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Bob Layton: The RRIF Rip-off

Bob Layton editorial: Your RRSP’s ‘best before date’
WATCH ABOVE: RRSPs come with a "best before date" that no one tells you about. They are great if you retire at 65, but not if you stay in the workforce for some extra years. Bob Layton has the details in this week's editorial.

Over the years I’ve met a lot of seniors living at the poverty level, through no fault of their own. They had been hard-working people, but illness or injury or lay-offs left them unable to save for their retirement and now they were choosing between buying food or medicine.

READ MORE: How much do you really need for retirement? We did the math

Once, there was a man going through the garbage behind 630 CHED and a couple of us went out to invite him in for coffee and ask him how he ended up in this condition. Microphone in hand we asked, “Was it alcohol? Drugs?”

None of the above. He said it was a heart attack that had left him in hospital long enough for his downtown business to go under and for a partner to abscond with whatever money was still available.

Having lost his home and everything else, he was now on the street. I was actually impressed that he took solace in the fact that his doctor wanted him to walk a lot every day, and now he did that, mostly in back alleys.

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I thought I was doing it right. Every month, I contributed to an RRSP. The financial experts had told me to do that, enjoy the tax break, and have money put away for my retirement.

READ MORE: RRSP deadline

It looked good in writing, but not in reality. RRSPs come with a “best before date” that no one tells you about. They are great if you retire at 65, but not if you stay in the workforce for some extra years.

As I passed my 71st birthday, I got a call asking me to come into the credit union for some financial information. I had no idea what was coming.

It turns out that when you hit 72, you have to turn those RRSPs you thought were putting away for your retirement into RRIFs. It sounded like some kind of accounting exercise, but there was a hitch. I was now driving on a federal financial toll road. As I passed the RRIF booth, I was required to pay.

You see, the money now has to be added to your income, a certain percentage every month which will increase as you age. You have no choice, even if you don’t want to take this money out right now because you are still working. That extra money, added to your paycheck, now raises your income. Some of the money you thought was wisely being saved for retirement is now being siphoned off by higher taxes.

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READ MORE: Here’s what taxes can do to your savings if you’re not careful

I knew my RRSPs would be taxed when I eventually withdrew the money, but it was supposed to be at a much lower rate because I would be existing just on that, a small pension, my Canada Pension Plan, and maybe Old Age Security. Now, it would be taxed at a higher rate, since it would be added to my current income.

The clerk across from me at the credit union desk, who was explaining all this, must have sensed the room was getting warmer, possibly because my blood was starting to boil at the thought of being forced to take out my savings.

“Please don’t get angry with me,” she begged. She was compassionate as she continued, “You are the third person I’ve had to explain this to today, and the others got really nasty. This is not my fault. Please understand that.”

I knew that, and I tried to tell her that, while I spent years working for the Post Office, I would not go “postal” on her.  It was a lame joke and it did not make either of us feel any better.

I told her that maybe I never should have bought those RRSPs, but what do you know when you are 20-something?  She told me the other upset members had said basically the same thing. No one realized they would someday delay retirement. And, no one knew about this 72 rule.

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I left the meeting depressed, feeling like I had a government gun to my head and they would be robbing me bit by bit until I finally retired with less money than I expected to have.

READ MORE: Money123 newsletter will tackle some of your biggest money questions

Little did I know, the worst was yet to be.

Back at the radio station, I was summoned to a meeting in the boardroom with some people from head office. The curse of being 72 was going to mean more coinage carnage than I thought.

It was not just my RRSP money I had to start withdrawing, it was also my company pension plan!

“My pension? I have to start taking my pension?  I choked out, “Are you kidding me?”

No, they were not. I would now start receiving my monthly pension.  It was income I did not want until I retired. Now it was added to my paycheck along with my RRIFs and my Canada Pension Plan. The tax man must be grinning from ear to ear.

The government was also sending my Old Age Security, but because of my new-found wealth, every penny of my OAS was being clawed back.

My bank statement looked like I was having the best year ever, but I was now in a higher bracket, and my tax bill was the worst ever.

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‘Debt and taxes’: Edmonton Riverbend Conservative MP Matt Jeneroux reacts to Budget 2018
‘Debt and taxes’: Edmonton Riverbend Conservative MP Matt Jeneroux reacts to Budget 2018

WATCH ABOVE: Edmonton Riverbend Conservative MP Matt Jeneroux reacts to Budget 2018

Your boss may want you to stay on the job, but if you stay too long you’ll be punished by the government for using your years of experience to win more awards for your company.

I was at a function recently and found myself sitting at a table with Edmonton-West MP Kelly McCauley.    When I started unloading on him about how I felt like I was being forced to pay for protection from some vicious mob every month, he knew exactly where I was coming from. He explained to me that some time ago, he worked to rectify the situation. He received support from the NDP, but was buried by the tax-hungry Liberal majority.

McCauley even wrote an Op-Ed piece for the Toronto Sun newspaper calling for the elimination of mandatory RRIF withdrawals.

There are many seniors caught in this trap, but I am likely one of the few that has a platform and a voice. I wonder if there are enough of us to make this an election issue?

I have to go now. My spidey-senses tell me there is a slimy siphon-snake slithering towards my savings, and I need to count to 72 and restrain myself from chopping off its head.

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Let me know what you think about all of this.

Bob Layton is the news manager of the Corus Edmonton group of radio stations and a commentator for Global News.