Retirement planning for couples made easy
Retirement beckons you and your spouse - consider these tips when planning your finances.

Chartered Accountant Brian Hanna, Partner, Collins Barrow LLP in Cambridge says to start planning 15 years ahead if you can.

“Planning is more important than ever, given early retirement, longer life spans and increasing health care costs. Relying on government programs like Old Age Security (OAS) and Canada Pension Plan (CPP) may not maintain the lifestyle you want.”  

According to Chartered Accountant Bianca Tino-Gaetani, Partner, Tino-Gaetani & Carusi in Oakville, “find out about the tax-planning opportunities before you retire so that you can maximize your income in retirement.”

“Get professional advice first. While tax savings may seem significant, some strategies are quick and easy, but others are complex and may not be beneficial, depending on your income level.”

Hanna notes these key points:

•    Q:  Is it wiser to invest in an RRSP or pay down your mortgage?  
    A:  Invest in your RRSP first, then use the tax refund to pay down the         mortgage.

•    Get a financial snapshot by preparing cash flows and budgets. This helps you understand your current spending habits and identify how much you will need to have the lifestyle you’d like. Then determine what you can afford to save.

•    Be prepared for the first three to five years of retirement to be more expensive, as people make up for lost time after years of working and begin to travel more. Income demands often fall after that, and then it’s realistic to assume you’ll need 70 to 80 per cent of your pre-retirement income in retirement.

•    Financial planning can be expensive, so do the initial legwork yourself.  Many financial planning programs and models are available that provide projections based on different financial scenarios and stock market assumptions.

Tino-Gaetani offers these tax-planning guidelines:

•    Are you over age 58 and own a company? Instead of salary, consider compensating yourself with a dividend and avoid significant CPP payments. The issue can get complicated so be sure to consider all factors.

•    If you plan to sell your incorporated business, consider an Individual Pension Plan (IPP). You may still be able to contribute a significant lump sum upon the sale of your business, save taxes, and create future income.

•    If you are over 71 but still earn employment income, consider contributing to a spousal RRSP if your spouse is 71 or younger.

•    CPP payments can be split between spouses over 60.

•    Take advantage of the $2,000 federal pension credit for qualifying pension income.

•    Beginning with the 2007 tax year, spouses may split up to one-half of qualifying pensions, including RRIFs (excluding CPP/OAS) provided that the income qualifies for the pension credit. You save taxes, potentially avoid the OAS clawback, and may even regain the Age Credit.  Beware of losing medical credits or splitting “too much” if your spouse also has income.

•    No company pension? Between ages 65 to 71, save taxes by converting $10,000 of your RRSP into a RRIF, thus creating an eligible pension and maximizing the federal $2,000 pension credit.

Brought to you by The Institute of Chartered Accountants of Ontario.