If you’re like many physicians, you may have RRSPs at several financial institutions. As you approach retirement, there’s a lot to be said for bringing them together under one roof.
Here are the main benefits of consolidating your RRSP assets.
1. It’s simpler to manage accounts at one institution.
Having all of your RRSP assets together at one institution makes them easier to manage. Just like decluttering your closet makes it effortless to find a favourite jacket or pair of shoes, bringing your assets together in one spot allows you to quickly and painlessly keep track of your investments.
As a bonus, because each financial institution usually charges an annual administration fee, consolidating RRSP assets can also save you cash.
2. It’s easier to assess whether you’ve got the right investments.
When all of your RRSP assets are visible in one spot, you can more easily confirm whether your investments are right for you. This is especially true as you start to withdraw from those accounts to create income, or as you approach the end of the calendar year in which you turn 71, when RRSP assets need to be converted to a RRIF or used to purchase an annuity.
For example, many physicians approaching retirement will make changes in their portfolio to reduce the amount of investment risk they’re exposed to. Consolidating assets at one financial institution will mean fewer statements, making it easier to fine-tune your holdings to match the retirement stage of life.
Otherwise, it’s much harder to get the complete picture of how your dollars are allocated among investments with different risk levels. You’d need to add up all of the different kinds of investments you hold at different institutions.
3. Generating your retirement cash flow is less complicated.
In retirement, physicians often draw their income from many different sources. These can include registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs), government pensions (Old Age Security and the Canada Pension Plan/Quebec Pension Plan), a hospital or university pension and, if their practice is incorporated, dividends from their corporation. The process of creating a retirement income stream from many kinds of savings can be complex.
Over the course of your retirement, you’ll likely need to balance withdrawals from several different sources — each of which may have different tax consequences and withdrawal requirements. If you have a spouse or common-law partner, you’ll need to include their accounts and withdrawals in your household retirement income plan, as well.
With multiple sources of savings to draw on, consolidating your RRSP assets with one financial institution can make it easier to manage your retirement income cash flow. That way, you’re making RRSP withdrawals from just one institution. Determining which accounts to draw your funds from is already complex, and an opportunity to simplify can be well worth taking.
4. It’s easier to coordinate your RRSP contributions and eventual withdrawals — which could lead to years of tax savings.
The tax angle may be the biggest benefit of consolidating retirement savings accounts. In retirement, the income you get from your RRIF accounts is fully taxable. And as discussed above, your RRIF withdrawals are probably not going to be your only sources of taxable income.
It’s important to carefully manage how much taxable income is coming from which accounts and sources, or you may end up with more taxes due than you planned for. You may even have your Old Age Security benefits “clawed back.”
If your RRSP and other assets have been consolidated at one institution, your contributions to various accounts before retirement — and your withdrawals in retirement — can be coordinated to meet your goals in the most tax-efficient way. For example, you and your financial advisor can make sure that the RRSP contributions made today match where you want the withdrawals to come from tomorrow. The benefit of consolidating accounts can really shine in helping to shape a tax-efficient strategy for managing your finances.
How to go about consolidating your RRSPs
After reviewing the benefits, does consolidation seem like a good route for you and your family? If you need assistance with the process, MD Financial Management (MD) can help. We’re the only financial services firm whose sole focus is assisting physicians and their families, taking into account your unique circumstances and requirements.
We can deliver financial strategies that will help you maximize the benefits you get from your invested dollars, and check that you’re adopting the risk level that’s right for you. We can also show you the best order in which to withdraw your income in retirement, based on your goals and priorities.
In summary, if you’re wondering how to get set up effectively for retirement, consolidating your RRSPs can help simplify, streamline and optimize your finances. Talk to an MD Advisor*: they can help you get started.
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.