This is the first question you must answer. It can be difficult to predict your financial needs, especially when you may need retirement income for 20 years or more. It is estimated that you should save 10% to 20% of your before-tax income. To estimate this amount, you must do the following:
How many years will it take to reach your objective?
What type of retirement would you like to have?
Will 70% of your employment income be enough during retirement ?
You have probably accumulated retirement savings in various forms: an RRSP, a TFSA, a LIRA and other types of account, each with its own conditions for the withdrawal of funds. As retirement approaches, it’s a good idea to plan your withdrawals carefully. A poor disbursement strategy could have major tax implications and reduce your available savings.
Here are a few rules:
Depending on your situation, several disbursement strategies are possible.
They may vary depending on such factors as your age, the type of account that you hold and the capital that you have accumulated. For example, if you plan to make withdrawals from an RRSP and you know that your income will increase over the years, several years before you plan to use such amounts you can transfer them to a TFSA to use up your contribution room. In this way, you’ll reduce the income from your RRSP in future years. Unlike withdrawals from a TFSA, withdrawals from an RRSP are taxable. In this way, you can increase your ability to take advantage of certain government programs, such as the OAS pension.
> Don’t forget that contributions to a TFSA are not tax-deductible, but withdrawals are not taxable. In contrast, an RRSP lets you deduct contributions from your taxable income, but the withdrawals are taxed.
> Good news for couples
You may use your spouse’s age to reduce the amounts you are obliged to withdraw from your RRIFs. Given that these amounts increase as you age, this measure may be beneficial to you if your spouse is younger than you.
> Surplus retirement income
Does your income from investments such as your RRSP and your LIRA exceed your financial needs? If so, you may invest the surplus in a TFSA, if you have not already used up your contribution room, or in an investment account, to seek an additional return.
If you’re getting ready for retirement, it’s also the time to prepare, or to update, your will and estate planning.
It’s a three-step process:
Using your estate balance sheet, a member of the FÉRIQUE Advisory Services team will assess your investment strategy as a function of tax considerations. To maximize your estate, various options will be presented to you by qualified specialists, such as:
Before your heirs receive anything, don’t forget that your accounts will have to be settled one last time with the tax authorities. On your death, all your assets are deemed to have been liquidated, just as if you had sold all your property at its fair market value and had cashed in all your savings in one fell swoop. This is referred to as a deemed disposition of assets. The capital gains on such disposition are added to the income earned in the year of your death, and your estate will be taxed accordingly. Because the tax treatment is different for the spouse, the children and the grandchildren of the deceased, you must choose your heirs carefully.
To obtain an overview of your financial and family situation, you should familiarize yourself with your options and consult the appropriate specialists.