Paul, 64, and Deirdre, 58, are enjoying a comfortable retirement, but like many, they are eager to minimize their tax liabilities. With the rising cost of living and the need to make the most of their savings, they seek ways to retain as much of their Old Age Security (OAS) benefits as possible.

Paul, who recently retired, receives a defined benefit pension of $118,000 annually, which will decrease to $94,085 after a bridge benefit ends when he turns 65. He plans to split this income with Deirdre. Deirdre, currently without a pension, spends her time at their suburban home near Toronto, where they live with their two adult children.

In response to his retirement, Paul is winding down his three-year-old consulting business, which still holds $280,000 available for dividends. He aims to withdraw these funds in the most tax-efficient manner. The inclusion of these dividends could complicate their tax situation, especially regarding the Canada Revenue Agency’s tax on split income (TOSI) rules.

To understand their options better, they consulted Warren MacKenzie, a financial planner based in Toronto and a chartered professional accountant. MacKenzie highlights the need for a solid plan. Although splitting the income from his corporation may not be feasible due to the complicated TOSI regulations, the couple should explore this matter in detail with a qualified accountant.

The couple’s overall goal is to simplify their financial management while maximizing the longevity of their investments and minimizing headache-inducing tax issues. They have a moderate-risk investment portfolio and are considering “inheritance advances” for their children, allowing them to take a proactive approach to estate planning.

Another key decision looms: when to start claiming Canada Pension Plan (CPP) benefits. While waiting until 70 increases the payments significantly, they are inclined to begin collecting at 65, as their life expectancy figures suggest that this timing could benefit their overall financial situation.

In terms of their financial landscape, Paul and Deirdre have an unused Tax-Free Savings Account (TFSA) contribution room exceeding $190,000. Projections for their cash flow in 2025 reveal an expected $163,947 income, sourced from Paul’s CPP, OAS, pension, and dividends. After accounting for expenses, they anticipate an annual surplus of around $47,000, either for TFSA contributions or mortgage repayment.

A critical component of their financial strategy involves deciding whether to dissolve the incorporated business and withdraw the funds as a lump sum in 2025 or to distribute them over several years. If they choose the latter, they significantly decrease their tax burden, leading to a more favorable tax rate despite a continual OAS clawback.

An alternative approach could be to maintain their investment structure; currently, their asset mix includes 70% in fixed income and a high-interest savings account, while equities are confined to their RRSPs. MacKenzie suggests that changing the growth investments in their TFSA could enhance tax efficiency.

Ultimately, by adhering to a tailored financial plan, Paul and Deirdre can secure a comfortable retirement while minimizing taxes and easing the administration of their estate. The key takeaway? Consulting with financial professionals can lead to significant benefits and greater peace of mind during retirement.

**Monthly Net Income:** As required. **Assets:** Bank Account - $7,200; HISA - $23,000; Corporation - $280,000; His RRSP - $29,000; Her RRSP - $189,000; Residence - $1,600,000. **Total:** $2,128,200. **Estimated Present Value of Pension:** $1,800,000. **Monthly Outlays:** Totaling $7,520. **Liabilities:** Mortgage - $127,000 at 4.9%. **Plan Ahead and Secure Your Future!** Understanding the nuances of retirement planning could be the key to enjoying the golden years worry-free!