Episode 126: RRSP & TFSA Maxed Out? Next Step Strategies For High Income Earners

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Are you wondering what comes next after maxing out all your tax-efficient investment accounts?

If you’re a high-income earner who’s already filled up your RRSP, TFSA, and other savings vehicles, you may be stuck figuring out the next strategic move to secure both your retirement and your legacy. The question of how to balance optimal returns and future tax liabilities can be overwhelming—especially if you’re aiming for early retirement.

In this episode, you’ll discover a real-world example of an individual facing this exact situation, so you can learn a practical approach to reducing tax burdens, maintaining strong returns, and creating long-term stability for your loved ones. Even if you’re comfortable with traditional investing, there are advanced strategies beyond your standard accounts that might be the missing piece in your wealth-building puzzle.

• Learn how to strategically integrate permanent insurance into your portfolio for enhanced tax and estate planning.
• Discover the benefits of transitioning part of your portfolio into a more stable, growth-oriented “fixed income” alternative.
• Uncover the advantages of blending conservative leverage and optimized asset allocation, so you can keep your wealth working at peak efficiency.

Start listening now and get the step-by-step framework you need to optimize your investments and protect your family’s financial future!

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Achieving financial independence retire early (FIRE) requires smart planning, especially when it comes to growing your net worth and generating passive income with a focus on the sequence of returns of your Canadian investment portfolio. For business owners, navigating the complexities of corporate structures, tax implications, and investment strategies can feel overwhelming. From understanding capital gains rules to leveraging life insurance for wealth optimization, the right approach can transform your financial future. By aligning your strategy with tax-efficient tools, you can unlock the full potential of your business and investments, ensuring sustainable growth and long-term independence.

Transcript:

Hey there, Canadian Wealth Secret Secrets. It’s Kyle here and today we’re gonna be digging into, this is from a listener of the podcast who has reached out and was looking to book a discovery call. You can do the same thing. You can reach out at canadianwealthsecrets.com forward slash discovery and we’ll ask you a few questions to try to figure out where you are in your journey and we’ll try to help you immediately point you in the right direction. With this particular client,

they had submitted some information. actually went back and forth a few times through email and we actually have not hopped on a call as of yet. We’re actually gonna be hopping on a call later this week. However, based on how complete the information, the questions that I had asked, they had submitted back quite a bit of information and I thought it would be useful here because guess what? A lot of you may find yourself in this particular scenario and really what I’m gonna say is this client has a high T4 income

and has essentially maxed out all of their tax efficient buckets out there. So we’re talking about the RRSP, the tax free savings account, the RESP, and they even have defined contribution pension plans backing them up as well. And they’re doing a great job so far with their investing. So I thought.

the question is, like, what do we do next? Like, where do we go? What does this strategy look like and sound like? And of course, there’s never one size that fits all. But I definitely had some ideas based on this specific client profile. So the first thing I’m going to do is I’m actually going to share the screen, I’m going to share some context for you. If you’re on YouTube, you get to watch this along and you know, it’s a little more visual, which is great. But for those listening on the podcast, no sweat, I’ll do my best to describe here. So we’ve got

a client who is married with two children. The children are young, three and six years old. The client is 43, the spouse is 38 years old. And they have about a $300,000 gross T4 income. This particular individual is the sole earner. And they actually have quite a few investments. So they have about $85,000 in a joint non-registered investment account that is essentially distributing.

income each and every year. Now, we don’t have all the context around what the investments are as of yet. But I’m going to guess that if they’re unregistered investment distributions, we’re either talking about dividends through, you know, a dividend stock type portfolio, or maybe it’s through private investments in, you know, a REIT or, or real estate of some type. But I’m going to go with probably dividends here. That’s my my assumption.

So they’ve got quite a bit of income coming in. They have a primary residence worth about $1.1 million. They have self-directed brokerage accounts. like they’re doing things kind of on their own at about $5.5 million in total, including maxed out defined contribution pension plans, RSPs, and tax-free savings accounts. And they have only about $50,000 remaining on the mortgage, which will be paid off by next summer.

and they have some goals and context. So really trying to figure out like what do they do in this particular case, he’s thinking about exiting the traditional T4 employment scenario, we’ll call it, you know, getting themselves to that financial freedom goal by 2029. So retiring early when it comes to, you know, comparing to other individuals out there or at least what is typical for retirement here in Canada.

