How Do I Pay Less Tax In Retirement?

If you want to pay less tax in retirement you need to effectively manage your tax brackets. It’s easy to get caught up in the details of your investments, however, the timing and order of withdrawal is what most people miss. 

Lower Income Years and Government Benefits

An Asset Meltdown strategy is intentionally drawing down accounts in your lower-income years, between the day you stop working and the day you start to draw government pensions. This shrinks the future size of your RRIF, permanently lowering your mandatory minimums and it might shield your OAS from being clawed back later in life.

Also, did you know that delaying your CPP and OAS up to age 70 can give you a guaranteed, indexed increase up to 36% for OAS and 42% for CPP?  That means you can draw down your personal investments and clear out taxable accounts while your guaranteed government income keeps growing in the background.

Look At Your Income Sources As a Combined Total

None of this works in a vacuum — it has to be built around your whole household, not just one account or one spouse. If you are a business owner, you shouldn’t look at your business and personal accounts as separate entities. Instead, coordinate your personal tax brackets with your corporate tax structure.  Instead of taking massive lump sums you want to smooth out corporate distributions over time, utilizing strategies like the Capital Dividend Account to extract cash completely tax-free.

If you have a spouse, look at Spousal Income Splitting to reduce tax payable. This can be done by splitting eligible pension income, making sure you both get the pension tax credit and looking at whether you should also split your CPP. 

Conclusion

To pay less tax in retirement you must coordinate your family and business accounts as a whole. By following these strategies you can ensure more cash gets kept in your hands and not to the CRA. 

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