The Election Cookie Jar
Here, how you can benefit from the federal budget.
The timing of the retirement savings announcements found in Conservative Finance Minister Joe Oliver’s budget is hardly a coincidence. They were released just a few months before the next federal election to entice more Canadians over 50 to turn out at the polls than younger people.
The most important change, by far, was the reduction in the minimum annual RRIF withdrawal rates for those 71 and older. This has been a thorn in the side of retirees for years. With interest rates at historic lows, the government continued to insist that RRIF holders take out huge amounts of money even if they didn’t need it. Why? So the Canada Revenue Agency could tax it.
There was no relationship between the required minimums (7.38 per cent at age 71, increasing each year after that) and the returns available from the type of low-risk securities that are suitable for these accounts. At the time the budget came down, the major banks were offering only 1.5 per cent interest on five-year guaranteed investment certificates. That meant retirees faced the choice of taking on more risk to obtain higher returns or running down their capital at an alarming rate. Bad options, both of them.
The government says the reduced withdrawal rates will allow almost 50 per cent more capital to remain in the plan by age 90. That’s great – as far as it goes. But it still leaves us in the position of having to withdraw more money annually than the plan can earn by investing in low-risk securities such as GICs and bonds. Ottawa’s cash grab is still in place; it’s just not quite as voracious.
Personal Budget Pointers
Top up your TFSA.
Although it hadn’t been passed by Parliament, the $10,000 contribution limit became effective immediately. So if you’ve already put $5,500 into your plan for 2015 (the old maximum), you can add up to $4,500 more. Do it now. The sooner the money gets into the TFSA, the sooner the tax shelter benefits kick in. Also, Justin Trudeau has said the Liberals will revert to the old $5,000 maximum if they’re elected. That’s one more reason not to wait.
Reduce your RRIF withdrawals.