Retirement often brings more flexibility—but it also introduces new financial decisions. The focus shifts from saving to drawing income, managing taxes, and ensuring wealth is transferred efficiently. The good news is that a few thoughtful adjustments can go a long way towards improving after-tax income and preserving wealth over time.
Income Splitting: A Simple Way to Reduce Taxes
One of the easiest opportunities in retirement is income splitting. If one spouse earns more retirement income than the other, shifting eligible income can lower the household tax bill. Pension income, RRIF withdrawals after age 65, and certain annuity payments can often be split. While the rules are straightforward, the impact can be meaningful—particularly when coordinated with other planning decisions.
Making the Most of Your TFSA
The Tax-Free Savings Account becomes increasingly valuable in retirement. Many retirees focus on RRIF withdrawals, but excess income that isn’t needed for spending can often be redirected into a TFSA. This allows future growth to occur tax-free and, importantly, withdrawals do not affect income-tested benefits such as Old Age Security. Over time, this creates a flexible pool of funds and helps manage taxable income.
Managing Government Benefits
Understanding how government benefits interact with your income is important. Old Age Security can be clawed back at higher income levels, which means managing RRIF withdrawals, pension income, and investment income becomes part of a broader strategy. In some cases, delaying CPP or OAS can increase guaranteed income later in life and reduce reliance on investment withdrawals in the early retirement years.
Using a Younger Spouse’s Age for RRIFs
Another often overlooked strategy is using a younger spouse’s age when establishing a RRIF. This simple election lowers minimum withdrawals, allowing investments to remain tax-deferred longer. It’s a small decision that can meaningfully improve tax efficiency and help extend portfolio longevity.
Where Trusts May Fit
Trust planning can also play a role for some families, particularly where there is a desire to provide ongoing support to children or grandchildren, manage complex family situations, or reduce probate exposure. An inter vivos (family) trust may allow income splitting and provide more control over how assets are distributed, while testamentary trusts—created through your will—can help manage inheritances for beneficiaries who may benefit from structured distributions. Trusts aren’t necessary for everyone, but when appropriate, they can add flexibility and control to an overall estate plan.
Tax-Efficient Charitable Giving
Charitable giving is another area where thoughtful planning can create both personal and financial benefits. Donating appreciated securities instead of cash can eliminate capital gains tax while still generating a tax receipt. This approach can be particularly effective in years where income is higher than usual.
Gifting During Your Lifetime
Many retirees also explore gifting during their lifetime. Helping children or grandchildren earlier can be rewarding, and in some cases may reduce the size of an estate and associated costs later. However, it’s important to understand potential tax implications before making significant gifts.
Reviewing Your Estate Plan
Retirement is an ideal time to review estate documents. Ensuring your will, beneficiary designations, and powers of attorney are current helps avoid complications and ensures your wishes are carried out. These documents should reflect your current family and financial situation, not the one from many years ago.
Bringing It All Together
While each of these strategies can stand alone, the greatest benefit often comes from coordinating them. Managing withdrawals, minimizing taxes, preserving government benefits, and planning for estate transfer all work best when viewed as part of a single, integrated plan. Even modest adjustments, when implemented together, can improve long-term outcomes.
A Thoughtful Review Can Make a Difference
Retirees’ financial plans often don’t keep pace with changing markets, tax rules, and personal circumstances. A periodic review of income sources, tax exposure, and estate planning can uncover meaningful opportunities both short and long-term. Without this review, you may miss important opportunities and face unnecessary risk.
Given the stakes, I’d recommend a comprehensive review with an experienced advisor. I’m happy to help you develop a coordinated approach that keeps your retirement income tax-efficient, sustainable, and goal-aligned.
This article may contain strategies, not all of which will apply to your financial circumstances. The information in this article is not intended to provide legal, tax or insurance advice. Ensure that your own circumstances have been properly considered and that action is being taken based on the latest information available.
Derek Seely PhD, MBA, is an investment advisor with RBC Dominion Securities. He brings over 30 years of experience in financial planning, investment management, and academia to help clients build tax efficient retirement and wealth strategies. For more information, please contact Derek Seely at RBC Dominion Securities at derek.seely@rbc.com or 613-721-4644.
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