Let me save you a lot of grief and money as you prepare to retire. Avoid making a bunch of financial decisions willy-nilly based on what other well-meaning people tell you. Start with some planning because it will save you thousands of dollars throughout your retirement.
There are several decisions in retirement that cannot be undone and can result in you losing a lot of potential income. You are planning out the next 30 + years of your life and it needs to be done properly.
It is possible to add an additional $65,000 of tax-free income from ages 65-70 if you delay CPP to age 70 and start only with GIS first.
By delaying CPP to age 70 you will also earn 42% more than you will at age 65 and 78% more than you will at age 60.
On the flip side, you can reduce or eliminate a potential OAS clawback by not delaying your RRIF conversion to age 71.
Confused yet?
The thing is - there are so many choices and every choice will have an impact on something else. It's called the law of unintended consequences. Take the RRSP to RRIF conversion at age 71 for example. There are several potential downfalls. First, now you are forced to start taking the minimum annual payment of 5.28% at age 71 and that increases each year.
When you delay drawing down your RRSP you are now regulated to take a minimum amount of money on a higher balance. Secondly, if you are married and your spouse passes away prematurely, you now have two RRIFs to contend with and now you will have a higher minimum income to take and this could start reducing your OAS income and other government benefits. A third downside is the potential tax hit if the last surviving spouse dies and the entire RRIF is now income in one year. That could be a 48% tax bill in Alberta - more in other provinces.
Portfolio design
How you grew your money is not the same as how you will withdraw your money. Maybe you had a genius strategy and are sitting on a large nest egg. What is the best order to get the most life-long income and pay the least amount of taxes? Should your TFSA and your RRSP/RRIF have the same strategy?
Insurance. Medical benefits. Going to the dentist. Physio. Prescriptions. Travel insurance.
Estate and Will planning. Who will look after your affairs when you are too old to do them yourself? Who do you want to have what's left? What are the ways to avoid probate and simplify your estate?
Long-term care planning. Who's going to look after you when you get old? It will never happen to you. You will be the first person to grow old and just die in your sleep - painless - easy. Unlikely. Memory loss. Sickness. Bad knees. Downsizing your home. When? Before it's too late, I hope. How will you pay for it? Are you depending on government assistance? Well, I hope you have the time to wait because the list is growing faster than you may realize. Private facilities - be prepared to pay a lot of money.
Leaving your future to chance is not a plan!
What every soon-to-be retiree needs is a comprehensive plan that deals with the issues and questions outlined above. The proper order of taking income can ensure you have a sustainable level of income throughout life that can ensure you don't overspend and become a burden to others or underspend and die the richest person in the graveyard.
The flat fee you will pay us is a fraction of what you will save over your lifetime.
Check out our fee-only planning service here.
Retirement Income, Investment, & Tax Planners,
Willis J Langford BA, MA, CFP
Nancy R Langford CRS
