You may have started young, planned well, and entered retirement in a healthy spot. But be careful not to overlook your financial situation in retirement. Even if you have a large nest egg stashed away, there are still important components that can hinder or improve your financial health.
“Don’t simply Retire from something, have something to retire too!”Harry Emerson Fosdick
In previous posts, we looked at finance tips for Millennial’s, Young Parents, Mid-Life Crisis, and Pre-Retirees. We are rounding out this series this week with finance tips for those that looking to retire or are already retired.
Before we actually get into the tips, here are three characteristics that are typical of retirees: They are usually over 60, no longer have dependent children, and are obviously no longer working. Therefore they rely on a retirement income stream.
The following tips are not an exhaustive list, but rather tips we thought were extremely beneficial. If after reading the following tips you are interested in figuring out more about your financial situation, contact us.
Generally CPP starts at 65. However, it can start as early as 60 and as late as 70. By taking CPP early the amount received is reduced by 0.6% for every month before your 65th birthday. On the other hand, delaying CPP increase the amount received by 0.7% for every month after your 65th birthday.
When to start taking CPP depends wholly on your individual circumstance. Things to consider are; How much do you have saved? How much income will you need? Are you still earning employment income? What age will you retire? How long do you expect to live?
No matter when you start taking CPP, you must first apply to receive it.
During retirement your income shifts from active employment income to passive income. Withdrawals from different accounts are taxed differently (Pensions, RRSPs, TFSAs, non-registered, etc). Some accounts also have minimum and maximum allowable withdrawal amounts.
For reference, LIF accounts have a minimum and maximum based on your age, or in some cases the age of your spouse. RIF accounts have a minimum but no maximum based on your age.
Registered accounts are also taxed differently than non-registered accounts. There are also several tax credits and reductions available specifically to retirees. To get the most tax-efficient income consult your advisor and a tax planning professional.
Save TFSA Withdrawals for Later
Withdrawing money from a TFSA should be delayed as long as possible. By delaying withdrawals, it allows the funds to continue growing tax-free. Due to their Tax-Free nature, TFSAs should be saved in case of emergency or large unforeseen expenses.
When these funds are withdrawn they have no impact on your taxable situation. So if a large unavoidable expense pops up, withdrawing money from a TFSA will not generate a large tax bill. However, a withdrawal from a different account could have adverse tax effects.
Have an Estate Plan
One of the most important things in retirement is having an estate plan with updated Will and Power of Attorney reflecting your wishes.
Unfortunately for most Canadians, estate planning is overlooked. A shocking number of Canadians die without a Will, or leave a murky and outdated Will that can be contested by family members that aren’t getting along.
Even though you are unlikely to have to deal with it for several decades, having an appropriate and updated estate plan with corresponding Wills and POAs can save a lot of time, money, and headache for your loved ones and trusted advisors.
An estate plan will address who gets what assets and under what circumstances, ie. Who gets the house, investments, and a lump sum or split up over several years, a portion held back for taxes or other considerations, such as – will charitable donations be made through the estate? etc.
By selecting appropriate and qualified beneficiaries, it allows the funds in some accounts to bypass probate.
For registered accounts (Pensions, RRSP/RIF, TFSA) you are able to elect beneficiaries. Upon your passing, investment accounts can be liquidated and cheques issued to the beneficiaries in the matter of days or weeks.
In the case of spouses having each other as beneficiaries to the applicable account, on the passing of the first spouse, the surviving spouse can assume all of the investment accounts, registered (TFSA/RRSP) or non-registered, without any taxable event.
When selecting beneficiaries it is usually best to select a spouse or next of kin. We suggest you talk with your advisors to see which accounts are best assigned to which beneficiaries.
For more comprehensive advice on your situation sit down with your financial advisor, or contact us to make an appointment. If you discuss the topics mentioned above with your advisor, they should be able to crunch some numbers and help you get the best after-tax income possible.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy