Weekend Reading: A RRIF Case Study Edition – Boomer & Echo

Beth came to me with questions about her mother Susan’s finances.

Susan is 80 and a widow. She lives in a retirement home and spends about $60,000 a year, after taxes. Her health is deteriorating and it is expected that she will not live longer than 85 years.

After her husband died, she now has $1.2 million in a RRIF, $300,000 in a TFSA and $1.2 million in a taxable account from the sale of the family home. The investments consist primarily of individual Canadian dividend-paying stocks. There are no bonds and very little cash.

Her other income is modest in relation to her assets. She will receive a $20,000 survivor’s pension, $10,000 in CPP, and her OAS will be fully recovered.

Related: Don’t wait until 70 – the costly retirement planning pitfall

Three years ago, Beth’s accountant flagged the size of Susan’s RRIF and warned that it could lead to a large tax bill if she died. Based on that advice, Beth asked Susan’s advisor to increase the RRIF withdrawals well above the minimum.

After Susan’s expenses were covered and the TFSA replenished each year, the excess withdrawals were invested in her taxable account.

At first glance, the strategy seemed reasonable. Take out money now, pay some taxes, and reduce the risk of a big tax bill later.

The result was two tax returns showing approximately $290,000 in taxable income per year. Most of that came from RRIF withdrawals on top of her retirement income and about $50,000 in taxable dividends.

Those additional RRIF withdrawals were not lightly taxed. About $40,000 of the withdrawals were taxed at Ontario’s top marginal rate of 53.53 per cent, while another $75,000 was taxed at 48 to 49 per cent under Ontario’s second and third highest marginal tax brackets.

That raises an obvious question. If the corporation pays high taxes on the RRIF money in the estate, why are we knowingly paying the highest possible tax rates today just to move the after-tax dollars into a fully taxable account?

This is where logic often fails.

RRSPs and RRIFs remain highly effective tax shelters, even later in life. When you take extra money out of a RRIF, you trigger taxes at potentially very high marginal rates and move money into a taxable account where dividends, interest, and future capital gains are taxed along the way. That persistent tax burden quietly erodes prosperity over time.

At age 80, the minimum RRIF withdrawal rate is 6.82 percent, or about $81,840 according to Susan’s RRIF. That amount easily covers her expenses, pays her taxes and funds the TFSA.

There was no need for excess withdrawals and no reason to put more money into the taxable account. More importantly, it allowed more of Susan’s capital to remain within the RRIF, without annual tax friction.

When we compared the two approaches, aggressive RRIF shots versus sticking to the minimum, the outcome surprised Beth. The minimum withdrawal strategy leaves a larger RRIF balance at death, which indeed means a higher tax bill on the final return.

But there is also more wealth left over after taxes overall.

By paying less tax during Susan’s lifetime and maintaining the RRIF tax shelter, the estate will grow even after the final tax has been settled.

This is common. People focus on the tax bill upon death and forget about the taxes they pay along the way. Taking money out of a RRIF at the highest marginal rates just to avoid future taxes often shifts the problem rather than solving it, and usually makes it worse.

Remember the three D’s of smart tax planning: subtract, divide and postpone. Susan is well past the deduction stage and has unfortunately lost the ability to distribute with income sharing. But then the third D remains – shift – as an effective instrument in its toolkit.

RRIFs are not the problem. Paying high taxes now to avoid high taxes later usually makes things worse.

Sometimes the right answer really is an unconventional and boring answer. Take the RRIF minimum and leave the rest alone.

This week’s summary:

The ‘Let’s Circle Back After The Holidays’ season has officially started.

Lindsay and I are officially on Christmas break, wrapping up a fantastic year for our company and enjoying a well-deserved break for the rest of the month.

Our kids still have a week of school left, so we’ll use the next week to catch up on last minute shopping and prepare for the holidays.

Last week I shared my op-ed in the Globe & Mail about RRIF minimums and the plight of single seniors. Thank you for all your thoughtful comments.

Weekend reading:

Here are eight tips to stop worrying about it no more money when you retire.

In that respect, part-time work after retirement has social and financial advantages, but… beware of chargebacks.

It’s that time of year again. Nick Maggiulli shares his favorite investment literature of 2025.

A picture says more than a thousand words, like Michael James on Money explains investing in alternatives with one simple image.

A Wealth of Common Sense blogger Ben Carlson shares this how to become a moderate millionaire ($1 million to $5 million in assets).

In this video, Ben Felix discusses the key lessons from The Wealthy Barber (2025) and explains why it is the best introduction to personal finance he has ever read:

Heather and Doug Boneparth share their thoughts on what to do if you receive a bonus.

Finally, travel expert Barry Choi says about the once elite airport lounge is now just another busy space.

Have a nice weekend, everyone!