If you're semi-retired or soon-to-be retired, we recommend that you map out a retirement income plan - well before you intend to put it into action. Some elements take time to arrange or implement, and there are critical milestones you need to know. Here are some key strategies to consider:
1.Choose a withdrawal strategy - Outliving one's money is a growing concern for many seniors, especially since few people can count on a guaranteed, inflation-protected pension for life. Limiting withdrawals to a set percentage of your portfolio or allocating your funds into buckets for specific purposes (e.g., basic living expenses, discretionary spending and emergencies) are two potential approaches to help your nest egg last as long as you do.
2.Level out income - The tax you pay has a direct impact on what's left to fund your retirement lifestyle. With an understanding of your tax bracket now and in the coming years, you can work to level out your taxable income from year to year - thereby minimizing amounts that creep into a higher tax bracket or reduce OAS payments. Carefully choosing when to withdraw from a Tax-Free Savings Account or take capital gains can provide some flexibility.
3.Split pension income - Since 2007, the Tax Man has allowed Canadian residents to allocate up to half their eligible pension income to their spouse or common law partner for tax purposes. If the two of you are in different tax brackets, it lets you split income and potentially reduce combined tax. The definition of qualifying pension income is the same one used for the pension tax credit (see article Capitalizing on the pension income credit).
4.Understand OAS and CPP/QPP - Think you'll automatically start receiving OAS on your 65th birthday? Unfortunately, no. You need to apply. You also need to evaluate whether, based on your personal circumstances, it's better for you to lock in a reduced CPP/QPP pension in your early 60s or wait till age 70 for a higher pension the rest of your life.
5.Turning 71 in 2012? If you were born in 1941, you need to close out your RRSPs by December 31, 2012, to avoid having the balance brutally taxed. Before you do, speak to our team to see whether you can make one final RRSP contribution - for yourself or a younger spouse - to earn a tax deduction.
These are only highlights of strategies that our team would be happy to discuss in more detail with you to help make the most of your retirement income. Call our office for an appointment.