Retirement specialist shares why he thinks the idea of suspending RRIF withdrawals carries too high a cost
While a full suspension of RRIF withdrawals would make Doug Dahmer’s life a lot easier, he thinks the move would be socially irresponsible, benefitting only a small, affluent, few at significant cost.
Dahmer, the CEO and founder of Retirement Navigator, thinks the recent call by CARP on behalf of retirees to suspend RRIF withdrawals during the crisis and market downturn, isn’t the issue they should be focused on right now. Though he would enjoy the flexibility such a move would afford him, Dahmer thinks the resulting impact to government revenue outweighs the benefits which would be felt by a minority of retirees with income streams outside of their RRIFs. He thinks, rather, advisors should have prepared for the eventuality of a market downturn with a few tools to protect retirement income through market downturns just like these.
“My business is building year-by-year recipes for people’s retirement, optimizing income streams and minimizing taxes. The more flexibility you give me, the better I can do for my clients. Would I love this? Absolutely,” Dahmer told WP. “But in the process, we’d have to entirely rewrite the foundation of our tax system and retirement income because the government couldn’t afford everyone who was being clawed back in old age security saying ‘paying taxes 20 years from now is a hell of a lot cheaper.’”
He explained that if RRIF withdrawals were suspended, he could get a client with one million dollars in an RRIF qualified for a guaranteed income supplement. Great as that would be for the client, he thinks the societal costs are irresponsible.
He noted, as well, that the vast majority of Canadian retirees rely almost exclusively on RRIFs. Through all stages of retirement, what Dahmer calls the ‘go-go, slow-go, and no-go, years’ retirees rely on the income they get from RRIFs. That majority wouldn’t necessarily feel much benefit from a withdrawal suspension as they need that RRIF income to buy their groceries.
Dahmer’s hypothetical million-dollar client with a guaranteed income supplement would double the societal tax burden. The government would see little-to-no tax revenue from the individual and, instead, need to pay out their income supplement. Costs would be compounded and younger Canadians would be left paying the bill.
“The ramifications [of a withdrawal suspension] haven't been well thought through,” Dahmer said. “They're simply looking at it as one change and without understanding how it ripples through society.”
To see if retirees would actually save if they didn’t have minimum withdrawals, Dahmer did a “napkin comparison” between a hypothetical individual paying no RRIF minimums, growing their RRSP tax-free until death and an individual following the RRI Minimum withdrawals and paying tax on them. To his surprise, the latter strategy ended up 30 per cent better off. In the long-term, RRIF withdrawals appear to actually perform better.
Dahmer thinks the government’s existing decision to reduce RRIF withdrawals is well intentioned. It’s a strategy employed in past downturns, protecting some of the RRIF assets against loss. He thinks, though, that a sensible retirement plan would avoid the need for any RRIF withdrawal suspension at this time.
At Retirement Navigator, Dahmer employees a ‘spending sleeve’ strategy. After 2019’s strong market performance, Dahmer contacted the majority of his clients and set them up with protected income in those sleeves for two years, based on what they predict to spend year-on-year. That disciplined approach around how much a client needs and where it should be drawn from has left Dahmer’s clients “sitting pretty” in the crisis.
As for unforeseen expenses, like the need for a new car, Dahmer prepares all his clients for retirement by encouraging them to get a line of credit before they retire. If large expenses arise during a market downturn they can use the credit to buy that car or repair their roof. They can pay interest now and pay down the principal when markets have turned up and a larger RRIF withdrawal won’t cement a loss.
Dahmer thinks there’s no replacement for long-term disciplined strategies like his. If advisors haven’t set their retired clients up with protected income and a line of credit already, they don’t have a magic shortcut to get their clients into that safe position.
“This all comes down to the discipline of planning,” Dahmer said. “We have less than 15 per cent of the population who actually have a retirement plan. Most of those retirement plans have been cobbled together on a kitchen table with an Excel spreadsheet. What we've got to do is make retirement income planning, accessible and affordable to all.”
