A recent financial column Family Finance presented a 71-year-old woman who was in a financial mess. She owned two rental properties, was forced into compulsory RRIF recordings and received CPP and OAS. The result? A huge tax assessment and a lot of frustration.
Her mistake waited until her 70s to be seriously planned.
By that time it is too late. RRIF recordings are locked up, government benefits have already been paid and your flexibility has disappeared. This story is far from unique.
Every week I hear from readers or customers who waited up to 70 to get advice and now they are in boxes according to the rules. The good news is that you don’t have to finish in the same place. The decade before 70s – your 60s – is the Sweet Spot for proactive financial planning.
The 60s are your planning sweet spot
Your 60s are a golden window to set up the desired retirement.
You can deduct RRSPs strategically, so that even modest recordings in your early 60s are gigantic RRIF -Minima later and smooth out your taxable income.
You can sell rental properties at the right time, which means that the power gain is activated in your 60s before RRIF recordings and OAS are laminated on top, which often means a much smaller tax hit. If you still have unused RRSP room, you can use contributions to protect part of the capital gain against a sale of real estate, an option that disappears as soon as you reach 71.
You can postpone CPP and OAS for up to 70 years to lock up higher guaranteed benefits, but only if you have managed your income in the years prior to the years.
And you can switch from accumulation to decumulation, switching from simple growing investments to creating a reliable, tax -efficient income flow that will last.
A perfect example
Consider Jim and Carol, both 63 years old, who decide to retire at the end of the year.
In their first year of retirement, they sell rental properties and realize a capital gain of $ 120,000. Because only half of a power gain is taxable, that creates $ 60,000 in taxable income. They split the profit so that each report $ 30,000.
Jim has $ 30,000 unused RRSP room that is continued from his last working year and contributes the full amount to his RRSP, so that his part of the profit is fully compensated. Carol has $ 15,000 unused RRSP room and contributes that amount, so that it has a small taxable profit, but no other employment or pension income, so that the tax hit is minimal.
At 65 they convert their RRSPs to RRIFs and start fairly significant admissions that are eligible for the income credit of the pension and let them split income between spouses.
This strategy keeps their taxable income stable and their expenses high enough to finance their go-go pension years.
With CPP and OAS postponed to the age of 70, they enjoy a larger window for tax-efficient recordings of their RRIFs and unregistered accounts, and when those government benefits finally start, they are larger and safer.
Why you can’t trust the banks
If you walk in your bank branch and expect help with this type of planning, you are probably unlucky. Most large bank advisers are chained by their own software that assumes that you leave your RRSP untouched up to 71.
I misinformed too many customers in ways that really cost them money.
Some were told that they could not make a small withdrawal from an RRIF without collapsing the entire account. Others were told that they could not contribute to the marital RRSP of a younger husband after running 72, which is just wrong.
Many are sent to take CPP at 60 or 65, simply because “that’s what everyone does.”
These are not small supervision. They are fundamental errors. And these are the same people who show up in the world and e -mail commentary, sections that express years later about OAS -Clawbacks and complain that RRIF -Minima are too high. They were not going in their 60s. They trusted bad advice or worse, no plan at all.
Don’t leave it too late
Once you have reached 70, the rules of the government will take over. RRIF recordings are mandatory. CPP and OAS have already been paid. Selling a real estate at that time simply stacks the power gain on top of all the other. Your flexibility has disappeared and all you can do is manage the mess.
Good planning in your 60s prevents this inevitable collision of taxable income.
It creates a fixed predictable income, avoids or reduces oas -clawbacks and loves your money in your pocket instead of Ottawa’s.
The collection meals
Don’t wait for the Cra to call the shots. Don’t wait until you are in boxes by RRIF -Minima and OAS -Clawbacks. And please not only trust your bank adviser or software or cookie-cutter’s recommendations.
The right time to build a financial plan is in your 60s before the mandatory rules for pension income come into effect. That is when you still have choices and those choices can save you thousands of taxes and frustration.
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