Lack of financial knowledge can lead you to make decisions that will have a catastrophic impact on your retirement income. Here are some common mistakes to avoid.
Year in and year out, financial advisors find that many people make poor choices when it comes to retirement planning. Overview of three common mistakes.
1. Apply for your QPP too early
By claiming your QPP pension too early, you penalize yourself greatly, notes Jean-François Vinet, financial planner and investment advisor Assante Capital Management Ltd. “It is possible to request it from the age of 60, but it is not recommended unless we absolutely need this income, or our state of health does not reduce our life expectancy,” explains -he.
By receiving your QPP at age 60, you have in fact reduced it by 0.5 to 0.6% for each month before your 65th birthday. In total, it can therefore be reduced by 30 to 36%, until the end of your days. Conversely, postponing it after age 65, up to a maximum of 72 years, increases it by 0.7% for each month of deferral, up to a ceiling of 58.8%.
Jean-François Vinet notes that this will also have an impact on the calculation of the combined pension that your spouse could receive upon your death.
2. Not disbursing your assets in the right order
In retirement, not disbursing your assets in the right order could seriously harm you in terms of taxes. “Theoretically, we start by withdrawing money from non-registered accounts, then the TFSA and finally the RRSP (converted to RRIF). The general idea is to use tax-free assets first and defer taxes as late as possible. But be careful, this is not an absolute rule and everything depends on the particular situation of the person,” warns Jean-François Vinet.
He cites as an example the case of a retiree who would start by withdrawing a small portion of his RRIF, and who would meet his other needs with amounts from non-registered accounts or a TFSA. “Even if the person withdraws money from their RRIF, this could still be a good option if, in total, their taxable income does not exceed the first bracket of non-taxable income of approximately $17,000,” says he.
3. Deprive yourself of the Guaranteed Income Supplement
The Guaranteed Income Supplement (GIS) is intended for retirees whose income is modest and who receive the federal Old Age Security (OAS) pension. Non-taxable, it can reach a maximum of approximately $1,086 per month for a single person. It is therefore a very interesting financial boost. However, to be eligible, you must not exceed a certain level of net taxable annual income ($22,056 in 2023).
The OAS does not enter into the calculation of income, nor does money from a TFSA or non-registered accounts, but the QPP does. “You have to do your calculations carefully and see if it would not be more advantageous to postpone the QPP and count on the OAS and the GIS for a few years,” indicates Jean-François Vinet.
He concludes by specifying that one of the challenges when it comes to retirement is that its planning is often complex. “It’s difficult to do it alone, because there are many parameters to consider. It is best to seek professional help to maximize your retirement income,” he says.
