There really is no magic age to when you should start taking your pension. In many ways, it will depend on your situation and the type of pension you’re accessing. But some forethought and extra planning can be helpful to best manage your retirement income tax situation, as well as your estate tax liabilities.
While there is no age limit to when you roll over an RRSP to an RRIF, a locked-in account cannot be rolled over to pay out income until after age 55. But once these accounts are rolled over, they cannot be rolled back, and you must always at least withdraw the minimum prescribed amount. These pension payments will be fully taxable in the year the payment is received. What’s also very important to note, is that the entire account will be considered taxable income in the year that you die unless you leave it to a qualified beneficiary (i.e. spouse, common-law partner, financially dependent child or grandchild). Because there can be an enormous tax bill to your estate when you die if you do not have a qualified beneficiary, some thought should go into planning how much you should be withdrawing annually to provide enough income to manage cash flow needs, to efficiently manage your annual income tax burden, and to minimize the estate tax liability as much as possible.
Determining when to start taking CPP and OAS is another retirement pension question most Canadians have to decide upon. You can begin these payments as early as age 60 (at a reduced amount) or defer until age 70 (at an accelerated amount). Typically, the decision comes down to an analysis of your cash flow needs, your tax situation and your employment status. But understanding the government benefits you’re eligible for and the options associated goes a long way towards maximizing your retirement financial situation.
Maria Dawes, Portfolio Manager
Capstone Private Wealth