As we get older, certain milestones are important when preparing for retirement.
If you are nearing the following age milestones, take note of these considerations
as you look to maximize your retirement savings. Don’t leave money on the table.
Consider early Canada Pension Plan (CPP) payments.
Although the standard age for starting CPP payments is
65, you have the choice of taking CPP as early as age
60. Under the new rules, you can still be employed and
contributing towards CPP. The advantage of this approach
is the increased future CPP benefit available to you after
you retire. CPP Benefits will be permanently reduced if you
begin early. In 2016, the reduction percentage is 0.6% per
month for a total reduction of 36% if CPP benefits are started
at age 60. Add in the trend that more and more people are
retiring before the age of 65 and taking CPP early, you are
seeing more people get less than the maximum amount
($1,114.17 at 65 years in 2017). You may also wish to defer
CPP payments to receive an increased benefit of payments of
0.7% per month between the ages of 65 and 70.
Don’t forget the federal Pension Income Tax Credit. The
Pension Income Tax credit allows you to claim a tax credit
equal to the lesser of your pension income or $2,000.
Since this is a non-refundable tax credit, it cannot be
Note that there are certain exceptions in which the Pension
Income Tax Credit can be used before the age of 65,
“including for those individuals 55 years of age or older
who have certain qualifying types of pension income, or
widow(er)s", so seek advice on your particular situation. In
Quebec, the pension recipient must be 65 years old to split
all types of pension income.
If you don’t have a pension, one way to generate qualifying
pension income at age 65 is by opening a Registered
Retirement Income Fund (RRIF).
Consider pension income splitting. If your spouse/common-law
partner has a lower marginal tax rate and/or available
tax credits to provide tax savings, you may consider pension
income splitting. An individual can allocate up to 50 percent
of their eligible pension income to a spouse for tax purposes.
(Note that pension income splitting may occur as young
as age 55 for qualifying individuals.)
Convert your RRSP before year end. You must convert
your Registered Retirement Savings Plan (RRSP)before the
end of the calendar year in which you turn 71 years old.
The most common choice is to open an RRIF, but there are
other options to consider, including purchasing an annuity or
distributing funds as income. You can also elect to use your
younger spouses age to set RRIF minimum withdrawal percentages
to further reduce taxable retirement income.
Make final payments to an RRSP before year end. Consider catching
up on any unused contribution room from previous years before the
end of the year. You won’t be able to contribute until the usual RRSP deadline
(which is 60 days after the end of the calendar year), as your plan
will need to be collapsed before year end.
Consider contributing to a spousal RRSP. If you have reached
the age of 71, but have a younger spouse and have leftover RRSP
contribution room (or are still generating RRSP contribution room
if you are still at work), consider contributing to a spousal RRSP.
When to Take Canada Pension Plan (CPP) Benefits?
As you approach the age of 60, you should consider the timing
for starting CPP payments. If you start as early as age 60,
you will receive a reduced CPP pension by 0.6% per month to
a maximum 36% reduction. The maximum available to a 60 year
old Canadian in 2017 is $713.07 per month. You will
receive an increased benefit by delaying CPP from the age
of 65 up until the age of 70 of 0.7% per month. In 2017, at the age of
70, deferring CPP to the age of 70 can amount to $1,582.12 per month
in benefits. Current indexing of these benefits are increased annually by 1.2%.
There are many factors to consider when making the decision, including life expectancy, current and future tax bracket, immediate and future income needs, and the effect of other income-tested benefits. If you would like to discuss how these factors may impact your own situation, please don’t hesitate to call and I can help you to frame the decision.