So that’s the goal by age 48. And they’re gonna require about $180,000 per year on average in post-tax cashflow for the first 15 years of retirement, reducing that afterwards, okay? So today we’re gonna be talking about some ideas here and some things they might wanna think about as well. So first and foremost, what I see…

Oh, and actually, let me dig in a little bit further here. So they have some estate planning concerns. They have a $1.9 million in capital gains tax exposure on current non registered investments. And for those who are unaware, that’s only going to get worse, right? You know, they’re going to continue to grow these assets. And that’s a good thing. That’s a good problem to have. However, basically, they’re talking about about 2 million of capital gain exposure currently.

and that’s something that they’re gonna want to essentially keep in mind as they move forward. They also anticipate significant tax liabilities for their RSPs and their defined contribution pension plan if unable to draw down before passing. So there’s some things going on here. They’ve also been looking into things like the infinite banking concept. So that was important. They had said they’re reading, becoming your own banker, listening to podcasts and exploring online articles.

and they’re really trying and they were saying that they’re looking at using the policy as a replacement for some or maybe even all of their fixed income allocation that they have in their portfolio. So essentially transitioning to about 20 % fixed income portfolio at this point that’s about $1.2 million over the next four years is the goal and they want to maybe use that policy as a

They call it a cash wedge or a reverse glide path in retirement, reducing fixed income allocation to 10 % over the first decade. So they’re doing a ton of thinking here, like lots of great things going on. The first thing that I’m thinking for this particular client for this couple is that they do have that primary residence right now. They only have a $50,000 mortgage on it. So first and foremost,

the Smith maneuver is something that they can implement into this process by slowly sort of transitioning some of that mortgage debt into tax deductible debt. Now, their mortgage is down to $50,000, so it’s due to be paid off by next summer. So my guess here is that maybe they just feel more comfortable with no debt on their primary home. Totally respect it, totally get it. But it’s worth mentioning that there is a significant amount of equity in this home.

that they could potentially start pulling and putting into the market creating some tax deductible interest that they can then write off against T for income. So that’s one strategy that can you know that can be used and can be allocated. This would ultimately create an expense.

but it would also create a larger portfolio. I would recommend that if they are gonna use the Smith maneuver that they would actually put that into equities. That might mean transitioning some of their current unleveraged portfolio into more fixed income like assets. So once again, a permanent policy might be a good place to start. So you can kind of hit two birds with one stone. So we have a lot of good things going on here. So what I did based on their age,

was I actually ran a couple scenarios here and actually ran a policy that could be a good fit as a starting point for them to consider. So what we’ve done here is I’ve actually created this policy and I’ve utilized a flexible funding policy and that’s typically what we get anyway when we’re trying to create high early cash value. So this particular policy,

is and I just took I believe I just took one of the spouses there so I have this based on a 43 year old individual so it’s on the the working spouse and they can put in as little as 92,000 into this policy up to a maximum of 250,000 dollars per year now you might be asking yourself why would we design such a large policy like why do want so much going in there well

We know that we want to transition over these next four years into having a fixed income of about 20 % fixed income portfolio or asset allocation. We can then do this over the next few years to get ourselves as close to that $1.2 million mark. And then we can actually start kind of pumping the brakes on how much we put into this policy. So what I’ve done here is I show a five year runway putting in 250 per year that could be funded from

new T4 income could be funded by actually taking some of their assets that they currently have in their unregistered portfolio and slowly transitioning each and every year some of it into this fixed income portion of their portfolio. And by year five, they’re gonna have contributed $1.25 million into this policy.

