Let the Government Fund Your Retirement

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The Wanderer retired from his engineering job at a major Silicon Valley semiconductor company at the age of 33. He now travels the world, seeking out knowledge from other wealthy people, so that he can teach people how to become Financially Independent themselves.
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Hey you know what I’ve always wanted to do? Pay more taxes to the government.

–Nobody Ever

Over the course of the last few weeks since this silly little blog went viral, we’ve done our fair share of reader case studies figuring out how quickly our intrepid Revolutionaries can kiss the 9-5 goodbye forever. A few have been featured publicly on this site, and far more behind the scenes in our inboxes. FIRECracker gets off on spreadsheets. Don’t judge.

And after the first five, or ten, or twenty, you start to notice a few patterns. The first being that people are in far better shape than they thought. Even without six-figure salaries, with a few tweaks we can often bring their retirement plan down from “never” to “totally doable.” And second, people generally don’t understand how important taxes are. For higher earners especially, just the act of walking into a bank and filling out a bunch of forms shaved up to 5 years off their retirement!

So let’s dig into this.

First of all, taxes are an important part of keeping a country running. They pay for roads and schools, and I’m sure there’s enough government oversight that would prevent a totally irresponsible waste of taxpayer money like, say, the CIA running an illegal brothel in New York and slipping random people LSD just to “see what would happen.”

But wouldn’t it be great if there was a government program that directly benefitted YOU? That padded YOUR bank account with taxpayer money to help you retire in your 30’s? Well good news, because that totally exists!

Oh, Canada

In Canada, we have two main government programs to help people retire: the Registered Retirement Savings Plan (or RRSP) and the Tax-Free Savings Account (TFSA). Americans, I’m not ignoring you, but as the Canadian system is significantly simpler it’ll be easier to explain ours, and then go over how the American system is different rather than the other way around.


Here’s how RRSPs work. You contribute into them, either directly from your paycheque or by walking into a bank and transferring a lump-sum amount. That amount gets deducted from your taxable income, so when you do your taxes at the end of the year, the government sends you a nice taxpayer-footed refund check. That taxpayer was you, but still. Free money! Investment earnings made inside the RRSP are tax-free, but when it comes time to withdraw money from the account, you have to add that money onto your income and pay tax on it then.


The TFSA operates slightly differently. You put after-tax money into it, and all future investment earnings are tax-free. And because you’ve already paid taxes on the money you put in, you can withdraw at any time with no penalty.

Putting it Together

So how do the RRSP and TFSA fit into an early retirement plan? How much should you contribute to either? The answer is simple: the maximum.

The RRSP contribution limit is 18% of your previous year’s income, and the TFSA limit is $5500 per year. When you put your money into an RRSP, that money is still yours, but you get an additional refund check from the government which you can then forcibly shove into your TFSA.

Ugh. Why do I feel so dirty all of a sudden?
Ugh. Why do I feel so dirty all of a sudden?

And on top of that, many employers have an RRSP matching program of some sort (both mine and FIRECracker had one). These work by matching a certain percentage of your contribution (say, 50% in my case) up to a certain limit. So you get even more extra money out of that.

Basically, opening up an RRSP, a TFSA, signing up for your employer’s RRSP matching program and contributing the maximum to both accounts is the easiest way to shave years off your early retirement. And if you’re late to the party, you contribution rooms from previous years for both accounts carry forward indefinitely, so if you open up your account now you can still use up all that unused room starting today.

The Meltdown

But wait! While the TFSA withdrawals are tax-free, what about that pesky part about the money in the RRSP needing to be taxed when you withdraw? Don’t I have to take that into account?

Nope. You can get it out tax-free!

Once you’ve left your job, your earned income essentially goes down to zero (unless that book you’ve been working on all of a sudden gets picked up by Hollywood). That leaves a nice little personal exemption credit of about $11k (or $22k for a couple) that you an use to melt down your RRSP, $22k at a time while paying no tax. And if you structure your investment portfolio like I told you to, the only taxes you’ll be on the hook for will be in the form of dividend income, which are essentially untaxed if you make less than $50k each.


And now let’s turn our attention over to our Americans readers. Hey y’all!

