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Tips for cash flow after retirement

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“Clients are often confused about the different pools of capital they hold,” said Susan Wood, director of wealth strategy at CIBC Private Wealth.

Wood recommends looking at after-tax cash flows from various sources of income. This includes employment income if the client is still working, government income such as Canada Pension Plan (CPP) or Old Age Security (OAS), or workplace pension income.

Depending on the client’s age, they may also receive payments from RRIF or RRSP, as well as investment or rental income.

Next, the client needs to analyze the cost of living for a particular year. If the total cost of living is greater than the after-tax cash flow, clients will want to withdraw from relatively tax-efficient assets, Wood said.

“It’s best to redeem the least taxable assets first,” she said.

Clients can use the TFSA to look for tax-free withdrawals and unregistered investments with low returns and low tax payments.

But Wood said clients who can afford it can benefit from tax-free compound interest by leaving the TFSA in place.

“Although it may be tempting to use this account for tax-exempt funds, leaving these assets to grow on a tax-deferred basis can lead to compound growth over your lifetime. It’s high and will maximize the after-tax value of your property, the after-tax amount that can flow to your beneficiaries,” she said.

If clients have private companies, they can take advantage of taxable dividends, especially since the latter are generally taxed at preferential tax rates, Wood said.

If a client requires additional funding, they may consider less tax-efficient sources of funding, such as a lump sum payment from RRSP or RRIF above the required minimum. Full tax.

Wealthier customers who have other funds to sustain their lifestyle should defer withdrawals from the RRSP for as long as possible.

A possible exception to this rule of thumb applies to certain clients who are 65 years of age.

“If no other pension income is eligible for the $2,000 pension tax credit, we recommend converting a portion of the RRSP to RRIF to generate sufficient pension income to fully claim the $2,000 annual pension tax credit. “We can consider it,” she said. she said.

According to Wood, this equates to about $300 in annual tax savings, totaling $2,100 over the seven years from age 65 to 72, or $4,200 for couples.

Finally, if a client is investing in a private corporation that cannot be withdrawn tax-free, Mr. Wood will first withdraw the individual’s unregistered assets, leaving behind funds not needed to maintain a corporate lifestyle. We encourage you to take advantage of that asset. tax deferral. This is especially true for funds generated from commercial operations, which are subject to lower tax rates when earned, she said.

This article is part of the AdvisorToGo program offered by CIBC. Written without input from sponsors.