Contemplating retirement is exciting and scary at the same time.  While you are looking at ways to spend your new found time, you are also looking at ways to maximize your financial status.  Paying less, or even zero, taxes is certainly one way to conserve your hard earned savings.

The Right Mix – You should be considering the best combination of taxable, partially taxable, and non-taxed incomes.  The ultimate goal should be a taxable income less than $46,000 to stay in the lowest tax bracket.  In fact, if you keep it under $37,000 for a married couple and under $25,000 for a single person, you qualify for Guaranteed Income Supplement (GIS) and that is totally tax free. 

Expenses – By keeping your expenses in control, you will need to draw on your retirements accounts less and that can certainly keep you in a lower tax bracket.  Many people contemplating retirement downsize to a smaller house or even a condo.  Without a mortgage, you will have more discretionary income.  It also plans for the future with less yard work to do or hire.  You can also consider a more fuel efficient and newer vehicle that will take less maintenance.  While you are still working, look at your budget and see what you can eliminate that will help reduce your annual living expenses, especially after you stop working.

Systematic Withdrawal – Deferred capital gains offer the lowest tax rate in any income bracket.  Using equity investments that are tax beneficial, you can defer the capital gains now and pay the tax years in the future.  Selling specific holdings each month is called SWP or a systematic withdrawal plan.  If these are recent purchases, the SWP is tax free because you are only reclaiming your own money.  If you have invested wisely and you have grown your investment, your withdrawals could be mostly those capital gains, which are the lowest tax rate.

Clawback – The Canada Pension Plan (CPP) and Old Age Security (OAS) are both retirement pensions provided by the government.  However, if your net income exceeds the threshold, your payments are reduced on every dollar.  If you will be affected by this reduction, withdraw your RRSPs before you are 65.  However, this is only beneficial if the RRSP withdrawals will be at a low tax rate.

Planning for retirement can become complex.  It is always best to consult with a tax advisor well in advance of when you plan to leave work behind.  There are a number of other measures you can take to reduce or eliminate taxes and still live comfortably.

If you're looking for an accountant in Brampton or Mississauga, Contact our team at CapexCPA today for more information.

Click on the link below to book a meeting.

https://calendly.com/capexcpa/phone-call-with-jag 

- The Capex Team