The same basic principles apply to you, but for whatever reason your government turned your retirement account names into an unreadable alphabet soup.


Our RRSP is your 401(k), 403(b), 457(b), or TSP. 401(k)’s are for private corporations, 403(b)’s are for non-profits, 457(b)’s are for state government employees, and the TSP is for federal government employees, plus members of the armed forces. For the most part, these plans function the same so I’m just going to refer to them all as 401(k)’s going forward.

401(k)’s, like RRSPs, allow you to contribute directly from your paycheque and lower your taxable income. This will result in either less taxes being taken out of each paycheque or a fat juicy refund come tax time. 401(k)’s are also commonly used as part of an employer’s matching program, so make sure you sign up for the sweet sweet free money!

The two major differences with an RRSP vs a 401(k) is that a 401(k)’s contribution limit is set at a flat $18,000 (in 2015) rather than a percentage of your income (unless your employer imposes a specific restriction on this). The second is that unlike RRSPs, your contribution rooms do NOT carry forward. If the year rolls over and you don’t use it, POOF, it’s gone. So if you haven’t been taking advantage of your company’s 401(k) plan this entire time, you need to get on this TODAY. You can’t figure it out later because by then your contribution room would have been wasted.


Now on to your version of a TFSA. Yours is called an Individual Retirement Account, or IRA (hey, at least this one has the word Retirement in it). And it comes in two flavours: Traditional IRA and Roth IRA. Unlike us Canuckistans, you Americans have the freedom to choose how your IRA operates: a pre-tax contribution system like your 401(k) or a post-tax contribution system like our TFSAs. I gotta admit, you Americans sure do love your freedom.


Whichever you choose, you can put a maximum $5500 in each year. And again, these contribution rooms do NOT carry forward, so don’t wait to set one up or you lose that room forever.

So which to choose? Generally, if you’re trying to retire early, the Traditional IRA that allows you to contribute pre-tax dollars. Why? Because if you use the Roth IRA you have to pay taxes NOW, while the Traditional IRA allows you to defer it, and by using some IRA-jujitsu that we’ll talk about in a minute, we can sneak that money back out of the IRA once you’re retired essentially tax-free.

Note that there are tons of stars-and-asterisks here. Unwilling to let something simple remain simple, the IRS has imposed all sorts of rules on who’s eligible for a Traditional IRA, especially if they also have a 401(k) at work. If you make too much, you may not be allowed to open a Traditional IRA and therefore be forced to use a Roth IRA. And if you make a RIDICULOUS amount of money, you may not even be allowed to use a Roth IRA either! However, in banking terms this is commonly referred to as a “champagne problem.”

IRS eligibility tables for Traditional IRAs

IRS eligibility tables for Roth IRAs

Putting it Together

So how do these accounts fit into our early retiree financial plan? Same as before. Open them suckers up and shovel as much money as you can into them. Each dollar you manage to contribute is less tax you have to pay, and therefore less time until you can retire.

The Meltdown

Hoo boy. Here’s where things get funky, so strap yourself in.

Unlike us up here in the frigid North, your retirement accounts have a nasty surprise in them: If you withdraw anything before you hit the strangely precise age of 59.5, you get hit with a nasty 10% penalty.

As an intrepid reader just pointed out, the 457(b) is special in that it does NOT have this 10% penalty, so if you work for a non-profit DEFINITELY make sure you’re enrolled in that sucker!

So are we toast? Is all hope lost? Of course not!

There is a LEGAL way to meltdown all your money and get it out tax-free. However, it does require jumping through some more hoops.

First of all, when you finally retire and say goodbye to your hateful job once and for all, roll your 401(k) into a Traditional IRA. This can be done tax-free.

Now the IRA-jujitsu part. The IRS allows you to convert a portion of your Traditional IRA into a Roth IRA every year. However, when you do this, it becomes reported as taxable income. However, remember that in retirement, your earned income will drop to 0, so you can sneak out an amount equal to your standard and personal deductions tax-free. For a married couple with no kids, this is about $20k. If you have kids, it goes up even more. So you can safely convert that amount every year into your Roth IRA tax-free by getting it out under the cover of these deductions.

