Making the most of your retirement income requires effective expense management and planning ahead for large expenses, such as vacations or long-term health care. While budgeting is important and should be part of your plan for living well in retirement, it shouldn’t be your only focus.

Having a solid tax planning strategy and being aware of different tax rules and considerations will help ensure you’re maximizing your retirement income.

Tax advantages

Now that you’re retired, you should be aware of these tax advantages.

Federal and provincial tax credits – The age amount tax credit and the pension income amount tax credit are just some examples of credits you can take advantage of to help reduce the income tax you owe. 

Income splitting – If you have a spouse or common-law partner, income splitting will help reduce your overall household income by assigning up to half (50%) of your eligible pension income to your spouse or common-law partner. If both you and your spouse or partner has eligible pension income, you’ll need to decide who will transfer and allocate part of their pension income to the other. Your accountant can help determine the split that is most advantageous for your situation.

Most sources of pension income can be split after age 65, such as annuity payments from your Registered Retirement Income Fund (RRIF) and converting your Registered Retirement Savings Plan (RRSP) to an annuity. However, your PSPP pension can be split before and after age 65. Speak with your accountant or qualified tax advisor to discuss the potential income splitting impact on various personal tax credits and the potential Old Age Security (OAS) recovery tax (formerly known as claw back) for you and your spouse or partner.

Retirement savings withdrawals – When reviewing all your sources of retirement income, it’s important to assess your total future income every year together with your spouse or common-law partner. Some of the key factors to consider are:

  • Withdrawals from your RRSP/RRIF are taxable. You will have to convert your RRSP to a RRIF the year you turn 71, as you must start taking regular minimum annual withdrawals from your RRIF the following calendar year. If your spouse is younger, you may want to elect your RRIF minimum withdrawals to be based on his or her age as the RRIF minimum withdrawals rate increases with age. These are especially important implications to be aware of if you are close to, or above, age 71.
  • Withdrawals from your TFSA are not taxable.
  • Withdrawals from your non-registered investment account may or may not be taxable depending on the investment type.
  • The normal age to start collecting CPP is age 65. However, you may apply to collect it as early as age 60, reduced, or delay it up to age 70 for an increased amount.
  • The normal age to start collecting OAS is age 65. However, you may want to defer it up to age 70 for an increased amount. Be aware that OAS recovery tax starts once your income level reaches $75,910 and gets fully recovered when your income reaches $123,302 (2018 income year).

Estate planning – Make sure you consider the implications of your retirement income before you pass away. Here are some considerations to help minimize taxes:

  • Name your spouse or common-law partner as the beneficiary for a tax-free rollover of your registered assets.
  • If you do not have a spouse or a common-law partner, name these beneficiaries on your registered assets to minimize estate administration tax (formerly known as probate fees).

Takeaways and advice

The strategies we have outlined above are general guidelines to help reduce your taxes in retirement. However, to ensure you're taking advantage of the right tax-saving strategies based on your current life stage and personal financial situation, we encourage you to speak with your accountant or qualified tax advisor.

Helpful links

To learn more about income splitting and to better understand how it affects you and your spouse or partner, visit the Government of Canada links below: 

Check out our Returning to work after retiring article.