- Contribute the maximum to your Registered Retirement Savings Plan (RRSP) for as long as you can. You can contribute to your RRSP until the end of the year in which you turn 71- whether you are working or not- if you have contribution room available.
- Since RRSP contribution room is based on your previous years earned income, you will have RRSP contribution room the year after you retire. Be sure to make an RRSP contribution the year after you retire. If you intend to work beyond age 71, you can still contribute to a spousal RRSP if your spouse is younger than you. If this is not possible, consider making an over contribution to your RRSP in December of the year in which you turn 71.
- Base your Registered Retirement Income Fund (RRIF) withdrawals on the age of the younger spouse. This will minimize the amount of RRIF income you’ll be required to expose to tax.
- To get the most tax- deferred growth from your RRIF, withdraw only the minimum amount required and choose December 31st of each year as the date you will receive your annual income. You’re not required to receive any RRIF income until December 31 of the year following the year that your RRIF was established.
Sources and choices for retirement income
In the coming months you face the task of striking a balance between your need for income and your need to ensure you don’t drain your resources prematurely during your retirement.
The bottom line is your retirement lifestyle will dictate how much income you’ll need. If you plan on spending time reading the classics and tending to your garden, you will require much less than if you plan on travelling the world.
You’ll also need to establish your sources of retirement income. Determine how much of your income will come from public sources like the Canada Pension Plan (CPP) or Old Age Security (OAS) and how much will come from your personal retirement savings.
Building a portfolio for your Retirement
While your retirement is a few years away, you can’t afford to lose sight of the fact that you may require income for 20 years or more. As a result, you’ll need to protect yourself from the danger of outliving your savings.
Your plan could include stock (equities or equity mutual funds. Generally speaking, these kind of investments have consistently provided better returns than those available on interest bearing accounts over longer periods of time. Your plan should also guard against market decline early in retirement that could significantly reduce your retirement income.
Essentially, your portfolio needs to include a mix of investments that help protect against market downturns, while also delivering a cash flow that will sustain your retirement lifestyle.