10 Strategies to Pay Less Tax and Invest Wisely in Retirement

Transcription

1 10 Strategies to Pay Less Tax and Invest Wisely in Retirement Agenda Overview, background 10 key strategies to minimize taxes and invest wisely in retirement 1. Spousal RRSPs 2. Tax-preferred investment income 3. Asset withdrawal order 4. Pension income splitting 5. CPP sharing 6. Spousal loans 7. Effective use of surplus cash 8. Life annuity 9. Minimum RRIF withdrawal planning 10. Create a cohesive strategy for your wealth Q&A RBC-Bluenose Accounting Presentation 1

2 Why we need to plan? In retirement, you need to think about financial issues differently: Less reliable paycheck Multiple income sources Potential tax implications Withdrawing from your savings Living within a budget Five key risks to retirement income: 1. Longevity 2. Inflation 3. Withdrawal Rate 4. Asset Allocation 5. Health Care Consider Sources of Income in Retirement Canada Pension Plan Group RSP Defined Contribution Pension Plan Interest Income Registered Income Fund Employment Income Rental Income Old Age Security Defined Benefit Pension Plan Dividends Capital Gains Inheritance? Sale of Assets (housing) RBC-Bluenose Accounting Presentation 2

3 Retirement Income Sources Affected by Taxable Income Old Age Security Most common, potential to lose full amount Guaranteed Income Supplement Benefits Retirement Compensation Agreements Individualized retirement compensation agreements usually offered to senior executives Guaranteed Income Supplement Benefits You qualify for the Guaranteed Income Supplement if you meet all of the following conditions: you are a legal resident of Canada you are receiving an Old Age Security pension your annual income (or in the case of a couple, your combined income) is lower than the maximum annual income. Automatically renewed yearly to determine eligibility RBC-Bluenose Accounting Presentation 3

4 OAS Clawback Based on Canadian residency and worth $ Clawback starts at net income $70,954 Eliminated at $144,814 Deciding When to Take CPP No right answer, number of items to consider Longevity Defined benefit Pension Plan Guaranteed Income Supplement Essential Expenses Asset Allocation Survivor Benefits Spender or Saver Number of low income earning years Working in retirement RBC-Bluenose Accounting Presentation 4

5 Strategy #1: Spousal RRSPs Why contribute to a spousal RRSP? Creation of equal incomes The sooner you start, the more you save Contribution room Reattribution Strategy #2: Tax-preferred investment income Inside RRSP / RRIF GICs, Bonds etc. In Non Registered Account Canadian dividends, Capital gain and Return of capital RBC-Bluenose Accounting Presentation 5

6 Understanding Tax on Various Plans Non- Registered Accounts Contributions made with after tax Income Pension and Registered Plan Types Tax Free Savings Account Income taxed similarly to earned income at 100% the marginal tax rate. Contributions receive a tax refund Contributions made with after tax income. Growth, regardless of its sources is tax free Income is Taxed Differently Tax treatment of $100,000 (numbers not necessarily current in NS, ratios are consistent DESCRIPTION INTEREST CAPITAL GAINS Marginal Tax Rate DIVIDEND INCOME 49.53% 24.76% 33.85% 49.53% RRSP OR RRIF WITHDRAWAL Dollars Received $100,000 $100,000 $100,000 $100,000 Income Tax $49,530 $ $33,850 $ Net after-tax cash flow $50,470 $75,240 $66,150 $50,470 RBC-Bluenose Accounting Presentation 6

7 Strategy #3: Asset withdrawal order Not all investment income is taxed the same way Withdraw funds in a tax-efficient order while creating the income you need Income from: Tax-Free Savings Accounts (TFSAs) Investment income from an investment holding company You & your lower-income spouse RRIF assets Strategy #4: Pension income splitting Allocate up to 50% of eligible pension income Review factors with your advisor Conditions to be aware of RBC-Bluenose Accounting Presentation 7

8 Strategy #5: CPP sharing Reduce taxes by sharing up to 50% of your CPP pension benefit with your lower-income spouse Who should take advantage of this strategy? To find out if you meet conditions, contact Service Canada at Strategy #6: Spousal loan Giving money to your spouse vs. setting up a loan How do you loan money to your spouse? Low interest rates = greater tax saving opportunities Take advantage and lock into the low CRA prescribed rate of 1% Other factors you need to consider RBC-Bluenose Accounting Presentation 8

9 Strategy #7: Effective use of assets Surplus cash? Three key benefits you can achieve with surplus cash strategies: Create a tax-free benefit for your beneficiaries TFSA Reduce potential taxes for your children Create a lasting legacy today Charitable Giving Strategy #8: Life annuity Lump sum payment for monthly income until passing Life fixed payment for life Term annuity fixed payment for # of years Survivorship Advantages / Disadvantages RBC-Bluenose Accounting Presentation 9

10 Strategy #9: Minimum withdrawal planning Withdraw the minimum amounts required from your plan Plan ahead to maximize the tax-deferral within your registered account The result: maximize your after-tax retirement income Key strategies Strategy #10: Create a cohesive strategy for your wealth Ensure your investment and tax plans working together RBC-Bluenose Accounting Presentation 10

11 Questions? This presentation is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. The examples provided in this article are for illustration purposes only and are not indicative of future returns; fees and commissions are not included in these calculations. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. Registered trademarks of Royal Bank of Canada. Used under licence Royal Bank of Canada. All rights reserved. Contact Us Anthony Fielding, Bluenose Accounting anthony@bluenoseaccounting.com Dan Rudisuela, RBC Dominion Securities dan.rudisuela@rbc.com Thank you! RBC-Bluenose Accounting Presentation 11