Once it’s in the Roth IRA, the IRS allows you to withdraw it tax-free, but you have to wait 5 years starting the year the conversion occurred. So what you need to do is do this conversion every year, making sure you keep your amounts low enough to get them out tax free. Then in 5 years, you’ll be able to start withdrawing that first conversion that was done 5 years ago, again, tax-free.

This is called a 5-year Roth IRA Conversion Ladder, and an extremely detailed and excellent article was written by my good buddy and fellow FI-er Justin from RootOfGood.com. See that for more details.

Aaand We’re Done

Phew. So there we have it. Retire early and get Uncle Sam to help pay for it (or whatever the Canadian equivalent is. Auntie…Beaver?)

Ugh. Why do I feel so dirty all of a sudden?
And now it’s disgusting again.

All information in this article is based on my understanding of the tax laws at the time of me writing it. Rules may change over time, and there are a lot of stars-and-asterisks that may apply to your special situation that I’m not aware of, so before you actually implement anything, please consult a tax professional, ESPECIALLY if there’s a lot of money involved.

And special thanks to Justin from RootOfGood.com for taking the time to sit down and explain all this craziness to me. I’ve never met a guy so good at (LEGALLY) hacking his tax bill, and here’s how we managed to get the tax bill on his family’s $150k salary down to $150. I shit you not, he is THAT good.


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50 thoughts on “Let the Government Fund Your Retirement”

  1. If you withdraw from your RRSP, isn’t there also a (temporary) withholding in case taxes are due, which you eventually get back if no taxes are due? It’s a budgeting point that would have to be taken into account in respect of cash flow timing.

    1. Yup. Part of it gets withheld at the time of withdrawal, but you get it back when you do your taxes. For that reason, most people withdraw from their RRSPs in December so they can get their money back in April.

  2. Thanks for sharing all this info. I knew this was a Canadian blog so I’m surprised you guys knew so much about the US retirement system too! Bravo!

    For US readers, I wouldn’t actually lump the 457(b) with the 401(k) or 403(b) in all situations. The 457(b) actually has huge benefits for early retirement folks, and if I’m understanding how it works, it’s probably the ultimate retirement account for people trying to retire early.

    Why? A 457(b) has NO EARLY WITHDRAWAL penalty. So it’s basically a tax advantaged account that you can withdraw from at any time once you leave employment.

    Here’s the rub though. It’s only good if you work for a state government. If I understand it correctly, if you are with a non-profit or some other entity that has a 457(b) plan, the assets don’t technically belong to you – instead its considered a form of deferred compensation – and that means that if the company goes under, you can lose all the money to creditors. You don’t technically own the money.

    But, with a governmental 457(b) plan, the money is held in trust for you and is not subject to the claims of creditors. It’s then the same as a 401(k). The money is yours and yours alone. For example, on my state 457(b) website, it says: “All account assets are held in trust for your exclusive benefit. Your account assets are never subject to the claims of creditors in the event of the State or public employer’s bankruptcy.”

    I don’t expect my state to go bankrupt anyway, but seeing this has convinced me that the governmental 457(b) is some sort of secret, super awesome retirement account. Only problem is, not many people will have access to this type of account.

    If any US readers can tell me if I’m not understanding my 457(b) plan correctly, please let me know.

  3. also wanted to add a bit of information – the 457 and 403b are sometimes offered together – as for people who work for universities – the contribution limits are the same for both at 18k/year BUT – and this is huge – you can max BOTH of them out in a year so it further lows your tax burden and maximizes your saving leverage. Also – you can often (maybe always) access your 457 immediately upon retirement from this job penalty free even if you aren’t 59 yet. . . so that’s an interesting and unique asset for people who work in government/higher education – I work for a state government in our medical school so I have access to both accounts. it’s pretty little known strategy and super under utilized. HR does, predictably, a terrible job of promoting/explaining this to their own employees.

    1. Wow, $36k of contribution room PLUS an IRA? That’s amazing!

      Yeah if I was the government I wouldn’t be publicizing that either. I’m actually going to update my post with that info.

      1. PLUS your HSA 😉 which allows you to save/invest or spend your healthcare dollars tax free always. I know!?!? AND can you believe I don’t know ANYONE at my univ that maxes both the 457 and 403b out except the super high income earners/doctors. No regular joes like me. it’s kind of tragic actually.

