1. Make sure you receive adequate pension and investment income.
To increase and then sustain your required cash flow in retirement, be
precise on exactly how much money is needed – after accounting for
inflation and taxes to cover budgeted costs. These may be the increased
cost of medical expenses, heating or gasoline costs, or tax hikes, for
2. Continue to grow asset pools.
Exactly how much will need to be saved to meet those budgeted needs?
Socking money away now, preferably on a tax exempt, tax-reduced, or
tax-deferred basis, will help you to meet planned and unanticipated
spending needs adequately, without too much interference by increasing
taxation. Tax time is a good time to “pay it forward” into the right
savings accounts. Advisors can help to make that task more relevant by
simulating the retirement income results today’s savings would bring. To do
so, ensure pre-retiree clients understand what today’s personal net worth
is – and what it needs to be – to meet their goals.
3. Dodge expensive fees.
It’s always important to reduce the costs related to borrowing or investing
in order to increase returns on capital. Debt servicing costs, financial
management and investment fees, legal fees and accounting fees require
annual review and projection over the retirement savings period to make the
right investment decisions.
These are the three secrets to success in saving enough money – after
taxes, inflation and fees – to fund an adequate retirement. The annual tax
filing visit with advisors can be so much more than a compliance exercise,
when highly motivated clients and advisors join forces.
The success of the process, however, is also very much dependent upon
behavioral finance. Younger investors must have the discipline to actually
save the money, and older investors must make it their business to withdraw
funds knowledgeably – that is, with their after-tax results in mind.
For older investors, there are a few additional tax tips to consider in
order to minimize tax and maximize cash flow. The federal government has
provided several tax breaks that help today’s retirees increase their
after-tax receipts from retirement savings. Advisors and clients should be
sure to discuss them this tax filing season.
Pension income splitting with your spouse which was introduced in 2007,
allows you to save income tax due when one spouse is in a lower tax bracket
than the other. Essentially, income that qualifies for the $2,000 federal
pension income amount qualifies for pension income splitting. Up to
one-half of such pension income received can be reported by the recipient’s
spouse by making an annual election to do so on CRA Form
Tax-Free Savings Account (TFSA).
Introduced in 2009, the TFSA provide retirees with the opportunities to
develop winning tax-exempt strategies for their capital. Since the biggest
single expense in retirement is usually tax, high-income retirees should
strive to use TFSAs to their maximum potential every year. Currently a
maximum of $63,500 in unused TFSA room is available to each adult resident
of Canada. This account also works well for retirees in general because
unlike RRIFs, TFSA’s generate no taxable income on withdrawals or
re-investment. As well, income accumulating in TFSAs do not trigger
clawbacks of Old Age Security or Guaranteed Income Supplement.
Essential Tax Facts
by Evelyn Jacks, 2018 edition.
© 2019 The Knowledge Bureau, Inc. All rights reserved. Reprinted with
Evelyn Jacks is the founder and President of Knowledge Bureau, which
brings continuing financial education in the multiple areas of
specialization to advisors and their clients. She is the author of 52
books on tax and wealth planning. This article
originally appeared in the
Knowledge Bureau Report. Follow Evelyn Jacks on Twitter
@EvelynJacks. Visit her blog at www.evelynjacks.com.
Notes and Disclaimer
The foregoing is for general information purposes only and is the opinion
of the writer. No guarantee of investment performance is made or implied.
It is not intended to provide specific personalized advice including,
without limitation, investment, financial, legal, accounting or tax advice.