Tax planning for retirement

Is your retirement coming up soon? As you get ready for this exciting time, be sure to put tax planning on your checklist because your tax situation is likely to change. Create your strategy now so you can have more money for the great plans you’re making and spend less on taxes. To help you get started on your tax planning for retirement, here are three things to consider to get your taxes retirement ready.

Updated on February 8, 2024. Originally published March 8, 2023.

How is taxable income calculated in retirement?

One important change when you retire is how your taxable income will be calculated. This is because your money will come from different sources—government programs, your workplace plan, savings from registered or non-registered sources—each of which is taxed differently. We can put them in three categories:

1. Fully taxable—This includes money you saved in tax-deferred plans, such as a defined contribution pension plan, a Registered Retirement Savings Plan (RRSP), or a Deferred Profit-Sharing Plan (DPSP). Once you convert these to lowest tax bracket possible to keep your taxes low. You can do this by limiting how much income you use from taxable sources and then topping it up with money from non-taxable sources to make sure you have the cash you need. 
   
2. Keep your taxes even year to year—It’s easier to manage your finances if you don’t have to deal with surprises, such as a big tax bill. No matter how much money you take out in any year, your strategy should help keep your tax bill in the same general ballpark from one year to the next. 
   
3. Work for the long term—Whether you continue working part-time for a while or you have big plans and need to draw on more of your income at some point, your tax plan should adjust to every stage of your retired life.
   
4. Avoid the clawback—This is also known as the OAS pension recovery tax. If your taxable income goes above a certain amount, you'll have to pay back part or all of your OAS benefit at tax time.  
   

Start on your retirement tax plan 

Your tax plan will be unique to your situation, but the goal should be to make your retirement savings last while funding the lifestyle you want at every stage of your retired life. Now that you know what you need to consider, a financial advisor or a tax professional can help you build the tax strategy that can help you achieve your retirement goals.