Investment Solutions

Are you turning 65?

Happy birthday, you’re now eligible for many government benefits

Once you reach age 65, there are tax planning opportunities and other benefits available to you which you should take advantage of. Here’s a list of opportunities to consider:

  1. Apply for Canada Pension Plan (CPP) Retirement Benefits – If you haven’t done so already (since these benefits can start as early as age 60), consider applying for the CPP retirement benefit as your normal pension benefits may start at age 65. Determine, with the help of your financial advisor, whether it makes sense for you to postpone your benefits to a later age since a higher monthly benefit is available if you delay your benefit beyond age 65. The latest you can delay payment is to age 70.
  2. Apply for Old Age Security - The Old Age Security pension is a monthly payment available to most Canadians aged 65 or older. You must apply to receive benefits. If you are eligible for OAS, you may be entitled to receive the Old Age Security pension even if you are still working or have never worked, since this is a non-contributory pension plan.
  3. In addition, if you are in a low income situation, you may also be entitled to an additional benefit, called the Guaranteed Income Supplement, which is paid in addition to Old Age Security. OAS and GIS are both affected by the net income reported on your annual tax return, so they may fluctuate from year to year.
  4. Claim the Age Amount – This is a non-refundable tax credit available to Canadians age 65 and older. If your income for 2012 is under $33,884, you will be entitled to a tax credit claim of $6,720. Once your income exceeds this level, the amount of the age credit is clawed back until income reaches $78,684 (2012 figure), at which point the age amount is completely eliminated. The maximum federal tax savings from the age amount is equal to $1,008.
  5. Pension Income Splitting – Pension income splitting is a tax-saving strategy whereby you can allocate up to 50 percent of certain pension income and have it taxed in the hands of your lower income spouse or common-law partner. By doing so, you will be able to save tax on a family basis. Once you reach age 65, there are more types of pensions that are eligible for this tax planning strategy. Particularly, if you receive income from a RRIF, LIF, or LRIF, you may now consider allocating this income into the hands of your lower income spouse.
  6. Also, if you have an RRSP, you may consider converting a portion of your RRSP to a RRIF in order to generate income eligible for pension income splitting. Lump sum withdrawals from an RRSP are not eligible for this opportunity. Pension income from a registered pension plan is eligible for income-splitting before and after age 65, so if you are just beginning to draw a pension from your past employer, don’t forget to consider your pension benefit for income-splitting.
  7. Claim the Pension Income Tax Credit – This is a non-refundable tax credit available to you on the first $2,000 of certain pension income. Similar to the pension income-splitting strategy, if you are receiving income from a RRIF, LIF, or LRIF, you are eligible to claim this credit once you reach age 65. Income from a registered pension plan is eligible for this credit before and after age 65. This essentially allows you to collect the first $2,000 of pension income on a tax-free basis if you are in the lowest tax bracket.