Make The Most of Your Retirement Income Sources

When you were working, you were probably used to receiving one paycheque on a regular basis. As you know, it's much different in retirement, as your income can come from so many different sources.

To make the most of all of your sources of retirement income, there are specific ways to increase your cash flow, improve tax efficiency, and maximize the government benefits you're entitled to. The key is to understand the funds available to you, and how and when to access them.

Retirement Income and RRIF Planning Strategies

To maximize the income available to you, there are specific strategies to consider. For example, withdrawing funds at the right time, in the right order, can help you take home more income and pay less in taxes.

  • Avoid taking RRIF or RRSP payments earlier than needed, as this income may place you in a higher marginal tax bracket. Calculate your minimum RRIF payments to help you plan.
  • By deferring withdrawals on your RRIF as long as possible, you benefit from continued tax-deferred growth. Download our fact sheet to learn more about RRIFs.
  • If you don't immediately need your full required RRIF payment, consider contributing the extra amount into a Tax-Free Savings Account (TFSA)
  • Take advantage of income-splitting strategies available with RRIF and pension income to help reduce the overall taxes you pay
  • Because your taxable income affects your eligibility for certain government benefits, over-withdrawing could result in a reduction or claw back of some of these benefits
  • You can start your CPP/QPP payments before or after age 65, depending on what works best for your situation. Keep in mind that your benefit is permanently reduced for every month you receive CPP before you turn 65 and permanently increased for every month you delay CPP after turning 65, until age 70

The RRIF Calculator can help you determine your minimum RRIF payments at various ages throughout retirement, to help you get started on your income plan.

Once you have a good understanding of your income sources, and how to manage them, you'll be in a position to assess your retirement cash flow. Remember, you'll want to budget for your regular expenses, as well as special needs such as travel, a move, or health care requirements.

Learn more about all of your potential sources of retirement income

Earning Income at Age 71

The year in which you turn 71 is a pivotal year in your retirement planning. That's because government regulations require that you terminate your RRSP by December 31 of your 71st year. Your options at this point include converting your RRSP to a Registered Retirement Income Fund (RRIF) or another RRSP maturity income option.

Note that you can make one last contribution to your RRSP in the year you turn 71 – but you must do it before December 31st (not by March the following year, as you may have done in the past). And, if your spouse is not yet 71 and you have unused contribution room in your RRSP, you can continue to contribute to your spouse's RRSP until they turn 71.

Benefits of Contributing to a TFSA

A Tax-Free Savings Account (TFSA) is an excellent way to continue investing for tax-free income – which is especially useful if you're no longer eligible to make contributions to an RRSP. That's because you don't need to be earning income to contribute and you don't have to stop contributing just because you've reached a certain age.

  • If you don't need all of your required Registered Retirement Income Fund (RRIF) withdrawal or pension income to cover your living expenses, you can contribute the excess to a TFSA where your funds can enjoy tax-free compound growth, as long as you have TFSA contribution room available.
  • Unlike RRIF withdrawals, your TFSA withdrawals are tax-free. If you hold funds in non-registered accounts, you may be able to move some of those investments into a TFSA and reduce your taxable income, although there may be tax consequences.
  • Income earned in your TFSA and withdrawals from the TFSA will not affect your eligibility for government benefits including Old Age Security and the Guaranteed Income Supplement, or tax credits such as the Age Credit.

Planning your retirement income can be one of the more challenging aspects of retirement. An RBC advisor can walk you through the income strategies that will best apply to your situation, and help you make the most of your income sources while minimizing the taxes you pay.

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Financial planning and investment advice are provided by RMFI. RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec.