Finance

Two big questions to ask about your retirement, before you retire

(Special) – Retirement can be a confusing time of personal and financial change for many people as they transition from building their financial nest egg to spending and preserving it to last the rest of their lives.

According to the Canadian Credit Union Association (CCUA), more than 1,000 Canadians are turning 65 every day and investors over the age of 55 held $2.4 trillion in investable assets in the Canadian market in 2017.

That’s a lot of money, and retirees need to know how and when to manage what they have accumulated in their working years.

Two of the biggest questions people have when it comes to retirement planning often are when to start collecting the Canada Pension Plan (CPP) and whether they should start drawing down their Registered Retirement Savings Plan (RRSP) before age 71 when it must be converted into a Registered Retirement Income Fund (RRIF). These income sources are taxed and, depending on your income level, may result in your Old Age Security being clawed back, which happens when net income reaches $77,580 for the 2019 tax year.

In all likelihood, a good portion of Canadians’ financial retirement nest egg will be in their RRSP.

There can be good reasons for early withdrawals from your RRSP before age 71. You should look at your tax bracket now and what you expect it to be in your retirement years because it may be best to get some of that money out when you are in a lower tax bracket.

A common strategy involves converting a small portion of an RRSP into a RRIF as early as age 65, when you become eligible to apply up to $2,000 of eligible annual retirement income toward a 15-per-cent federal pension credit, plus applicable provincial or territorial credits.

“Most people look at age 71 to convert but if your RRSP is very large you may want to start early,” David Lee, a financial adviser with BlueShore Financial in Vancouver, said in an interview.

Another big retirement question is when to start collecting the CPP.

With the CPP you can choose to receive monthly payments as early as age 60, but there is a cost to that decision. Taking payments before age 65 will reduce the amount you receive. Currently, the full CPP annual payment at age 65 as of January, 2019 is $1,154.58.

Recent changes announced by the federal government will increase the new maximum annual pension at age 65 to $17,478. These changes mostly will benefit those who are at least 10 years away from retirement and those who do not have a defined benefit pension plan through their employer.

“People always ask about this,” Lee said. “Everybody’s situation is different. I you don’t have a corporate pension or annuity it can be smart to hold off on collecting CPP and turn instead to your RRSP, RRIF and non-registered accounts for the first few years. It can add as much as 8.4 per cent to your benefit each year if you wait — about 42 per cent more if you postpone payments until age 70. By continuing to work these earnings will help maximize CPP and increase your overall pension income.”

Retirement planning is not a “one-size-fits-all” activity. There are many options available, so it’s a good idea to seek the advice of a financial professional to see what is right for you and your particular circumstances.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Talbot Boggs , The Canadian Press