  4. “And if you structure your investment portfolio like I told you to, the only taxes you’ll be on the hook for will be in the form of dividend income, which are essentially untaxed if you make less than $50k each.”

    I believe that any amount withdrawn from an RRSP is taxed as ordinary income. So it doesn’t matter whether it is a dividend, capital gain etc… But as you say, if you stay below the personal exemption, you can melt the RRSP away without paying any tax at all.

  5. Nice article, I’d add that even though there’s no penalty in withdrawing from your TFSA account, you will have to wait until the following year for the amount to be added to your contribution room.

  6. Great article as always!

    In regards to government funds…what are your thoughts on the possible implementation of basic income? With the rise of job automation, the idea seems to be thrown around more frequently.

    In Ontario, they are planning a pilot launch for early next year:

    I’ve been writing about Job automation, and the most recent post discussed how basic income is a viable option with the rise of it:

    Curious to hear your thoughts on that. I wouldn’t mind a nice monthly paycheque from the government, even if it’s not a huge amount, and putting it towards investments!

  7. It should be Auntie Laura(as in Secord).
    Can’t believe that you didn’t know that. You need to watch more CBC Heritage Minutes when you’re back in Canada.

  8. Thanks, I was looking forward to this post – the Canadian portion! I am trying to find out more about RRSP meltdown strategies as I am RRSP-heavy and I did not contribute to a spousal RRSP plan (married later). I’m not 40 yet and my RRSP/DPSP is over 400k alone (which is 15 years of max contributions for me) and I already maxed out TFSA.

    It’s a ‘good’ problem to have but I like to keep as much as possible and not have to pay too much in taxes when I withdraw. Do you think it is worth it to withdraw more than the personal exemption and contributing to your TFSA? Do you think it is better to withdraw more annually from your RRSP so that you have more in your TFSA and non-registered accounts so that you will be hit with a smaller tax bill later?


    1. That is a LOT of RRSPs. But still, you have over 30 years until it turns into a RRIF, so that should be enough to get most of your money out $11k at a time. All that assumes you’re retired and have no other income though.

      It may make sense to withdraw more and pay some taxes now if you’re at a lower rate (like say the 15%-20% tax bracket) rather than be hit with a much higher one at 70. It depends on whether you’re planning on scaling up or down your jobs over the next few years.

      And obviously, since that’s a lot of money, you may want to run your numbers by a Financial Advisor before you do anything.

  9. In Canada, another way the government can help fund your retirement is by having kids 🙂

    All joking aside, if you have a taxable household income of only $40000 and 2 kids under 6 you receive $11450 / year from the gov’t. That’s a pretty big boost to your household cashflow, especially if you have significant untaxed income outside of that (eg: TFSA).

  10. Very impressive overviews, especially that you are so able in addressing the US system.

    In addition to the pre-59.5 penalties, there is one other nasty age based surprise in the US tax deferred system. It comes when you turn 70.5: Required Minimum Distributions…


    BTW, I am always uncomfortable adding links in my comments to the blogs of others. If I have overstepped my bounds, please just take it down. 🙂

    1. Wow, that means a lot coming from you. For the record, I had your book open beside me to make sure I didn’t say anything too stupid 🙂

      And yes, good note about the RMDs. We have that too in Canada when you turn 71 called minimum RRIF withdrawals, and it’s definitely something everyone needs to watch out for.

  11. Great post, thank you!

    Question – As a red, white, and blue flag-waver, if one starts the 5-year Roth IRA Conversion Ladder upon retirement and can’t touch the Year 1 conversion money until Year 5, does one need to have an additional cash cushion (on top of the In-Case-of-Black-Swan-Events cash cushion) to live off for those first 5 years? Or is there also side income from doing the things one loves doing to help offset life costs?

    1. Yes, you have to be more careful about planning your cash flow than we do because of these restrictions. For early retirees, it’s not really a huge problem though, because in order to retire in your 30’s/40’s, you generally need to have a savings rate > 50%, which means they typically have significant assets in their regular investment accounts as well. So it just means taking the time to get all their ducks in order before pulling the trigger on retirement.

