Whether your retirement date is fast approaching, or you still have a few years to go, it’s important to take steps to boost your nest egg so you’re better prepared to meet your financial goals. Consider the following strategies for maximizing your savings potential.
1. Plan your pension start date
Canadian workers who have paid into their Canada Pension Plan (CPP) and Québec Pension Plan (QPP) are eligible to begin taking disbursements at age 60. Canadians over 65 are also eligible for Old Age Security (OAS) pension plan disbursements, regardless of whether you’ve worked or not. Additionally, as of July 2022, OAS pension payments to individuals aged 75 and older have been raised by 10%.1
The longer you delay the start date of your pension disbursements, the higher your monthly payment will be. If it’s feasible, consider pushing back your retirement date to boost your benefit.
2. Get the most out of a tax-advantaged account
Both RRSPs and TFSAs are financial instruments designed to provide income in your golden years, but they differ in their tax advantages.
Anyone over the age of 18 is eligible to open a TFSA, and contributions to the account are made with after-tax funds. The investment grows tax-free, and withdrawals—which can begin any time—are also not taxed. The current contribution cap for a TFSA is $6,500 a year, and penalties apply to any contributions over that amount.
Contributions to RRSPs are tax-deductible — but you’ll pay taxes on withdrawals. Your 2023 contributions to your RRSP cannot exceed $30,780 or 18% of the previous year’s earned income.2 If you max out your RRSP contributions for the year, you can start contributing to a TFSA to continue to earn tax advantages.
3. Explore your annuity options
If you still have retirement money to invest after you’ve maximized your contributions to tax-advantaged accounts, an annuity might be suitable. An annuity is an insurance product that you can purchase with a lump sum of cash or a series of payments. Depending on the specific annuity, you may be able to access market upside while also guaranteeing a level of income in retirement.
You have a range of options for maximizing your savings and retirement income. Explore the options with your financial advisor to make sure your money will serve you well in retirement.
4. Expand the power of your RRSP
The Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP) can help you maximize your finances by allowing you to borrow from your RRSP interest-free.
The HBP allows you to borrow up to $35,000 from your RRSP to buy or build a qualifying home for yourself or a disabled relative. To participate in an HBP, you must meet certain conditions, including being a Canadian resident and a first-time home buyer. You have 15 years to replace the withdrawn funds.3
With the LLP, you can withdraw up to $10,000 from your RRSPs in a given year to pay for full-time education for you or your spouse. You have 10 years to pay back your LLP withdrawals.4
5. Consolidate your accounts
If you have multiple retirement savings plans it may be prudent to consolidate them into a single account. Keeping tabs on multiple accounts spread across different financial institutions can be a lot to manage, so consolidation can spare you time, stress, and money.
Each financial institution typically charges an annual administration fee to maintain your retirement account, typically a percentage of the account holdings. Check your plans — if you have a group RRSP, your employer may be covering those fees. Knowing your fee structure can help you choose the most affordable plan for your account consolidation.
You have a range of options for maximizing your savings and retirement income. We realize everyone’s situation is unique, so if you have any questions or concerns about your situation, please don’t hesitate to reach out. Let’s make sure your money will serve you well in retirement.
Sources:
1“Old Age Security payment amounts.” Government of Canada. https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html. Accessed 15 March 2023.
2“MP, DB, RRSP, DPSP, ALDA, TFSA limits and the YMPE.” Government of Canada. https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html. Accessed 15 March 2023.
3“What is the Home Buyers’ Plan (HBP).” Government of Canada. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html. Accessed 15 March 2023.
4“Participating in the Lifelong Learning Plan (LLP).” Government of Canada. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/lifelong-learning-plan.html. Accessed 15 March 2023.
