• Current income: $150,000/year
• Turning 65 and retiring at 67
• Goal: avoid pension recovery tax / OAS clawback during the retirement transition.

Timing / cautions

• Trade-off: the paperwork is labor-intensive.
• Possible outcomes: delays of about 6–12 months (as described by Adam).
• If you only need relief for one year, the delay may make the process less worthwhile.
• They emphasize:
  • If you still get clawback during the year, you may receive it back later via adjustments/refunds (conceptually described).
  • They “research but doubt” there is interest on late/withheld OAS—essentially no interest-free loan from CRA.

Explicit recommendation threshold

• If you have full clawback that you “should be getting none,” file it.
• If you have only small clawback (e.g., 5–10%) and it won’t change your world, they suggest not going through the process personally.

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Extended Health + Dental in Retirement (Cost Analysis)

Decision framework

• Do a cost analysis:
  • Compare your typical annual spend vs. the plan cost.
  • Consider that coverage may be partially capped (examples: might return only 70–80% at some amounts).
• “Peace of mind” is valid for insurance, but not always economically optimal.

Provincial program referenced

• BC Fair Pharmacare was mentioned as an additional layer once spending thresholds are met.

New dental coverage mentioned

• Dental eligibility is described as household-income based and typically geared toward basic services (e.g., cleanings), so it may not replace broader health coverage.

Additional cautions

• Lifetime caps (example mentioned): clients may have only ~$250,000 lifetime max, with $150k–$200k already used, leaving little remaining.
• Premiums may increase over time (they cite at least increases “every five years” around birthdays, and possibly with claim trends).
• They discuss commission-based selling (Sun Life context) and recommend weighing insurance vs. self-insuring.

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Dividend Reinvestment Plans (DRIP): Is It a “Trade”?

• Answer: DRIP is not treated like selling/trading; it’s a distribution reinvested into the same stock.
• Rationale given:
  • The dividend is paid out by the company; DRIP reinvests it automatically.
  • DRIP originally helped firms avoid trading fees and simplified back-end processing.
• Follow-up:
  • Cash from dividends in an RRSP typically can’t be directed into a RIFF via an automatic checkbox.
  • They advise a manual transfer.

Note: no tickers were provided, but dividend-paying shares/stocks were discussed.

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RRSP → RIFF (RRIF): Simplifying Withdrawals & Minimums

Key rules / recommendations

• Converting RRSP to RIFF:
  • Can be partial.
  • Example: if RRSP is $100,000, but you only need $10,000 next year, transfer only $10,000 to the RIFF.
• For many people, converting the whole RRSP is preferred to simplify the “withdrawal stage.”

Dividend cash handling

• Dividends that accumulate as cash in an RRSP can be:
  • Left to accumulate, with periodic manual transfers into the RIFF, or
  • Moved periodically during the year.

Minimum withdrawal calculation

• RIFF application asks whether the minimum amount is based on:
  • Your age or your spouse’s age.
• Tip: if trying to reduce the risk of taking too little, they suggest using the younger spouse’s age (protects the low-end side).
  • They also believe most people withdraw more than the minimum anyway.

Caution

• They emphasize “withdrawal stage” complexity and note that edge cases (e.g., returning to work) may require additional planning.

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Defined Benefit Pensions + Retirement Accounts (Tax Layering)

Core concept

• A defined benefit (DB) pension functions as a taxable income source with less control once election choices are made (e.g., joint survivor, indexing/bridge options).
• Their framing:
  • The DB pension creates a “natural” base tax situation.
  • RRSP/RRIF withdrawals (and other taxable events) sit “on top.”

Client planning theme

• Apply the same OAS/CPP/withdrawal timing logic, even with DB pensions.

Example

• Couple ages 42 and 43, target retirement at 55
• DB pension example: $50,000 each
• Expected RRSP at retirement: $120,000
• Recommendation: build RRSPs fairly level between spouses to support income splitting for ~10 years if one spouse might otherwise have $0 in RRSP.

CPP deferral (math + emotional choice)

• Defer CPP decisions involve mathematical vs. emotional considerations (comfort with delaying income).
• If informed and someone still chooses earlier CPP, that’s acceptable.
  • Analogy: “Ferrari vs economical car.”

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CPP General Dropout (How It Works / Calculators)

• Clarification: CPP benefit calculations use “dropout” periods based on contributory periods.
  • They discuss dropout years tied to a percentage of years contributed.
• Example math rough point: 17% appears in one dropout calculation scenario (context: contributory period count).
• Tool recommendation: use the PWL calculator.
  • Input contribution history; it visually shows dropout years and non-contributory periods.
• “Best-year count” confusion:
  • They reference “best 38/39 years,” stating it’s likely 39 and maxes after sufficient max contributions.

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Retirement Income Planning: From “Cash Wedge” to “Income Wedge”

Key methodology / framework

• They argue “cash wedge” language confuses people.
• It should be income wedge: money intended to fund withdrawals for the next 3–5 years (or longer, depending on investor preferences).
• Protect income rather than leaving idle cash.