      Justin talks about that in his post http://rootofgood.com/roth-ira-conversion-ladder-early-retirement/

  12. Great post. As a dual US-Canadian citizen, I found it very helpful. Now I’m trying to figure out how to contribute to both US and Canadian retirement systems.

  13. The difference in the number of comments is amazing. FireCracker had many (fiery) responses to the more emotional post about being able to retire early. In contrast, here you guys talk about the mechanics of actually doing it and the response is far more muted.

    Anyway, all this to say, thanks for a great post and keep the info flowing!

  14. Does it make sense to contribute to an RRSP vs non-registered account if I will be getting a defined benefit pension? (Assuming TFSA is maxed) I will still be paying the tax man no matter what age, but I am currently making more gross income than I would relying solely on a future pension (not sure how much government assisted funding like OAS and CPP would play into this)

    1. If you’re planning on sticking around until your DB pension kicks in, it probably won’t make too big of a difference either way. You’ll pay less tax now, but when you retire the DB pension would keep your income from dropping to 0, meaning you’ll probably be forced to withdraw it at a similar tax bracket negating the biggest advantage of RRSPs.

      If you want to retire early, then yes the RRSP will help because you’ll be able to reduce tax now and get it out tax-free in retirement.

  15. I currently have my RRSP and TFSA maxed out and have more money to invest. I hold VXC and VAB in my RRSP and ZRE and VAB in my TFSA with VCN in my margin account.

    If I were to invest more and wanted to keep the proper asset allocation should I wait until I have more room to invest in non-taxed accounts or just put the difference in the taxable account and pay more tax on the dividends? For Firecracker and Wanderer you guys must have most of your portfolio outside of your tax-sheltered accounts unless they really grew a lot inside them. My portfolio is 72% in tax-sheltered accounts but I don’t have a million invested like you guys. How much of that million is tax-sheltered?

    1. About 40%.

      And being true to your asset allocation always takes a priority over tax efficiency. It’s better to make your investments now and then move it into your tax sheltered accounts as your contribution rooms grow later than wait for your contribution room to grow big enough to contain your investments.

      It’s always better to make money and pay tax rather than not make money but pay no tax.

      1. That makes sense. And if I understand correctly you keep your fixed-income in non-registered accounts? I have noticed most articles I’ve read online suggest never putting bonds in your taxable account and to keep your Canadian stocks in the non-registered account. I have my bonds in my RRSP and TFSA and Canadian ETF in my non-reg currently because of that.

        Would it be smart to fill my TFSA 100% with my Canadian ETF and then put my bond ETF that is in my TFSA into my non-reg account instead as well as the leftover Canadian ETF shares? Thanks.

        1. Actually no, fixed-income is in our RRSP. You should definitely keep bonds in RRSP and CAD equities in TFSA. Unless you’ve run out of room in your TFSA, in which case the CAD equities go into non-reg. So what you are doing is correct.

          Just to reiterate the article, bonds are the highest taxed so they go into RRSP. Next up are the equities, which go into TFSA (as they increase in value, so will your TFSA room). And since dividend income is taxed most favourably, preferred shares go into non-reg (as well as any CAD equities that spill over if you run out of TFSA room)

          1. My choice is between holding bonds in TFSA or Canadian stocks in TFSA. My RRSP is mostly full of international stocks and a little bonds. Is it more important to grow the TFSA room with stocks or to avoid the taxes on the bonds by keeping them tax-sheltered over the stocks? That’s where I’m confused.

            1. Okay I think I fixed my portfolio now. I put all of my bonds in my RRSP along with some of the VXC. Filled the TFSA completely with VXC and put a little VXC into my margin with all of the VCN. I have 50% VXC, 25% VCN and 25% VAB now. Not looking to live off my portfolio yet so looking for future growth for now. So much simpler than having 25 different holdings to keep track of like I had before. My dividends are still pretty decent and lots less to do at tax time. And now my TFSA should grow nicely. Thanks for the help.

