In this month’s blog article, I’m going to go over a roundup of the best strategies to use to minimize tax on your retirement income!
Millions of Canadians are currently saving for and often worrying about retirement tax strategies that will help them financially in retirement.
Generally, most people want to ensure that they have enough saved for their retirement so they will not have to stress over money and finances in their 70s and 80s.
Most hard-working people want to ensure they are prepared financially and have reasonable expectations set for their retirement income. A common concern with everybody is taxes.
A high tax rate can eat into retirement savings faster than an individual can replenish them, hence knowing what the be best strategies are to reduce taxes on your retirement income is of vital financial importance!
Thankfully, both the financial markets and the Canadian government have created systems that help individuals saving for retirement minimize tax on your retirement income. Canadians have many opportunities to maximize their income outside of the country’s basic income tax regime.
Strategy #1 – Leveraging RRSP’s to minimize tax on your retirement income
The RRSP (Registered Retirement Savings Plan) is an account that can be easily used by a large number of working Canadians to minimize tax on your retirement income.
Consider RRSP’s, TFSA’s and your OAS!
This account allows individuals to put aside a percentage of their income in an account that is geared towards investments and growth. Individuals can establish this process when they start their jobs. They are able to more easily save for their retirements because the money is taken out of their paychecks before they even have the chance to spend it.
In addition, this money is often matched by employers. Employer “match” plans are simply free money that an employer gives an individual to help prompt them into saving more money and placing more of that money into their retirement accounts. A generous match is considered one of the benefits of having a full-time job.
Strategy #2 – Using a TFSA to minimize tax on your retirement income
The TFSA (Tax-Free Savings Account) is an account that individuals in Canada should be using along with their RRSP. This account is for amounts of money that an individual wants to save over the limits of their RRSP. The TFSA is an account that allows people to set aside either pre-tax or post-tax money.
Post-tax money can grow tax-free and eventually be spent tax-free. These accounts are the most attractive for individuals who are making modest amounts in their careers. This account can also be used to make a handful of qualified purchases.
It is helpful for both self-employed individuals and those who want to contribute more than the limit on their RRSP accounts.
Strategy #3 – Avoiding OAS clawbacks to minimize tax on your retirement income
OAS (Old Age Security) is a fundamental park of the Canadian retirement income system. Individuals with significant retirement savings need to be careful and make sure that they are receiving as much money as they can from OAS. OAS begins to claw back some of its proceeds for higher earners and takes all of it back at a certain level.
Retirees should focus on strategies that will reduce their income immediately upon retirement and increase the money they receive from the Canadian government. They can split their income and divide it between multiple family members. Canadians can also purchase investments that are not directly held in RRSP accounts. Another option is to defer payments of OAS to age 70 since yearly income may have decreased by that point.
A roundup of the steps to consider when thinking of minimizing taxes paid on your retirement income
Canadians who are interested in retirement tax strategies need to look for retirement tax advice and start as early as they possibly can. In extremely simple terms, Canadians need to work on spending as little as they can while at the same time saving as much as possible.
Step 1. – Contacting an investment advisor
Once they have a budget and a plan for savings, individuals then need to contact an investment advisor like Claudia Weisser. This advisor will help them prioritize the three aforementioned tax-deferred accounts. They should first focus on placing as much money from their employer into an RRSP. This money will often include a match. They should place both the original money and the match into index funds that will allow them to spread their risk around the global economy.
Step 2. – Review & consider the advice of your investment advisor
Then, an individual needs to consider the advice given by Claudia Weisser investment advisor and fill their TFSA with as much money as they can. They need to set up a process where they can continue to fill that account on a monthly basis.
Step 3. – Developing & understanding old age security (OAS) clawback’s early and preparing a strategy
Finally, individuals need to start thinking about how they can minimize the amount of money that will be reduced from their OAS payments. Individuals should review their strategy and modify it on a regular basis depending on their changing income levels and goals.
Canadians should be proactive when they plan and save for retirement. They should seek retirement tax advice, embrace available accounts, and meet all of the saving limits proscribed by law. As Assante advisor suggests, individuals should also embrace real estate and brokerage income sources that are not directly controlled by government accounts. Canadians are living longer and face more financial pressures than ever. They need to ensure that they are as prepared as they can possibly be for their future retirement.
Should you wish to learn more on the services discussed in this blog article, feel free to reach out to me by email or via Facebook Messenger at any time. I’m always available to help those who want to grow & manage their existing wealth!