Friday, June 26, 2009

Taxes and Your Retirement Income


Managing taxes on your retirement income

Making the most out of your retirement income
Are you maximizing your retirement income? What are the sources of your retirement?

Living the retirement lifestyle you want means making the most of your retirement income over a longer and healthier span of years. And that definitely demands that you establish effective tax planning and tax management strategies aimed at maximizing your retirement income by reducing/minimizing your taxes and potential Old Age Security (OAS) ‘clawback’ pressures. When your net income reaches a certain threshold, then the OAS clawback kicks in. For 2009, the threshold starts at $66,335.

Here are three strategies to consider in your tax planning:

Income-splitting

This basically means structuring your investments and sources of income to lower your family’s total tax liability by shifting income from the hands of the spouse (or common law partner) in a higher tax bracket to the spouse in a lower tax bracket. You can do this in two ways:

  • Pension income-splitting. Allocate up to 50 per cent of your ‘eligible pension income’ (which includes income that qualifies for the federal Pension Income Credit and Registered Retirement Income Fund (RRIF) income for those over age 65) to your partner for taxation purposes.
  • Share Canada Pension Plan, Quebec Pension Plan (CPP/QPP) benefits. Applying to share your benefits with your partner can result in significant tax savings.
Tax Free Savings Account (TFSA's) for those 71 or older

At the end of your 71st year, you will be required by the government to wrap up your RRSPs and convert the proceeds, usually to a RRIF. A certain amount of RRIF income must be taken every year – but if you don’t need all of it to live on, consider putting the extra money into a TFSA where it can grow tax-free.

Monthly income portfolio

This mutual fund option is more flexible and tax-advantaged than other non-registered options. For example, a Guaranteed Investment Certificate (GIC) locks in money for a period of time in return for a fixed, guaranteed rate of return. That can lock you out of potentially higher future returns as well as creating an immediate tax bill on redemption.

On the other hand, a Monthly Income Portfolio (MIP's) is designed to provide maximum investment returns along with a monthly income. A portion of the monthly income is treated as a return on capital – a tax-deferral strategy that can provide you with increased after-tax monthly income.


There are plenty of Monthly Income Portfolio funds to choose from, depending on your investment preferences and tolerance for risk. There are also many other solid strategies for maximizing your retirement income by managing taxes. Talk them over with your professional advisor. This portfolio is commonly referred to as a T-series fund or tax efficient investments since a siginificant portion of the fund's cash distributions are return of capital (ROC).
This is presented for general information only and not a solicitation to buy or sell any investment product.. Consult your financial advisor for advice regarding your specific  financial situation.

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posted by laramaryann @ 12:02 PM 0 Comments