  16. BikeMike, you have a good point. The best way to get rich in Canada is: Sex, sex, sex, sex, and SEX… Yeah! My sister in law has five beautiful children (don’t know if she will stop soon) and she don’t even need to work. Thanks to Canada Child Benefit, she is receiving 31000$ /year + under table cash income from home. They are driving an Audi Q7, travel every year, send their children to private school and spent like crazy on goodies.

    1. Holy shit! We’re not nearly so prolific as that (and we also started pretty late), but we realized that if we manage to hit our targets over the next 5 years savings-wise, the extra $12k the child benefit will bring in will bring the gap between current cashflow and projected cashflow down below $20k, which can easily be had with a couple of contract gigs a year 😛

  17. Don’t forget the over age 50 incremental allowances in the US. If you are 50 plus and play the income limits correctly, you can contribute $18,000 plus $6,000 to a Roth 401k and then $5,500 + $1,000 to a Roth IRA = total of $30,500 each or $61,000 per couple. Saving that amount, tax free each year is a gift that can’t be ignored.

  18. Hi Firefracker,
    My father is a Canadian citizen that never* worked in Canada (he left the country in 1948 when he was a baby). Now he is back and he will get a $1000 CND pension from the country he lived in and he is trying to transform his assets into cash, which is more or less $500k CND. He is 70 year old and he is looking to move to Toronto, but $1000 might not be enough for him to live here. What would be the best way to invest the money without destroying the principal? He still wants to work but we don’t expect he will make much money here.

    1. Would he consider living in a lower cost city (maybe close to Toronto but not in Toronto)? That would save him a lot of money.

      Okay, so with a $500K portfolio generating 4%, that’s $20k/year. Add the $1000/month pension and you get $32k/year. Not bad for 1 person (Wanderer and I were living on that for the 2 of us in Toronto) The issue though is that since he never worked in Canada, I don’t believe he would have TFSA or RRSP room to shelter the investment gains. This is something you’d have to ask an immigration lawyer or accountant.

      Based on his age, I’d go with a very conservative portfolio of 40/60 (40 equity, 60 fixed income) or even 25/75 (25 equity, 75 fixed income). Do you want to talk to Garth? With a portfolio of 500K, he definitely has enough to be a client.

  19. Just checking if I should be careful with anything as I am investing as follows

    Currently, I invested more than 50k According to the profile below, if this does not seem to be very dangerous, I want to invest more (I might invest more on November, 2016 after USA election, Need to see the situation)

    20% Pref -> Currently CPD 50%, XPF 35% and HPR 15% -> want to change to 40%, 40%, 20%

    20% bond -> Currently XRB 20%, XCB 40% XSB 40% -> want to change to XRB 20, XCb 30, XSB 30, XHY/CHB 20

    5% REIT: XRE is almost 100% -> Planning for 60% XRE, 40% ZRE

    15% Canada -> Currently XIC 70%, XIU 30% -> thinking for XIC 40%, XIU 40%, VCE 20%

    20% international -> invested as XEM 25% and XEF 75% -> thinking XIN 75% and XEM 25% for Hedging purpose -> is it wise to sale on October and buy the new ones – does not look to be the greatest idea though to me -> does step by step buy sale better? I mean without selling all XEF or XEC sale partially and buy XIN/XEM and move gradually (I know more selling cost)

    20% USA -> XUS 100% -> though thinking XUS 60% XUU 40%

    Allocated as below:
    TFSA 35.00% $20,300.00 International, USA, Canada
    RRSP 45.00% $26,100.00 BONDS, USA, REITs
    Margin 20.00% $11,600.00 Preferred

    I might buy REITs in TFSA if I use up all money in RRSP; or might buy BOND and USA etfs with Margin if I use up all money in RRSP. Similar will be done for other accounts like if I use up all money in TFSA I might buy USA/Canada/International in other accounts (may be margin, I need to see what is more tax efficient according to your blog)

      1. SitesTree.com
        One can actually be over diversified. Remember a lot of your gains come from periodic rebalancing which can actually force you to buy lower and sell higher as opposed to trying to time the market. With a small portfolio simplicity (see earlier comments) can favourably reduce the costs of rebalancing. Also when you have
        broad market ETFs you already have interest in possibly hundreds of companies.
        Recent info indicates that simpler is better.

        Great site, not all boomers are assholes.

