One final advantage of reducing the amount of taxable RRIF income generated in the later years is the impact that income would have on the Old Age Security Pension (OAS), which starts to claw back this benefit for income over a given threshold ($71,592 in 2014).
Part of our RRIF withdrawal strategy was to use money from our RRIF withdrawals to fund our TFSA contributions, thus absorbing the tax hit slowly up front in order to have more tax-free money later on.
At the time when I came up with this concept for early RRIF withdrawal, I was not aware of anyone in the financial industry who was advocating this theory. Instead, the typical advice from the experts was to hang on to your RRSP money and let it grow tax-free for as long as possible. To vet my hypothesis, I submitted a question to the financial magazine MoneySense, who contacted a financial planner, Daryl Diamond, president of Winnipeg-based Diamond Retirement Planning, to validate it. He ran the numbers and confirmed my suspicions, resulting in a MoneySense article published in October 2011. This same financial planner is referenced in the Globe and Mail article, discussing much of what I originally surmised, but now in context of the recently increased TFSA limit of $10,000. Lately, I have been seeing more and more analysts write about the same idea that I had years ago. It is gratifying and reassuring to get further confirmation that I was on the right track back then, despite all the contrary conventional wisdom espoused at the time.
The two new budget items, raising the TFSA contribution limit to $10,000 and reducing the mandatory minimum RRIF withdrawal percentages at age 71, both dovetail into the strategy that my husband and I have already been following since our retirement in 2012. The only difference is that up to now, we were able to utilize just our dividends in order to fund the RRIF withdrawals and make the TFSA contributions. Now with the increased limit, we may actually have to sell some stock each year to cover the larger amount. This actually helps with our goal of slowly decreasing the sizes of our RRIFs, which we accepted intellectually as the right thing to do, but still find emotionally difficult to implement. Knowing that we are decreasing one savings pool to increase another makes this exercise easier.