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Baby boomer wave increasing in 2011
Anyone born between 1947 and 1966 are called baby boomers.
The term baby boomer refers to people born during that period of economic prosperity following World War II.
Retirement is pending for many baby boomers.
By 2015, there will be more adults older than age 65 than children younger than 15. The demographic tide has turned.
There are some important considerations when transferring a Registered Retirement Savings Plan (RRSP) accumulation to Registered Retirement Income Funds (RRIF).
When a RRIF is set up, clients have the option to use their own age to calculate future RRIF payments, or use the age of his or her spouse or common law partner.
If you want to have a longer period of tax deferral, you can choose the age of the younger person.
The government sets the annual increasing RRIF withdrawal schedule.
If the mandatory withdrawal is not needed, these funds can be invested in the Tax-Free Savings Account (TFSA), where future income grows free of income tax.
There must be available contribution room in your TFSA.
Since this plan started in 2009, $5,000 can be allocated for each of the last three years.
A corporate class fund also allows for non-registered money to be held in a tax efficient strategy.
Naming a beneficiary on your RRIF must be done at time of the RRIF application.
If a named beneficiary is not named, the proceeds flow through your estate, and the proceeds are subject to estate settlement and costly fees.
Naming a spouse on a RRIF allows the proceeds to be transferred tax free.
Naming someone other than your spouse, the final disposition of a RRIF is included in the estate.
This results in over 40 per cent lost to taxation.
Clients age 65 or older receiving RRIF income, can claim the pension credit of $2,000 on their federal tax return.
This $2,000 credit can also be claimed on insurance GICs after age 65 when held in non-registered money.
Clients who are eligible to claim the pension credit can split the income with their spouse regardless of the spouse’s age.
This can be very effective income splitting for couples.
A double pension credit is available if both partners are over the age of 65.
You can choose to convert your RRSP to a RRIF earlier than the mandatory age of 71.
Some baby boomers may need to fund their day to day or monthly cash flow. You can use this strategy to withdraw RRSP or RRIF funds in years when your marginal tax rate is low.
I have mentioned some key tax and estate planning concepts in this article for RRIF conversions.
The average age of retirement is age 62. Use tax and estate planning strategies available to you.
Doreen Smith is a Certified Financial Planner with Capri Wealth Management and Manulife Securities Investment Services Inc. The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.
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