Congratulations! Retirement is on the horizon. You have a vision for what you want your retirement to look like, and you’ve calculated the costs involved. Now, it's time to determine how to pay yourself to maximize your savings.
Important Retirement Ages
- Age 70: CPP benefit no longer increases if held off
- Age 71: Deadline to flip RRSPs into RRIFs (Have until December)
Deadline to flip LIRAs & LI-RRSPs into LIFs (Have until December)
- Age 72: Must start withdrawing minimum RRIF amount (Have until December to withdraw)
Must start withdrawing LIF, min and max rules apply (Have until December to withdraw)
General Rules for Sourcing Your Retirement Income
- Defined Benefit Income.
These sources give you a pre-determined amount. There is little to no wiggle room on when or how much you receive. However, they do typically increase with inflation. This includes defined benefit pensions and OAS.
- Consider CPP
Once started, you get a set monthly amount of CPP. However, it can be started early for a decreased monthly amount or delayed for an increased amount. Most people take it at 65 or retirement. The CPP benefit does increase with inflation.
- Other Retirement Accounts
Any remaining amount needed for retirement typically comes from accounts like RRSPs and LIRAs. You coordinate the amount with your wealth advisor and adjust as necessary.
Retirement & Taxes
Benjamin Franklin said, "In this world, nothing can be said to be certain, except death and taxes." In other words, in retirement, the taxman still wants his money. Since you are now paying yourself... you are responsible for prepaying your income taxes (this is called withholding taxes). This is done by attributing a percentage of your income to be withheld from each source – RRIFs, LIFs, CPP, OAS, etc.
You can apply the same percentage to all sources or a different percentage to each, and you can change these amounts at any time. Ideally, you want to owe little to no income taxes in April. Ask your tax preparer if you’re unsure how much withholding tax you should have taken off.
High-Income Earners & OAS Clawback
If you foresee yourself as a high-income earner in retirement, you’ll need to consider OAS clawback. OAS clawback is when the government claws back your OAS benefit due to a high income. It’s based on the difference between your income and the threshold for the year, 2025’s threshold is $93,454. Therefore, anyone earning $93,454 or more in 2025 must factor this into their plans.
Additionally, if your retirement income sources include complex elements like property sales or business income more planning is required. Discuss these matters with your wealth advisor early to implement strategies tailored to your needs.
You’ve worked hard to save your money. Now, let’s maximize your savings for years to come.
To optimize your retirement income, contact KLT Wealth Management.
Courtney Beach, QAFP
