Most retirees have envisioned plans for their retirement – perhaps travel, maybe volunteering, or even starting a new business – but whatever your retirement plans are, there is one plan you ought to have to ensure you’ll maintain the retirement lifestyle of your dreams for all the years of your retirement; a post-retirement tax plan that starts with these three income-protecting objectives:
- Always take full advantage of all the tax credits and deductions available to you including: the age credit for those aged 65 and older, the pension income credit, and the medical expense credit.
- Keep your net income and taxable income low enough to avoid such potential pitfalls as the Old Age Security (OAS) clawback or losing out on the age credit and possibly the GST/HST credit.
- Ensure that your monthly cash flow is not eroded by increases in the cost of living and that all your investments will last a lifetime.
With those three objectives in mind, here are some other important post-retirement tax-reduction and income-protection strategies:
- Plan Registered Retirement Income Fund (RRIF) withdrawals accordingly. Withdrawals from investments held in your RRIF are fully taxable – so manage your taxable income by withdrawing only amounts that are required to fund your lifestyle needs.
- Reduce taxes through tax efficient asset allocation by keeping fully-taxable, interest-generating investments inside a tax-deferred Registered Retirement Savings Plan (RRSP) or RRIF as long as possible, while keeping assets that are more tax-efficient -those that generate capital gains or Canadian dividends – outside of your registered plans.
- Reduce your taxes by splitting Canada or Québec Pension Plan (CPP/QPP) income with your spouse when your spouse has a lower CPP/QPP entitlement and is in a lower tax bracket.
- Contribute to a spousal RRSP. You must convert your RRSP to a RRIF no later than December 31 of the year in which the owner attains age 71, resulting in no further contributions to your own RRSP. However, if your spouse has yet to reach age 71, you can contribute to a spousal RRSP on their behalf using any of your unused RRSP contribution room.
Your professional advisor will know which tax-planning and investment strategies make sense for your retirement – such as investing in a Monthly Income Portfolio (MIP) that can protect your income against inflation and generate stable and reliable income distribution (outside your RRIF or RRSP) and potentially higher long-term growth – so you’ll continue to have the income you need for all your retirement years.