Q.

I don’t invest in

mutual funds,

private equity funds or

exchange-traded funds

(ETFs). I only buy stocks that meet my criteria and my family portfolio is more concentrated than any mutual fund a certified financial planner would ever suggest. I was always amused by mutual funds that would have 100-plus stocks and high management expense ratios (MERs), especially in the old days of nine per cent front-end or back-end loaded fees. I always thought it was a glorious way for a mutual fund to underperform and yet somehow manage to take a lot of the client’s wealth. I pay little attention to macroeconomics, though I do understand it. It’s just of very little use in investing. Market volatility does not bother me. Just look at more than 100 years of market ups and downs and you will see that it actually provides great buying opportunities.

My challenge today is how to pull funds out of my

registered retirement savings plan

(RRSP) — which will be converted to a

registered retirement income fund

(RRIF) in order to split income with my wife until she is forced to convert her RRSP — in the most tax efficient way. I am also still working; not out of need but because I enjoy what I do. If you have any general tips or know of any decent tax planning tools online, please let me know.

—All the best, Ian

FP Answers:

Ian, does any of that really matter: fees, diversification, volatility and withdrawal strategies? Even if you get all those things right, how is it going to impact your life in retirement? Will anything change?

Dan Haylett, a United Kingdom-based financial planner and retirement coach says that although fees, taxes and withdrawal strategies are important, they are not the real issue facing retirees. The real issue for those with enough, or more than enough, money is the ability to spend, which is based on feelings and not on numbers.

Haylett describes a three-level permission pyramid: number crunching; emotional confidence and behavioural permission.

The base layer, number crunching, is the easiest to master and where most people and their planners stay. This layer is about answering questions, finding the most efficient way to do things, and estimating the amount of money you can spend each year.

The middle layer, emotional confidence, begs the question: Do you trust and believe the numbers and projections? To gain confidence you need good starting numbers, learning as opposed to education, and repetition.

By building your plan based on your estimated expenses — today’s and tomorrow’s — it makes it more real. Don’t assume costs such as $100,000 a year after tax is forever. Instead, detail out your cash flow and think about how it might change over time.

You also don’t need a planner explaining how everything works, which is education. It is hard to sit through and education doesn’t stick with you. Instead, learn by experience using computer simulation and experimenting with different scenarios. This type of learning will help you be nimble through retirement.

Finally, keep repeating the planning process. Repeatedly seeing good and consistent outcomes gives you confidence.

The top layer, behavioural permission, is the toughest layer to crack. This is when you know you have enough, or more than enough, but you still can’t spend, gift or donate your money. You’re stuck. To crack this layer, you need to be intentional. Think about how you can create positive experiences for you or others. Start small. Maybe an extra trip, gifting to children or donating to charity to get you started.

Getting back to your question about an efficient way to draw from your RRSP and RRIF, here are some suggestions.

Convert your RRSP to a RRIF the year before you plan to make withdrawals. This is to avoid or have control over the withholding tax on the required minimum withdrawal amount.

Although I don’t know the specifics of your situation, the following is a suggestion of a tax efficient way to draw from a RRIF. Base your minimum RRIF withdrawals on a younger wife’s age to minimize the required minimum withdrawal. Rather than doing monthly withdrawals, make one lump sum withdrawal at the end of each year instead, allowing your money to accumulate longer.

Finally, name your wife as the beneficiary and if you have no children, a charity as a secondary beneficiary. As a beneficiary, your wife has more options. She can transfer the money tax-free into her RRSP or RRIF or cash it out and have your estate pay the tax. Naming a charity as a secondary beneficiary ensures that if your wife dies shortly after you, the total of your RRIF will go to charity and reduce the total estate tax.

That is a tax efficient way to draw down on your RRIF, but it may not fit your plans or family situation.

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If you want to play around with this yourself, you can use an online tax calculator such as the

Ernst and Young tax calculator

for quick calculations. For people over 65, I prefer the

Tax Tips income tax calculator

, as it is more accurate. Finally, if you really want to get your hands dirty, try the planning software from

Canadian fintech Optiml

. Of course, I am a little biased and I think working with a certified financial planner (CFP) on an annual basis using computer simulation is best.

Thanks for your question, Ian and I hope my roundabout answer gave you something to think about.

Allan Norman, M.Sc., CFP, CIM, provides fee-only certified financial planning services and insurance products through Atlantis Financial Inc. and provides investment advisory services through Aligned Capital Partners Inc., which is regulated by the Canadian Investment Regulatory Organization. He can be reached at alnorman@atlantisfinancial.ca.