Gabriel Lalonde
November 16, 2020

Tax Opportunities in Retirement

Most people look forward to retirement with a mix of anticipation and worry. Time freedom sounds fantastic – but have you saved enough to live comfortably?

This worry forces people to look at retirement through the lens of limitations. First, you must limit how much you spend today in favor of saving for the future. After you retire, you will have to stick to a strict monthly budget.

But what if retirement planning offered a unique financial opportunity?

Yes, I am talking about taxes!

Consider this. When approached strategically, saving for retirement is your chance to optimize your tax expenses. Some tax savings help you today, some after you retire, and there are even strategies that do BOTH!

Unfortunately, most people fail to maximize this opportunity. They don’t realize that just working hard and saving diligently isn’t enough. You must make sure that you pick an optimal mix of accounts with preferential tax treatment. And the tough part is that this optimal mix will look different depending on your situation.

Here are some of the retirement savings accounts to consider. Remember that you should work with a qualified financial planner to choose the right combination of accounts!

  • Group RRSP accounts are provided by employers to encourage retirement savings. Your contributions reduce your taxable income, which means you pay a lower tax bill today. When you eventually retire and take this money out, your withdrawals will be taxed as income. However, your tax rate will probably be lower then. If your employer offers a matching contribution, your account balance will grow faster, allowing you to save even more.
  • Traditional RRSPs similarly to group RRSP accounts. They allow you to reduce your taxable income now and defer the tax until you take this money out in retirement.
  • TFSAs are the “reverse” of Traditional RRSPs. The money you put in today doesn’t give you a reduction in taxable income. But, when it’s time to withdraw these funds in retirement, the money you take out will be tax-free.
  • Health Savings Accounts or HSAs aren’t usually thought of as a retirement savings account. However, they allow you to get a reduction in your taxable income today – and to take the money out tax-free to pay for (or get reimbursed for) qualified medical expenses. Yes, that is a double tax benefit.

You’ve probably heard of these accounts before, and you may even be using one or two of them right now. The key to getting the most out of your retirement savings is in maximizing the value of your contributions – and getting your timing right.

Which can be tricky because each set of accounts has rules about participation ages, contribution limits, investment limitations, required minimum distributions, etc. Those rules can change, too – so whatever strategy you select must be stress-tested and verified every few years.

So, here are your take-aways

  1. Talk to your financial planner about your retirement savings accounts, especially if they have been on autopilot for a few years.
  2. Send us an email and let us know how many different retirement savings account types you are using today.

To your secure retirement!

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