Ep # 134 - Smart Tax Strategies for More Efficient Retirement Planning

In this episode of Your Retirement Planning Simplified, we dive into smart tax strategies for retirement, and common mistakes to avoid when drawing income. We cover essential topics like income splitting, RRSP vs. RRIF withdrawals, TFSA strategies, and how to minimize OAS clawback. You'll learn how to optimize your withdrawal order, take advantage of tax credits for retirees, and avoid costly errors that could increase your tax bill. Whether you're approaching retirement or already retired, this episode will help you create a tax-efficient retirement income plan that keeps more money in your pocket.

What You'll Learn in Today's Episode

Income Splitting Can Lower Your Tax Bill – Retirees with a spouse or common-law partner can use pension income splitting or spousal RRSPs to shift income from a higher-earning spouse to a lower-earning spouse, reducing overall taxes.

Order of Withdrawals Matters – The sequence in which you withdraw from RRSPs, TFSAs, and non-registered accounts can significantly impact your lifetime tax bill. Strategies include delaying RRSP withdrawals, preserving TFSA growth, and managing taxable income to avoid OAS clawback.

Delaying CPP and OAS Can Be Beneficial – Many retirees take Canada Pension Plan (CPP) and Old Age Security (OAS) too early, missing out on guaranteed increases. A well-planned delay can boost guaranteed lifetime income and reduce long-term tax burdens.

Watch Out for One-Time RRSP Withdrawals – A large, unplanned RRSP or RRIF withdrawal can push you into a higher tax bracket, trigger OAS clawback, and increase taxes on your estate. Proper planning ensures withdrawals are optimized.

Don’t Overlook Tax Credits for Retirees – Many retirees miss out on valuable tax credits, including the Pension Income Credit, Medical Expense Credit, and Home Accessibility Tax Credit, which can lead to significant tax savings.

Ideas Worth Sharing

"One of the most effective tax strategies in retirement is income splitting—if you have a spouse, you don’t want to miss this opportunity."

"The order in which you withdraw your money can make or break your retirement tax bill—it's not just about how much you withdraw, but where it comes from."

"Delaying CPP and OAS isn’t just about getting bigger checks—it’s about securing more guaranteed, inflation-protected income for life."

"A poorly timed RRSP withdrawal can cost you thousands in extra taxes—planning ahead is key to avoiding surprises."

"Tax credits for retirees are often overlooked, but they can put real money back in your pocket—don't leave them on the table!"

Resources

Joe Curry

1. Previous Podcast Episode: How Retirement Income is Taxed

Listeners are encouraged to check out the previous episode that explains how different sources of retirement income are taxed before diving into tax strategies.
🔗 Your Retirement Planning Simplified Podcast (Find past episodes here!)

2. Government Resources on Income Splitting & Pension Splitting

• Pension Income Splitting – The Government of Canada allows eligible retirees to split up to 50% of their pension income with a spouse to reduce taxes.
  🔗 Government of Canada: Pension Splitting

• Spousal RRSPs – A tax strategy allowing a higher-income spouse to contribute to an RRSP in their partner’s name for tax efficiency.
  🔗 Government of Canada: RRSP and Spousal RRSP Rules

3. CPP & OAS: Understanding Benefit Increases for Delaying

• Canada Pension Plan (CPP) Delay Benefits – Learn how deferring CPP payments beyond age 60 can increase your retirement income.
  🔗 Government of Canada: CPP Benefit Amounts

• Old Age Security (OAS) Clawback Thresholds & Deferral Benefits – Check the latest income thresholds for OAS clawbacks and how deferring OAS can boost benefits.
  🔗 Government of Canada: OAS Deferral Information

4. RRIF & RRSP Withdrawal Planning

• Understanding RRIF Withdrawals & Minimums – Information on how much you must withdraw from a RRIF after converting an RRSP at age 71.
  🔗 Government of Canada: RRIF Withdrawal Rules

• Tax-Free Savings Account (TFSA) Strategy – How to use TFSAs strategically in retirement to reduce taxable income.
  🔗 Government of Canada: TFSA Rules

5. Tax Credits for Retirees

• Pension Income Tax Credit – A $2,000 tax-free pension withdrawal for retirees over 65.
  🔗 Government of Canada: Pension Tax Credit

• Medical Expense Tax Credit – Helps cover medical costs beyond a certain percentage of income.
  🔗 Government of Canada: Medical Expense Credit

• Home Accessibility Tax Credit – A tax credit for making homes safer and more accessible for retirees.
  🔗 Government of Canada: Home Accessibility Tax Credit

6. RRSP to RRIF Transfer Reporting – Avoiding Tax Mistakes

Misreporting a pension transfer can lead to major tax issues. The CRA provides guidance on how to properly transfer funds from a Defined Contribution Pension Plan or RRSP to a personal RRIF or LIRA.
🔗 Government of Canada: RRSP to RRIF Transfers

Final Tip:

For personalized retirement tax planning, work with a Certified Financial Planner (CFP) or use retirement tax software to model different withdrawal strategies. Many online calculators can help estimate your RRIF withdrawals, CPP benefits, and tax-efficient income plans.

If you want one-on-one advice, book a consultation:
🔗 Matthews & Associates Financial Planning (Joe Curry’s firm!)

Smart Tax Strategies for a Worry-Free Retirement

Most retirees pay more in taxes than necessary. Here's how to keep more of your hard-earned savings while staying compliant with tax laws.

Strategic Income Splitting

For married or common-law couples, income splitting effectively reduces your combined tax burden. After age 65, you can split up to 50% of qualifying pension income with your lower-income spouse, including:

• Registered pension plan payments

• RRIF withdrawals

• Annuity payments from RRSPs

For those under 65, consider spousal RRSPs. The higher-earning spouse contributes while the lower-income spouse makes withdrawals during retirement at a reduced tax rate.

Optimize Your Withdrawal Sequence

The order in which you withdraw retirement funds significantly impacts your lifetime tax bill:

1.    Start with non-registered accounts to take advantage of preferential tax treatment on dividends and capital gains

2.    Preserve TFSAs for flexibility - withdrawals won't affect your OAS benefits or tax bracket

3.    Consider strategic early RRSP withdrawals before mandatory RRIF withdrawals begin at 72, especially during lower-income years

Timing Government Benefits

Delaying CPP and OAS can substantially increase your lifetime benefits:

• CPP payments increase 8.4% annually when delayed past 60

• OAS increases 7.2% per year if deferred beyond 65

• Both benefits are indexed to inflation

For those with adequate savings or employment income, deferring these benefits can reduce taxes while securing higher guaranteed income later in retirement.

Avoid Tax Bracket Jumps

Large one-time RRSP withdrawals can:

• Push you into higher tax brackets

• Trigger OAS clawbacks

• Increase your estate's tax burden

Instead, plan major expenses using TFSA savings or spread RRSP withdrawals across multiple years.

Maximize Available Credits

Don't overlook valuable tax credits:

• Age Amount Credit for those 65 and older

• Pension Income Credit on eligible pension income

• Medical Expense Credit for qualifying healthcare costs

• Disability Tax Credit if eligible

• Home Accessibility Credit for safety-related renovations

Next Steps

Review your retirement income sources and develop a personalized withdrawal strategy. Consider consulting a tax professional who can optimize your plan based on your specific circumstances, provincial tax rates, and estate planning goals.

Remember: Tax efficiency in retirement requires regular review and adjustment as tax laws and your situation change.