For many retirees, the focus shifts from growing wealth to preserving it. But one of the most overlooked risks isn’t market volatility, it’s taxes.
You may be surprised to learn that two retirees with identical savings can pay dramatically different amounts of tax each year. The difference often comes down to how and when income is drawn.
One of the most common issues arises when converting an RRSP to a RRIF. While the government mandates minimum withdrawals starting at age 72, those withdrawals can push you into a higher tax bracket, especially when combined with CPP, OAS, and investment income. In some cases, this can also trigger an Old Age Security (OAS) claw back, quietly eroding your benefits.
Another frequent mistake is drawing too heavily from registered accounts early in retirement, while leaving non-registered or tax-free accounts untouched. Without a coordinated strategy, this can lead to unnecessary taxation over time.
There’s also the matter of capital gains. Many retirees hold appreciated investments or real estate but don’t have a plan for when or how to realize those gains efficiently. A poorly timed sale can result in a significant tax bill that could have been reduced with proper planning.
The good news is that these issues are often fixable. Strategies such as income splitting with a spouse, carefully timing withdrawals, and balancing income sources across different accounts can meaningfully reduce your lifetime tax burden.
The key is coordination. Tax efficiency in retirement isn’t about one decision; it’s about how all the pieces fit together over time.
If you haven’t reviewed your retirement income strategy recently, it may be worth a second look. Even small adjustments can lead to meaningful savings and help ensure more of your wealth stays where it belongs with you and your family.
If you’d like a complimentary review of your retirement income and tax strategy, I can be reached at 604 981 2306.
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