10 Tips for Seniors to Maximize Their Income

1. Take CPP early. If you have reached your 60th birthday, you qualify for early CPP. Taking the benefit early means a reduction of income by 0.5% per month prior to your 65th birthday. For example if you take income at age 60, you will lose 30% of the benefit you would receive at age 65 (0.5% x 60 months = 30%). Despite this reduction, you will be receiving income 5 years earlier. According to our calculations, it takes 17 years before you "catch up" by deferring income to age 65.

2. CPP splitting. If the higher income spouse is earning a higher CPP income, then consider splitting CPP with your spouse. You must both have reached age 60 and have both applied for CPP

3. Watch your income tax brackets. Since we live in a marginal tax rate system, the more money we make, the more tax we pay. Jumping into higher tax brackets could be costly especially when moving from the 26% bracket to the 40% bracket. Be aware of where your total income sits.

4. Consider income splitting opportunities. Income splitting is key to creating more tax efficiency in retirement. Consider strategies like Spousal RRSPs, distribution of investment income and CPP splitting.

5. Draw RRSP / RRIF income in a low tax environment. Sometimes deferring RRSPs is not always the best solution. If you are in a low tax bracket today and you know future income sources (OAS, CPP, and Pensions) will push you into the higher bracket, it might be more beneficial to take money out of RRSP today.

6. Consolidate RRSPs into a mutual fund RRIF. With the low interest rate environment, consider mutual funds for your RRIF. Even a conservative portfolio will have an excellent chance of out-performing GICs.

7. Watch the type of income from non-RRSPs. Dividends and capital gains provide tax advantages to investors over interest income. Switching to investments that produce these tax benefits will help to create greater tax efficiency.

8. Allocate interest income to lower income spouse. Since interest income is 100% taxable, it is better to have the lower income earner take interest income in a lower tax bracket. Before you make any changes in your taxes, be sure to talk to an accountant or tax professional.

9. Consider income mutual funds for non-RRSPs. Income Mutual funds are an excellent tool to create income from non-RRSP investments. They are providing excellent yields and have extremely tax efficient distributions.

10. Draw income from life insurance. For those of you with significant cash values in your life insurance (life insurance for seniors), consider drawing income "tax-free". There are arrangements that can be made with banks to get money out of the policy without cashing out. Canada life insurance is a great opportunity to create income.

The best advice we can give to anyone trying to maximize income in retirement is to plan ahead. Proper income and tax planning requires proper evaluation of your total financial situation.
We take time out of our lives to plan everyday events like vacations, big purchases, and even the upcoming weekend but we often neglect planning our financial future. Our clients have access to one of the best retirement planning programs in Canada without cost. Consider our Portfolio Analyst service to ensure your finances are structured efficiently.