        1. Thank you.
          I have changed my mind a bit:
          I will do less diversify here: 20% Pref -> Currently CPD 50%, XPF 35% and HPR 15% -> want to change to 40%, 40%, 20%
          I might stick to CPD only because CPD has 25% perpetual, 69% rate reset, and some retractable and other Preferred Shares.

          I read that Garth/Raymond james recommend (source Internet): 30% in Perpetual, and then for the remaining part 50/50 older (4 years back) rate reset and newer rate reset.

          Can anyone say is there any preferred ETFs that has only perpetual? or anything that is only rate reset?? ZPR most probably is only rate reset, HPR might fall in that category (need to verify), but how can I find ETFs with older rate resets or newer rate resets in the same or seprate ETFs?

  20. Americans also have an option to withdraw early from a 401(k) using the 72t rule. You have to meet certain requirements, but it essentially allows you to take a fixed amount from your 401(k) penalty free every year until you hit 59.5 – all based on your life expectancy.

    It’s how my husband and I are planning to fund retirement in our late 30s.

  21. Hi there,
    Been a Bogle/CCP/Index Investing fan for some time now, and now a big fan of this blog!
    About $300k to invest (also have a Cash cushion)
    – Canadian Bonds Index in RRSP
    – Canadian/US/International Index Equities in TFSA
    – the extra Bonds and CAD/US/International Equities in Non Reg
    Allocation: 70 Equities /30 Bonds
    About 30% of my portfolio is tax sheltered.
    What do you guys think?

    1. 2 questions:

      1) US index Equities in TFSA
      – Are these US equities listed on the US index or CAD Index? If US index, they should go into the RRSP since there’s a withholding tax on US-listed US equities if held in a TFSA
      2) Your RRSP room seems abnormally small given your savings. You might want to make some RRSP contributions and use up some carried-over RRSP contribution room so you can fit the rest of your bonds in there.

  22. Hey FIREcracker, thanks for the super quick response!

    1) No I don’t have US listed equities (for simplicity purpose). All Canadian-listed index equities (Canadian/US/International). That’s why I will only put my Bonds in the RRSP.
    2) Yeah I know my RRSP contribution room is pretty small. Mostly because I ve been working in Canada for a few years only (worked abroad before). And my calculation includes the carried-over contribution room. I also have some DB plan which will use some of my contribution room.

    So yeah its pretty much 70% in taxable accounts…
    But I guess its still better to make some money and pay tax, than pay no tax and make no money.
    I could also get some GICs to “replace” the Bonds in my Non Reg (GICs would be taxed more favourably), but in this case it will mess my 70/30 allocation up.

    What do you think?

    (ps: I really like CCP and your blog is a great supplement!)

    1. OK so your position sounds more reasonable. But the GIC thing doesn’t make sense. GICs tax you each year as if you had received interest but don’t actually pay you to the end. I’m not sure why anyone owns those things.

  23. Yeah I ll use the extra bonds and equities in my Non Reg as originally planned. No GICs.
    TFSA already maxet out and allocated 1/3 Can 1/3 US 1/3 International.
    Need to take care of the RRSP and Non Reg now.
    Oh by the way, are you guys going to post a Questrade review soon? I remember you mentioned it a few weeks ago.
    I ll probably use this discount broker for my Non Reg.
    Buying ETfs commission free seems pretty good, wondering if there’s a catch.

    1. From what we see so far, Questrade is pretty good…only caveat is that they sign you for margin by default. So you gotta be extra careful not to use it by accident.

      We’re actually opening up a Questrade account and building a portfolio right now. There’s just a lot of paperwork and approvals to get through (a bit challenging when we’re traveling and relying on intermittent internet), so it’s taking a bit longer than expected. Hopefully, it will be up and running soon and we can write up a tutorial and review on it.

  24. Do you have any insights on Australian equivalents? I have a lump sum saved up with the goal of embarking on investments and planning for my future early retirement but as a Canadian ex-pat living in Australia I feel very out of whack having not grown up here and not knowing much about how things operate here compared to Canada.

    1. We’re not familiar with the investment and tax-sheltering options in Australia, but maybe other readers are? Anyone here know of what the Australia equivalent is?

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