The Tax-saving Miracle: Keep Your Hard-Earned Retirement Money Where It Belongs!
The Game-Changing Plan for Keeping More Money in Your Retirement
Interested in maximizing your retirement income from your savings? Consider examining your retirement earnings from a tax perspective.
Congrats!! Your retirement planning has been meticulous, and you’re well on your way to reaching your savings goal. Yet, planned savings only cover a portion of your retirement equation. The other crucial part involves strategic planning for spending — devising a plan to transform your savings into optimal retirement income.
How? Consider the tax angle. Take a closer look at your retirement income strategy from a tax perspective.
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Which categories of retirement income are subject to taxation?
Firstly, taxes take on a different role during retirement. Similar to employment income, the majority of retirement income is subject to taxation. This encompasses sources such as the Canada Pension Plan (CPP), Old Age Security (OAS), and company pension disbursements, as well as income derived from annuities and registered retirement income funds (RRIFs). Notably, withdrawals from your tax-free savings account (TFSA) are exempt from this taxation. However, once your taxable income surpasses a certain threshold, the government may request a portion of your OAS payments back, and in some cases, the entirety. Additionally, after December 31 of the year you turn 71, you can no longer utilize registered retirement savings plan (RRSP) contributions to offset your tax obligations.
Predicting Tax Liabilities During Retirement
The process of paying taxes takes a different approach during retirement. Unlike when you were employed and your income tax was likely deducted “at source” by your employer, as a retiree without a regular paycheck, you have various options for handling your tax payments:
The silver lining? There are withdrawal strategies and tax deductions specific to retirement that can assist you in helping retain a larger portion of your money.
First Strategy: Develop a Comprehensive Plan with Guidance from an Investment Advisor Portfolio Manager
Numerous avenues contribute to our retirement income beyond CPP and OAS, including:
To optimize tax efficiency, strategic planning involves determining the sequence and amounts drawn from each income source.
Keep in mind that each person’s circumstances are distinct, and excellent advice can be invaluable. A knowledgeable investment advisor portfolio manager can conduct analyses in various scenarios to formulate the optimal withdrawal strategy tailored to your needs. For instance, your investment advisor portfolio manager can guide you on the ideal timing to initiate the collection of your CPP, OAS, and private pension incomes. Additionally, they can provide insights on the most efficient method for withdrawing from your taxable investments.
When dealing with multiple taxable investments and income streams, adopting proportional withdrawals may be a sensible approach. By withdrawing a predetermined amount from each source in accordance with its portion of your total savings, this strategy can effectively distribute and mitigate the tax implications, potentially prolonging the lifespan of your savings. Once more, seeking guidance from your investment advisor portfolio manager can be instrumental in fine-tuning this approach to suit your specific circumstances.
Second Strategy: Divide Your Pension Income
Couples have the option to distribute up to 50% of eligible pension income between them, provided that the individual transferring income is at least 65 years old in the given year. This arrangement can result in substantial tax savings, especially if one partner earns significantly more than the other. Additionally, the flexibility exists to alter the percentage shared from one year to the next. It’s crucial to seek independent tax advice on income splitting to ensure proper execution.
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Third Strategy: Harness Tax Breaks to Your Advantage
After capitalizing on various tax deductions and credits during your working years, it’s essential to focus on those specifically applicable to retirees. For instance, consider the pension income amount, a credit available for eligible pension, superannuation, or annuity payments (excluding CPP or OAS). You might be eligible to claim up to $2,000 on your federal tax return, with additional savings possible on your provincial or territorial return, depending on your place of residence. Other potential avenues for tax savings include:
Navigating the extensive list of federal tax credits and deductions can be complex, but an accountant can assist you. Additionally, professional guidance can uncover opportunities for provincial tax savings, such as the Ontario Senior Homeowners’ Property Tax Grant.
Bottom Line
A meticulously designed tax strategy is key to ensuring the longevity of your financial resources. To receive tailored advice on managing your retirement income in line with your unique resources and goals, consult with a knowledgeable investment advisor portfolio manager.
Have Questions? Contact us!
We’ve assisted our clients through every stage of life. Even when you’re not aware that something might impact your financial future, it likely will to some extent. Engaging in a conversation with your investment advisor about any financial changes is an excellent approach to keeping your financial goals in focus.
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Don’t hesitate to reach out today at 1–888–324–4259 to discover more about how we can help you achieve your investment milestones.
Joe A. Macek, FMA, CIM, DMS, FCSI
Investment Advisor, Portfolio Manager
iA Private Wealth | iA Private Wealth USA
Toll Free North America: 1–888–324–4259
Email: [email protected]
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