Investment approach described

• In their retirement income program, the income is typically funded via:
  • Dividends
  • Individual bonds, including corporate bonds
  • Not bond funds
• Goal: income should not be tightly linked to stock market price drops.
• Rationale:
  • Markets can drop 20–30% (they emphasize as very likely at least once in retirement), so the wedge must keep producing.

Performance / risk rationale

• They cite stress periods:
  • 2008
  • 2020
• Concern:
  • Retirees withdrawing from volatile portfolios during downturns can permanently reduce portfolio longevity (“shortened withdrawal length”).
• Second caution:
  • If portfolios fall more than expected, it may indicate the asset mix is too volatile for the retiree’s risk tolerance.

Cash interest rate context

• Cash yields around 1–2% “right now,” making idle cash less attractive compared with historical GICs around 4–6%.

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End-of-Year Tax Planning & Market Timing (Calendar-Year Mechanics)

Year-end planning points

• When plans are delivered mid-year (Nov–Feb vs later), cash-flow staging differs because of the pro-rated portion of the year remaining.
• Example scenario:
  • Client has a large portion in non-registered stock.
  • Divesting would trigger capital gains.

Recommendation

• Even if retired, review in the last quarter:
  • What’s already been done this calendar year
  • Whether to trigger additional withdrawals
  • How to manage capital gains/loss harvesting by Dec 31

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DRIP / RIFF / Withdrawal “Stage Nightmare” Simplification

• General directive:
  • Emphasize simplifying retirement.
  • Don’t “cut corners,” but also don’t overcomplicate.
• They criticize a bad planning example:
  • Incorrect rental property transition leading to a large CRA tax bill (~$300,000).

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RRSP/TFSA “CRA Return” vs Tax Refund Psychology

• They discuss maximizing TFSA and using RRSP refunds as a behavioral tool:
  • “Refund goes into TFSA.”
• They treat RRSP contributions and refunds as separate “transactions,” but psychologically routing the refund into TFSA can help people save rather than spend.

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Non-Registered Capital Gains: Sell Before Death vs Leave to the Estate

Conceptual guidance

• In general, for a non-registered account:
  • They suggest you typically leave it for the estate to handle, since death timing is unpredictable.

Benefit caution

• They caution that realizing additional gains pre-death could reduce income-tested benefits (e.g., care home or certain grants).

RRSP/RIFF distinction

• They warn: don’t die with a big RRSP.
  • Their framing: an RRSP at death is “not a good tax plan” (because RRSP withdrawals are fully taxable).

Capital gain size caution

• If unrealized gains are large (example: $100,000 unrealized gains ⇒ half typically becomes taxable as capital gains), they suggest considering whether to manage it—otherwise it can behave “like RRSP/RIFF” in their framing.

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Disclosures / Disclaimers

• The presenters close by noting:
  • The ideas are general and may not fit individual circumstances.
  • Always consult a qualified financial planner before making decisions.

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Instruments / Account Types Explicitly Mentioned

• Accounts: RRSP, RIFF / RRIF, TFSA, non-registered account
• Government / retirement programs (Canada): OAS, CPP
• Government forms: T1213 (OAS) and references to T1 (as described)
• Instruments: dividends, individual bonds (including corporate bonds), bond funds, GICs
• Insurance context: Blue Cross, Sun Life, Manulife, travel insurance, dental coverage
• Pension types: defined benefit pensions, locked-in pensions
• CPP concept: CPP dropout (calculation concept)

Tickers: none mentioned.

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Step-by-Step / Framework Elements Captured

Retirement software usage (DIY)

• Use DIY tools (Optimal/Advice) for a starting point.
• Review output for jurisdiction-specific errors (e.g., locked-in pension rules).
• Don’t replace a human/planner review.

OAS clawback reduction using T1213

• Estimate expected future taxable income after retirement.
• Complete T1213 with expected ongoing income/adjustments.
• File early enough that delays don’t erase the benefit.
• Especially relevant when expecting full clawback incorrectly.

Extended health/dental decision process

• Estimate typical annual spend.
• Compare it to premiums.
• Check caps and exclusions (dental vs medical vs travel).
• Consider provincial programs (e.g., BC Fair Pharmacare).

Income wedge construction

• Define a horizon (typically 3–5 years, sometimes longer).
• Invest to generate steady income (dividends + individual corporate bonds).
• Avoid relying on volatile assets for near-term withdrawals.
• Plan for potential market drawdowns (e.g., 20–30%).

RRSP → RRIF simplification

• Convert fully unless edge cases suggest otherwise.
• Consider RIFF minimums using your age vs spouse’s age (often younger spouse to reduce under-withdrawal risk).
• Handle dividend cash with manual transfers if needed.

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Presenters / Sources Mentioned

• Brett (host, Retirement Unpacked)
• Adam (co-host)
• Gourd (team member/presenter who joined for a planning discussion)
• Evette (final sign-off; credited in outro)
• Jason Heath, CFP (author of a linked MoneySense article on “cash wedge” / “income wedge”)