Retirement can be viewed as a series of stops-and-starts. For example, stop scheduling your life around work hours and start going with your personal lifestyle flow. Stop stressing about your morning and evening commutes and start driving when you want. Stop worrying about project deadlines and start engaging in personal interest projects and pastimes on your own timelines.
Tax planning is one thing that definitely should not stop when your employment stops. Post-retirement tax strategies are vital to maintaining the retirement lifestyle you want for all the years of your retirement. Start with these three income-protecting objectives:
- Always take full advantage of all the direct tax deductions available to you.
- 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.
In keeping with these three objectives, here are some other important post-retirement tax-reduction and income-protection strategies:
- Plan Registered Retirement Income Fund (RRIF) withdrawals. Withdrawals from investments held in your RRIF are fully taxable – so manage your taxable income by withdrawing only amounts that are required.
- Reduce taxes through tax efficient asset allocation. Keep 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 your registered plans.
- Take full advantage of all available tax credits and deductions. Don’t forget the age credit for those aged 65 and older, the pension income credit and medical expense credit.
- 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.
Talk to your professional advisor about smart tax-planning and investment strategies that make sense for your retirement – like 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.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.