Planning pension withdrawals pays off

Careful planning is required to create adequate pension income from any RRSP accumulations in order to maximize your lifetime investment in the plan. You will want to follow a certain order of priorities.

For example, for those who are still saving for retirement, the first goal is to maximize your contributions to an RRSP every year and to equalize accumulations in each spouse’s RRSP.

The second is to use resulting RRSP tax savings to pay for non-deductible debt, such as credit card accumulations or mortgage payments.

After this, RRSP tax savings could be used to buy a life insurance policy to create a tax-free legacy for heirs.

Finally, when it comes time to create a taxable pension income from your accumulations, plan to do so within the lowest possible tax brackets. Have the lower income earner withdraw first or the greater amount to meet cash flow needs, or split withdrawals over two tax years.

To further manage taxable income, plan how other investment income sources might be diversified in order to defer taxable investment income into the future, and avoid making quarterly instalment payments.