Hello All! I am trying to determine the best drawdown strategy to reduce taxes paid during retirement.
I shall use round numbers to make it simpler. Account types for Canada, but I believe the approach would largely be the same with equivalent accounts in the US.
I plan on retiring at 50 years old (I live cheaply so don't need to save as much). If one is 50, retired, (and living in ON, Canada) off of the following nest egg:
$600,000 - NON-REGISTERED (Regular account)
$400,000 - RRSP (I think this is 401K, tax deferred account)
$200,000 - TFSA (I think this is Roth IRA, tax-free account)
Total $1,200,000. Rate of Return on that total is assumed to be average 8% per year in Capital Gains.
$50,000 Yearly Spending. Will be living entirely off of the 3 accounts above (NON-REG, RRSP, TFSA).
I am trying to figure out the best pattern for where to take that $50,000 every year.
Is it best to first take all of the $50,000 from the NON-REG every year until it is depleted, then from the RRSP till it is depleted, and finally the TFSA?
Or is it best to take all from TFSA until depletion, then RRSP, then NON-REG?
Or take a portion from each to make up the $50,000 every year? If so, what portion?
What pattern is best to minimize how much is gone to taxes in the end? Is there a rule of thumb?
How might one calculate this? I understand that:
TFSA withdrawals are of course tax free and don't count towards income.
NON-REG Capitals Gains are taxes at 50%.
RRSP Has withholding taxes + Capital Gains are taxes at 100%.
Theoretically, the nest egg could actually get bigger over time, thus the yearly spending could actually increase over time as well.
Thank you, any help is really appreciated!