Hello everyone, and welcome to the Retiring Canada Podcast. In today’s episode, we're diving into year-end tax planning for retirees.
We’ll cover:
- Why the end of the year is crucial for financial planners vs. accountants
- The tax valley retirees MUST plan for
- 5 key strategies for year-end tax planning
- A potential conflict of interest that can hinder effective tax planning
- How to create a coherent tax plan that considers investment and retirement income
- And finally, a few action items for you to take away.
It’s that time of year again—tax planning season! For those of you within five years of retirement or newly retired, it’s critical to think ahead. While many associate tax time with April, when you file and assess the damage, for us financial planners, the final months of the year are key to minimizing that tax bill when you file next year.
The decisions you make regarding your finances this calendar year will shape your tax return next year.
Now, if you're still contributing to RRSPs, you may have until the first 60 days of the new year to make contributions that offset taxes. For those with an operating or holding company with a separate year-end, tax considerations may occur at other times. But for most pre-retirees and recent retirees, now is the time to review everything and set a plan in motion.
Unlike accountants who focus primarily on past tax years, certified financial planners take a long-term view—minimizing taxes not just this year but over the next 30+ years and through to your final estate. We’re looking far ahead, making small adjustments today to save you thousands, if not hundreds of thousands, over your retirement.
In my opinion, tax planning is where an advisor truly adds value, justifying the advisory fees. It’s about creating value that far exceeds what you pay, and we strongly believe this should be clear to both current and prospective clients.
If you're approaching retirement, planning your next five years from an income and tax perspective is incredibly important. When your work income stops, there’s a brief window—the "tax valley"—where strategic tax planning can make a major difference.
The tax valley is that period when your work income has stopped, but you haven’t yet tapped into CPP, OAS, or other pensions. It’s also a time when other taxable events, like a property sale, may arise. Tax planning during this window can have a long-lasting impact over the next 30+ years.
Now, let’s get into some specific strategies we consider during year-end tax planning:
1. Maximize and optimize your TFSA.
Many people either aren’t using the TFSA properly or haven’t invested it in line with long-term retirement goals. The TFSA can hold a variety of investments, not just cash, and it’s critical to use this tool efficiently.
2. Consider delaying government benefits like CPP and OAS.
Through proper planning, delaying CPP could result in a higher pension amount later, potentially saving you more in the long run by lowering your tax bracket. For example, if you wait until age 70, your pension could increase by 36%, and you might also find yourself paying less tax on it.
3. Household income shifting.
We look at strategies to shift the tax burden to the lower-income spouse, helping reduce overall tax and maintain sustainable withdrawals. Spousal RRSPs, pension splitting, and CPP sharing are all part of this strategy.
4. Review your net worth.
Even assets we don’t directly manage, like land or rental properties, have an impact on your tax plan. For those with incorporated businesses, this is especially important as it affects your long-term tax planning.
5. Draw from your RRIF before age 71.
Even if you don’t need the funds, drawing from your RRIF early can help lower your future tax burden, particularly when it comes to your estate.
All these strategies intertwine with your overall retirement plan, covering everything from investments to health care and estate planning. This is why we developed the Fundamental Retirement Plan, which you can check out on our website.
And finally, for clients with over $500,000 invested with us, we’re offering our Year-End Tax Planning Value Add for the second year. This personalized document outlines over 20 strategies to help minimize taxes now and throughout your retirement.
Here are a few action items to consider:
1. Review your tax valley and assess your planning strategies for this narrow but crucial window.
2. Take note of the five planning topics we discussed today:
- Is your TFSA topped up and invested appropriately?
- Are you considering CPP in light of your taxable accounts like RRSPs and RRIFs?
- Have you looked at ways to minimize household tax while maintaining your standard of living?
- Have you considered how capital property sales or winding down a corporation will impact your taxes?
- Have you planned for optimizing your tax bracket before mandatory RRIF withdrawals at age 71?
That’s it for today’s episode! For more details and resources, check out the show notes or visit retiringcanada.ca.
If you enjoyed the show, please subscribe and leave us a 5-star review. And remember—when it comes to your retirement, don’t take chances.
Make a plan so YOU can 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.
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