FRP Step # 3 - Tax Planning

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Step Three of the Fundamental Retirement Plan – Tax Planning

When it comes to retirement planning, taxes are often overlooked. But the reality is, tax planning can be just as important as your investment and income strategy.

In Step Three of the Fundamental Retirement Plan (FRP), we focus on tax planning not just at the start of our relationship with clients, but continuously over time.

Why? Because taxes aren’t a one-time event. They’re something you’ll deal with every year in retirement, and the decisions you make today directly impact your future income, account balances, and long-term financial security.

Why Visibility Matters

I often talk about visibility in retirement planning. Think of it like this: you wouldn’t hop into your car at night, in the middle of a blizzard, without turning on your headlights, buckling your seatbelt, or warming up the vehicle. Nobody would do that.

The same applies to retirement. Without visibility, you’re driving blind. Tax planning provides that clarity, allowing you to see how your choices today affect your taxes tomorrow and helping you adjust when needed.

When we create your retirement plan and start drawing from your investment accounts, you need to understand how today’s withdrawals impact your ability to stay retired down the road.

How Tax Planning Fits Into the FRP

Step One of the FRP is Investment Allocation, building a portfolio that matches your risk tolerance, time horizon, and retirement goals. If this step isn’t done right, everything else can fall apart.

Step Two is Income Planning, getting clear on how you’ll spend, your cash flow needs, and lifestyle goals like travel or gifting.

Once those are in place, we move to Step Three: Tax Planning.

These first three steps are built together during the early stages of our process, once we’ve gathered your financial documents. But tax planning is also ongoing reviewed and optimized year after year as your situation changes.

Tax Planning vs. Tax Advice

It’s important to distinguish between tax planning and tax advice.

• Tax advice is what your CPA provides. They look back on the past year, prepare your tax return, and find opportunities to minimize what you owe for that year.

  
  

• Tax planning, on the other hand, is forward-looking. As your financial planners, we consider your income sources, health, longevity, total assets, and spending goals to make decisions that minimize the taxes you’ll pay both now and in the future.

  
  

Think of it this way: your CPA is looking in the rear-view mirror. We’re looking out the windshield, helping you plan for the road ahead.

Common Tax Strategies We Consider

There are dozens of tax strategies that may apply to retirees. Here are a few of the most common and impactful:

1. TFSA Optimization

   Many retirees underutilize their Tax-Free Savings Accounts. If structured correctly, TFSAs can provide incredible benefits for you, your spouse, and your estate.

   
   

2. Non-Registered Account Efficiency

   Large non-registered accounts often create high taxable income. This can push you into higher tax brackets, trigger OAS clawbacks, or limit how much RRSP deregistration you can do. We look for ways to reduce these tax hits.

   
   

3. RRSP or RRIF Deregistration

   Strategically drawing down registered accounts helps optimize tax brackets and avoid leaving your estate with a large tax bill later.

   
   

4. Pension Income Splitting & CPP Sharing

   These strategies help minimize household taxes and increase after-tax income, but the details depend on your age, accounts, and marital history.

   
   

5. Timing of Asset Sales

   Selling a rental property or other large asset creates a major tax event. With careful planning, we can adjust withdrawals, delay benefits, or use spousal contributions to minimize the tax impact.

   
   

For incorporated professionals and business owners, tax planning can be even more complex. We may consider income splitting opportunities, corporate investment strategies, and monitoring accounts like the Capital Dividend Account or Refundable Dividend Tax on Hand.

The Value of Proactive Tax Planning

Tax planning is both a science and an art. The numbers might suggest one strategy, but ultimately it has to fit within your overall plan and feel right for you.

Handled properly, tax planning can save retirees hundreds of thousands of dollars over their lifetime. That’s found money you can use for travel, gifting, or simply enjoying your retirement. It also provides flexibility the ability to spend and make decisions without being burdened by a surprise tax bill later.

At the end of the day, not managing taxes is a risk, just like ignoring investment allocation or income planning. You will pay taxes the question is how much, and when.

Action Items for You

Here are two steps you can take right now:

• Ask yourself: are you getting tax planning or just investment advice?

• With the year winding down, schedule a tax planning review before it’s too late.

Final Thoughts

Tax planning is an essential part of a successful retirement strategy. It helps you keep more of what you’ve earned, gives you flexibility, and reduces uncertainty about your future

So don’t leave it to chance.

Make a plan that helps you retire with confidence.

All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.