Optimize Your Retirement Income with These Tips
Posted by Ocean Wealth
The primary purpose of financial planning is retirement. One day you'll be hanging up your work keys and giving up the 9 to 5. When this happens, you want to be financially prepared for retirement.
To save an adequate amount for retirement, many overlook the part of financial planning related to making your savings last. This part of the plan looks at the strategy behind withdrawing your money in retirement.
These four tips can help you optimize your retirement income:
Know the strategy and order of your retirement savings plan
When most people retire, they have a few different streams of income — or pots of money — to pull from. Retirement income can come from CPP (Canadian Pension Plan), OAS (Old Age Security), registered savings, non-registered savings, rental property income, and/or investment dividends.
The best way to optimize your retirement income is to have a strategy for withdrawal. If you start pulling out money from every source available right at 65, you could be taxed more than necessary.
Start with your non-registered savings first. The trick to maximizing your retirement savings is to prolong your savings while preserving the CPP and OAS as long as possible.
After your non-registered savings, move onto your TFSA as there's no tax on this money. Follow up with your RRSP, RRIF, annuity, and/or defined contribution pension.
Once you've looked at all these sources, then look to the CPP and OAS as retirement income streams. CPP/QPP is available to you after age 60, and OAS is available after 65. However, the longer you put off using these funds, the better. When you start collecting CPP and OAS early, you'll notice smaller payments over time.
Consider the taxes
The reason behind strategizing which sources of income to pull from first is to keep your taxes low over time and to stretch the money longer.
This is the tricky part of financial planning in retirement. Many will try to avoid taxes in those first few years, but this strategy may cause issues later when you start receiving the CPP and OAS, which could put you in a higher tax bracket.
Optimizing your retirement savings means thinking about your taxes 10 and 20 years down the road instead of just year to year.
Consider your family
When it comes to retirement savings and financial planning, family is a big part of the process.
Many want to leave something for their children when they're gone. If this is something you're planning for, it'll affect how you use your money in retirement. There are many options, including gifting money or property to your children now, that you can avail yourself of, so you're not worried about spending it in retirement.
Many retirees will live on the income, or dividends, from their investments without touching the capital, leaving a lump sum for their family when they're gone.
Another consideration for your retirement income is how your spouse's income will affect your taxes. If you're married or in a common-law partnership, it's essential to consider how your spouse's retirement income streams will ultimately affect yours.
Talk to a professional
You can see how confusing retirement plans are when you have multiple income streams and more than one person's financial situation to consider.
The best way to optimize your retirement savings is to speak with a financial planning professional. By defining a clear retirement plan, you'll understand how and when to draw your money while still capitalizing on the maximum amount available to you.
If you're looking for help to plan for retirement so you can enjoy those years without stress, a member of our team can help. Ocean Wealth wants your money to work for you as hard as you've worked for it.
When it comes to retirement, successful financial planning is about saving adequately, being adequately insured, and knowing how to optimize your retirement income so that it lasts. Get in touch today for the best retirement tomorrow.