If you are not planning for a comfortable and secure retirement, how can you expect to have one?
We have all heard the term “retirement bucket list.” It’s a list of things that you would never do when you were working, but now that you are child-free, work-free and hopefully carefree, you can do all the things you have always dreamt of. Maybe it is skydiving, buying a motorcycle, learning something new, travelling to an exotic destination (this will be delayed a bit due to COVID) riding a horse — well, you get the idea.
When you are planning for retirement, it is also advisable to accumulate and consider separate buckets, accounts, or as we like to say, “pools of capital” to properly diversify your future.
Of course, many may not be able to do them all, but at least you can now see what we ask clients to consider when determining an achievable retirement lifestyle. There are typically six common ways to divide your savings toward future retirement capital. Plan to use as many as you can when saving for your future.
Remember, if you are not planning for a comfortable and secure retirement, how can you expect to have one? Here we go (and remember, rules and guidelines may vary depending on your province or territory):
1. Your employment pension, government pension or both.
If you are lucky enough to have both, you are definitely in the minority these days. Income is received and taxable while you live. No taxes payable at death.
2. Your registered investments.
This would be RRSPs (RRIFs over age 71). Limited by minimums and maximum deposits and withdrawals allowed by the CRA. Must mature by age 71, at which time income is taxable for withdrawals unless participating in rollovers.
Estate value if fully taxable at death unless there is a spousal rollover, (approximately 50 per cent depending on your provincial marginal tax rate).
3. Tax-Free Savings.
Always a good option to supplement RRSPs. No taxation at death. This should be considered even if RRSPs are not part of your savings plan due to limited funds.
4. Non-Registered Investments
Interest-earning investments are fully taxed as interest is received. Eligible dividends, which are taxed at approximately 66 per cent of their value in the year in which they are earned.
Capital gains on investments, which are taxed up to 50 per cent of their value, (may be deferred until the investments are disposed). Non-registered investments may be subject to probate and other estate fees upon death.
5. Investment Property +/- Primary Residence
Investment properties may be subject to capital gains tax when sold or as a deemed disposition upon death unless spousal/other rollovers. Primary residence is non-taxable upon sale or death.
6. Tax-Exempt Insurance
Limited tax-exempt life insurance policies, (for example, Participating Whole Life). Great tool for asset accumulation and wealth preservation. Adds diversification to your investment portfolio and provides tax-exempt growth over your lifetime. Tax-free death benefit. Bypasses probate if beneficiary is named.