Tax Planning for Retirees: What You Need to Know

Tax planning for retirees involves unique considerations that differ significantly from working-year strategies. Whether you're approaching retirement or already there, understanding the rules helps you keep more of your savings.

RRSP to RRIF conversion must happen by December 31 of the year you turn 71. You can convert earlier if it makes sense for your situation. Once converted, you must withdraw a minimum amount each year based on your age or your spouse's age.

Pension income splitting allows you to allocate up to 50% of eligible pension income to your spouse or common-law partner. This can significantly reduce your combined tax bill if one spouse is in a higher tax bracket. Eligible income includes RRIF withdrawals (after age 65), registered pension plan payments, and certain annuity payments.

The Age Amount is a non-refundable tax credit available to taxpayers 65 and older with net income below approximately $92,000. It provides a federal credit of up to $8,396, with provincial amounts varying.

Old Age Security (OAS) clawback begins when your net income exceeds approximately $87,000. For every dollar above the threshold, 15 cents of OAS is clawed back. Strategies to manage net income — such as pension splitting, TFSA withdrawals, and timing of RRSP/RRIF withdrawals — can help minimize or avoid the clawback.

TFSA withdrawals are not included in net income and therefore don't affect OAS clawback, GIS eligibility, or other income-tested benefits. This makes TFSAs particularly valuable in retirement.

Capital gains planning in retirement should consider the enhanced inclusion rate above $250,000 and the impact on net income for OAS and other benefit calculations. Spreading capital gains over multiple years can reduce the overall tax impact.

Estate planning considerations include designating beneficiaries for registered accounts, using joint ownership with right of survivorship, and considering testamentary trusts for tax-efficient wealth transfer.

A comprehensive retirement tax plan, developed with your accountant, considers all income sources, benefit eligibility, and estate objectives to minimize lifetime taxes and maximize the wealth you retain.