Savvy RRSP withdrawal strategy — my registered retirement savings plan withdrawal strategy and plan to deplete it before it becomes a RRIF. I am not a licensed investment advisor and this article is not investment advice.
Rather than being forced to turn my RRSP into a RRIF, I plan on depleting my RRSP for income in the first stage of my early retirement.
Based on my current plan to become financially independent, I will be able to support myself financially by the time I am 50 to 55 at the latest. Best case scenario is when I’m 45, but a lot will have to go right for that to happen.
To support myself, I plan to live off dividend income. However, the first stage of my early retirement will not be supported by dividend income. I plan on using a savvy RRSP withdrawal strategy to support myself.
In this article. I will tell you my savvy RRSP withdrawal strategy, which involves depleting my RRSP before it forcibly becomes a RRIF.
Let’s dive in.
Savvy RRSP Withdrawal Strategy
Before you read the steps, it’s worth noting that I am a dividend income investor that plans to live off dividends.
As a Canadian investor, the issue is that dividend investing does not work as well in a RRSP because of the tax implications.
In short, I would be taxed on my dividend income and an RRSP eventually becomes a RRIF.
As such, I have altered my investment strategy to Canadian dividend and USD growth stock investor.
I plan to hold Canadian dividend stocks in my TFSA, and focus more on USD growth stocks in my RRSP.
This is a step-by-step overview of how I plan to utilize my RRSP (Registered Retirement Savings Plan).
Savvy RRSP Withdrawal Strategy
Contribute The Minimum To Not Pay Taxes
The best tool that Canadians have access to is a TFSA (Tax Free Savings Account).
Ideally, it makes the most sense to max out your TFSA contributions before contributing to your RRSP.
Of course, you also don’t want to pay taxes if you don’t have to. So, my strategy is to contribute the minimum amount yearly to avoid paying taxes.
Anything beyond the minimum amount to pay taxes will go to a TFSA.
Invest In USD Growth Stocks
At my core, I am a dividend income investor.
My investment strategy is never going to stray away from 80% dividend growth stocks, 10% growth stocks, 10% REITs. The only thing that might change is that I might add real estate to the mix.
However, I am planning to utilize my RRSP more for USD growth stocks now. It will make up the most of my 10% allocation to growth stocks.
Of course, I will never sell stocks I cherish like Apple and Starbucks. But I will focus on stocks with more growth potential and less on the dividends in my RRSP.
Start Withdrawing From RRSP First In Retirement
Depending on how much money is in my RRSP in 10, 15, or 20 years, I will retire and begin to live off RRSP withdrawals.
I will withdraw enough to live off per year with the intention of depleting my RRSP before age 71.
Ideally, I will withdraw $20,000 to $30,000 per year. But this will have to be adjusted for inflation.
Continue To Invest And Grow TFSA and Non-Reg
Essentially, I will just continue living life as I currently do except for I live off RRSP withdrawals. I will continue to invest and grow my dividend income.
The longer I can make my RRSP last, the higher I can grow my dividend income before relying on it. Hopefully I can make it to 71.
If I can manage to live off my RRSP from 55 to 71, I will get another 16 years to grow my income. That would mean I have 36 years to grow my dividend income from now.
During my early retirement, I will treat my RRSP income the same way I treat my job income now. I would save a percentage of it first. I would max out my TFSA and invest the rest tax efficiently in a non-registered account.
I’m looking forward to seeing how high I can push my dividend income with so many years of building to go.
Deplete RRSP by 71
In case you didn’t know, a RRSP must become a RRIF (Registered Retirement Income Fund) at the age you turn 71.
Once it becomes a RRIF, you are forced to take regular withdrawals.
Personally, I want to be able to control withdrawals by myself. I want to live off dividends and not sell principle.
Hence why I plan to deplete my RRSP by 71 or earlier.
Live Off TFSA and Non-Reg in Late Retirement
Once my RRSP is depleted, I will move on to my late retirement.
This is the stage that I plan to rely on dividend income from my investments to support myself.
Ideally, the bulk of my income will be tax free from my TFSA.
However, some of my income will come from dividends in non-registered accounts.
I like the idea of my continuing to build my Canadian dividend income up from 55 to 71 with other investment income.
Hopefully, I can continue to document the growth of my dividend income over the next 36 years.
Savvy RRSP Withdrawal Strategy — Final Thoughts
Now you know my savvy RRSP withdrawal strategy.
Perhaps you have a different strategy and don’t think this is so savvy.
If you do, I’d love to hear your savvy RRSP withdrawal strategy in the comments below.
I’m open to adjusting my strategy and learning more.
As a quick summary, I plan to contribute the minimum yearly to my RRSP to avoid taxes. I will use my RRSP mostly for USD growth stocks. I will begin withdrawing in my early retirement and plan to deplete my RRSP before it has to become a RRIF.
In turn, I will have more time to compound my TFSA and have complete control over my money in late retirement.
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