Now in years 49, sorry, year six to 10, which is when the client is 49 to 53, I’m showing how actually contributing the minimum amount for those last five years might be helpful. Now, of course, we’re gonna play with these ideas back and forth and who knows, it might be a smaller maximum amount that makes sense here. But as a starting point, what we can see here is we can see the actual cash value growing.

by quite a bit here if we look at that cash value and by about year five, we are past the breakeven point on this policy. By about year four, we are past the breakeven point on cash value. And that means from that point on is when every dollar that we put into this policy turns into more than a dollar of cash value, right? So the idea here is that if we are going to continue growing our equity portion of the portfolio, that’s gonna continue.

to grow in compound over these next four or five years as they transition towards this potential retirement date, or at least what he had said is transitioning out of a typical T4 income anyway, and actually putting us in a position where we’re gonna allow this fixed income portfolio to kind of grow alongside the equity portfolio. And then basically, once you hit about year 10, what you’re gonna notice is that the compound machine of this

this policy is actually going to get stronger and stronger. And therefore it may make sense to actually continue funding this thing. But for now we’re gonna offset at year 10. So we’re gonna fund this thing, 250 for five years, 92,000 for the next five years, and then we’re gonna offset. That’s a total of about 1.7 going into this particular structure. So once again, not a hard fast rule that we need these actual amounts.

We might do 200 per year for five years and so forth. So it’s a starting point for us to look at. What you’ll also notice is that the death benefit it is generating is quite significant as well. So what you’re going to see here is that the death benefit starts at about $4.8 million and continues to grow as well. That provides a couple things here. First of all, it grows.

each and every year and when that death benefit eventually pays out, it’s going to pay out tax free and that’s going to be really helpful on the estate planning side of things. So not only is it going to help mitigate capital gains taxes on all the other assets, because remember this asset, it’s going to be worth whatever it’s worth in cash value until the insured person passes. As soon as the insured person passes, the actual death benefit is the value of this asset.

and it’s tax free, no capital gains. There’s no other asset out there that will actually do this where all of a sudden it’s worth one thing one day, the next day it’s worth something completely different and there’s no capital gain associated with it, which is quite fantastic. So it’s gonna help mitigate and actually leave, mitigate taxes and leave more of a legacy for the next generation, the spouse, the whoever it might be.

that is going to be the recipient of this inheritance or the value of this estate. So that’s a really important point here. Now, why this is really important to note is that if we actually transition over, what I’ve done is I’ve taken the portfolio, they anticipate that portfolio is gonna get up to about 6 million before too long. So I’ve got 6 million here, but we can adjust this as we move forward after this first call that we have in a few days time.

but I have the equity portfolio and I have it just growing at 7 % per year. Now, you know how I feel about, you know, trying to just pick a number. We know it’s not gonna be 7%, but I have a funny feeling that the way they are managing their funds, they’re doing a fairly good job so far. whether they’re doing risk mitigation, whether they’re doing, you know, just fire it into equities and, you know, hope and pray method, I don’t know what’s going on yet.

but they’re doing a great job so far, at least in terms of where their assets are currently, and it’s all being self-managed. So I’m picking 7 % as a really conservative number here to use. And based, what I’m gonna do here is we’re only gonna use the equity portfolio as a means to fund this policy over the next 10 years. We’re also going to account for the fact that starting in the next five or so years, that they’re actually gonna require income to be pulled

from somewhere, whether it’s from the cash value by leveraging cash value or whether it’s from the equity portfolio that we don’t know where it’s going to come from yet. But I want to build this in as a starting point. So now the client can actually look and see, okay, if my equity portfolio is growing at 7 % ish per year, which again, I think is going to be conservative. I’m able to actually pull out 250 for the next five years to fund this policy.

And what you’re gonna see alongside it here is the actual cash value growth and the death benefit. And we’re actually gonna see that the equity portfolio will still continue to grow beyond that amount. So what I mean here is that like this 250 is actually not even putting a dent into the growth of the portfolio at 7%. So you’ll see the 6 million turns into 6.15, then the next year it turns into 6.3.

