Retirement is the pinnacle of most Canadians’ financial plans. But the financial industry’s emphasis on investing means there can be a tendency to overlook alternative strategies that can make retirees better off when they stop working. Here’s a look at some of them.
If you have eligible pension income, you may qualify for the pension income amount. This is a tax credit that can reduce tax payable. One source of income that qualifies is defined benefit pension income. Fewer retirees have pensions these days, but most have registered retirement savings plans.
If you convert your RRSP to a registered retirement income fund by age 64, RRIF withdrawals starting at age 65 qualify for the pension income amount. If you have a large RRSP or another reason you are hesitant to convert your whole account, you can consider converting part of your account. RRSP to RRIF conversion is not all or nothing. You can convert $14,000 of your RRSP savings into a RRIF, for example.
What is the significance of $14,000? If you have a low or modest income, you can withdraw $2,000 per year tax-free or close to it due to the pension income amount tax savings between age 65 and 71 when you must convert your RRSP to a RRIF. That is seven years inclusive, times $2,000 of RRIF withdrawals, or $14,000 in total. Tax savings may be about $400 per year or $2,800 cumulatively by age 72, depending on your province or territory of residence. For two spouses, that could be more than $5,000. Especially for a retiree couple whose finances are tight, that $5,000 may be material.
Every time I write about Canada Pension Plan deferral, I get accused of working for the government and conspiring to reduce people’s hard-earned pensions. For the record, I am a financial
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