Smith Manoeuvre AFTER You Retire

What do you do with the Smith Manoeuvre AFTER you retire?

My latest video and podcast episode is for you if you already know the basics of the Smith Manoeuvre.

You have been doing this strategy for awhile, you’ve converted your mortgage to tax deductible, and you’re thinking about retiring.

You’ve got a big investment portfolio and this tax deductible credit line, what do you do now?

Discover 5 strategies that we suggest to our clients, and how you can implement them to your advantage!

• What options do you have for the Smith Manoeuvre after you retire?
• The 3 options based on your risk tolerance & desired lifestyle.
• Success rates of retirement income withdrawals.
• Key tax brackets before and after age 65.
• 5 Smith Manoeuvre strategies you can do after you retire.
• Tax implications of Smith Manoeuvre withdrawals.
• Designing your retirement income with the Smith Manoeuvre.

3 options:

1. Pay off by selling investments.
2. Pay off slowly by converting to 30-year mortgage.
3. Keep as long as you own your home.

A) Safest – Pay off.

1. Strategy is riskier when you are withdrawing, instead of adding.
2. Do you still have the risk tolerance now that you are older?
3. Will your kids or beneficiaries or POAs understand what you are doing?
4. Home paid off in your estate.

B) Most comfortable retirement – Keep as long as you own your home.

1. 70-80% of retirement income is growth AFTER you retire.
2. Paid off by selling your home, not by your investments. Investments are there only for your retirement cash flow – when you pass away or if you move to a retirement home.
3. Using your equity effectively. Paid off home is dead equity with little growth. Does not give you retirement income. Efficient use of real estate equity is to always have maximum leverage. “Millionaires in Poverty” – 4 stupid options for retirement cash flow from home equity.
4. Tax deduction with tax-efficient investing – Even after retirement. No deductions after you retire, such as no RRSP room.
5. Tax deduction may help you avoid clawbacks of government programs, such as OAS and GIS, that are effectively higher marginal tax brackets. (Tax bracket table with clawbacks.)
6. More effective tax planning – Investments in RRSP, TFSA & non-registered give you lots of options in designing retirement income – How much to withdraw from where.
7. Much larger estate. Home still has mortgage or credit line, but investments much more.

C) In-between – Pay off slowly.

1. If you don’t like the idea of always owing money.
2. Somewhat lower retirement income and tax deduction.

SM Strategies AFTER you retire:

1. Interest-only Mortgage – Lower interest rate. “Capitalize the principal”.
2. RRIF Meltdown Strategy – RRIF pays SM interest. Tax-free RRIF withdrawal. Withdraw SM investments with minimal tax.
3. GIS Strategy – Possible with a large SM to offset any taxable income.
4. Smith/Snyder – Withdraw cash flow with minimal tax. Credit line slowly becomes non-deductible.
5. Dividend Strategy

• Credit line may stay deductible.
• Pay more tax. Dividends are taxable. Deferred capital gains are the lowest taxed type of investment income.
• Invest more conservatively, probably less growth.
• More clawbacks because dividend “grossed-up” by 35%.

Tax Implications of SM withdrawals:

A. Rules – Stay 100% tax-deductible if:

• Book value of investments sold reduce tax deductibility
• Can withdraw the capital gain IF you can trace it separately.
• Can withdraw taxable income – Capital gains or dividends, but not ROC.
• Can withdraw to pay tax-deductible interest or investment fees.
• Can withdraw to pay down tax-deductible credit line.
• If you withdraw more, then credit line slowly becomes non-deductible.
• Borrow to invest & then cash in investments – Loan no longer deductible.

B. Smith/Snyder calculation.

• Huge spreadsheet

Designing your retirement income with SM:

1. If mortgage not paid off at retirement, you can continue to do SM & capitalize to convert to tax-deductible.
2. More effective tax planning – Investments in RRSP, TFSA & non-registered give you lots of options in designing retirement income – How much to withdraw from where. – Plan for taxable income in low tax bracket while having cash income for comfortable retirement.

Ed