By year five, it turns into $6.8 million. Now, that’s definitely less than if we didn’t fund the policy at all, right? Like by, you know, it’s going to continue growing at a much more significant, you know, clip than say an insurance policy. However, because the goal is to get to that 1.2, that 20 % fixed income portion of the portfolio, and they’re thinking about utilizing this asset class as the means to do it,

it really makes sense for them to fund a policy harder in these next five years to get it going and then potentially less in the next five years by putting in the minimum, this $92,000. So what you’re gonna see here is that when we look at the net result here, each year when we consider the equity value and the cash value of the policy for the first five years, you’ll note that we have 6.3 million.

all the way to at the end of year five we’re at 8.1 million. Now if I look at what the equities would have done on their own it would have been 8.4 million dollars okay so once again like there is a difference there that is relative like that’s significant enough right but the difference is is that we are transitioning some of this portfolio to fixed income and so that means you know more conservative returns for that portion but also less volatile

for that portion of the portfolio. But the second thing we’re getting is we’re getting the tax minimization through the death benefit. We’re getting the tax mitigation, I should say, right? We haven’t even factored that part in yet because actually if that person were to pass in say year five, of course we don’t hope that for anyone, but the actual estate value would pop to about 13.9 million just based on what we’re exploring here now.

And as we continue to go and even start pulling $180,000 of income out of this portfolio, you’re going to note that the equity and cash value portion continues to grow and it continues to grow fairly significantly. By the end of year 10, we’ve been able to fully fund a policy, max funding for 250 for five years. We’ve then put minimum funding at 92,000 for five more years. And then we’ve offset this policy. And by year 11,

the net, sorry, the equity and cash value will be worth 10.6 million. The estate value would be about 16 million. Now I am not factoring in the equity capital gains that are gonna be triggered here, okay? So we’re not doing that yet. We will do this with the client, but at this point, the idea here is that you’re now putting yourself in a position where while you’re alive, your equity and cash value portion is still growing

quite significantly even after pulling 180 per year and if and when you pass your actual estate value will pop. So if we look after 20 years we’re no longer funding this policy by the way we have equity and cash value at 16.5 million dollars after pulling income each and every year up until that point and the estate value when we consider all equities before considering capital gains

and the death benefit of 20.7 million or $20.8 million. As we roll along here, we’ve essentially built in an estate plan while also reducing the volatility of this portfolio by essentially funding enough to make that fixed income asset allocation at 20%. They can maintain their 80 % equity allocation and they’ve managed

to also create quite a bit of a state value along the way. If they pass when they’re 90 years old, this particular individual, so this is 47 years after we’ve put this plan in place, they’ve been pulling 180 per year. We have not included inflation yet, but that will be something that we’ll do in future discussions with this client. They now have equities and cash value of about 78 million. And if and when they pass, if it was in that 90th year,

They have a pop of about two million in terms of the estate value. So once again, helping to mitigate the capital gains, tax and risk that is associated with that. So why I’m sharing this with you friends is because there’s a lot of people who are listening who may have high incomes, maybe tax, T4 incomes. I know we talk a lot specifically to incorporated business owners. There is a ton we can do.

with the flexibility that we have utilizing corporate structures and policies in corporate structures to help you mitigate taxes and optimize your wealth plan. But for your high income earners, those people who have maxed out their pension opportunities, their RSPs, their tax-free savings and their RESPs, well guess what? There is a logical reason why you wanna be considering.

permanent insurance, specifically high early cash value permanent insurance in your strategy. I know there’s some people out there that are anti insurance. I used to be one of them. I it’s 100 % something that I used to be anti insurance. I did not want to be putting money into that. But once I understood how we can structure permanent and in this particular case, high early cash value permanent whole life insurance policies either at a corporate or a personal level.

It completely changed and flipped my mind on things. And this is why we help with so many high income earners and incorporated business owners with strategies involving conservative leverage via Smith maneuver, via insurance policies, other creative structures so that you can maximize the cashflow that you have in your lifetime, but then also not be leaving less behind when you move on to the next world.

So if this resonates with you, if you’d like us to review your situation, you should be heading on over to CanadianWealthSecrets.com forward slash discovery so that you can answer a few questions, learn a ton along the way and book a discovery call with me. If you are a incorporated business owner, we have a online free masterclass that you can register for. You just hop on over to CanadianWealthSecrets.com forward slash masterclass.

It is all self-paced, so you can hop in at any time and dig in so that you can better understand some of the many strategies and structures that we utilize to try to optimize our tax scenario and maximize our wealth accumulation over time. All right, my friends, thanks for hanging out with us again. Remember, this is not tax legal or accounting advice, and you should always seek out a professional. before making any sort of financial tax legal decision.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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