You've toiled, prioritized, and saved. Now, you’re counting down the days to retirement and need to start preparing for the change. How do you ensure a smooth transition from getting a paycheque to paying yourself? Here’s how:
Apply for CPP and OAS
The government likes paperwork. Therefore, you must submit separate applications to receive both CPP and OAS.
You are eligible for your full CPP benefit the month after turning 65. This amount decreases if you start payments earlier and increases if start later:
OAS starts at 65 at a flat amount. Both CPP and OAS benefits increase with inflation.
I suggest submitting your applications 4-5 months in advance, especially if applying via mail, to allow for processing.
The Options Package
Shortly after submitting your notice, a package will be sent detailing the options for your work plan – i.e. your options package. The choices can vary, but the common three are:
Cashing it Out – This will add the entire plan as taxable income on your tax return in one year - yikes! So, this option isn’t recommended unless you are in urgent need or it’s a small account.
Keeping it Where it is – Little/nothing changes. It stays where it is.
Transferring it Out – I.e. consolidate. Many choose this option as it makes managing your income and taxes easier. Ultimately, the right option for you depends on your preferences, tax situation, risk tolerance, and financial plan.
Flip Your RRSPs and Pensions
There are various investment accounts used to create a retirement income. The most common are RRSPs and pensions (aka LIRAs or Locked-In RRSPs). Before setting up regular withdrawals, these accounts must be ‘flipped’ – moved from an account used to save to an account used to generate your income.
RRSP - RRIF (Registered Retirement Income Fund)
LIRA/Locked In RRSP - LIF (Life Income Fund)
Once flipped, you can set up your withdrawals – including the amount and frequency. Both RRIFs and LIFs have minimums that must be withdrawn annually. LIFs also have a maximum you can withdraw. RRIFs have no maximum.
Withholding Taxes
When you are working, your employer withholds taxes from your paycheque. It is a form of prepaying your income taxes which prevents a large bill at tax time.
When you are a retiree, you must coordinate the taxes withheld from your various income sources. CPP, OAS, RRIF and LIF withdrawals all offer the opportunity to have taxes taken off - aka withholding taxes.
Call Your Expert
Financial Advisors/Portfolio Managers know the ins and outs of retirement plans and planning. Bring them your options package or tax questions. They’ll not only help in navigating your choices, but they’ll also identify when to bring in other strategies or experts.
You want to get the most out of your retirement and so do we.
To execute your retirement plan efficiently contact us at KLT Wealth Management.
- Courtney Beach, QAFP
