The good news is that several strategies can help you keep more of your OAS, boosting your income in retirement.

1. Split pension income with your spouse

Do you and your spouse have different amounts of taxable income? Allocating up to 50% of eligible pension income to the lower-income spouse may bring the higher-income spouse’s taxable income down to a level that reduces or eliminates the clawback. You can split registered pension plan payments at any age, and Registered Retirement Income Fund (RRIF) withdrawals starting at age 65.

2. Take some income from your TFSA

Unlike withdrawals from a RRIF, withdrawals from a Tax-Free Savings Account (TFSA) do not count as taxable income. During your working years, consider redoubling your efforts to maximize your contributions to a TFSA (in 2025, the limit is $7,000 plus any unused contribution room from previous years). Building a significant balance in a TFSA provides a source of retirement income that won’t factor into clawback calculations.

3. Withdraw strategically from your RRIF

Since RRIF withdrawals are considered taxable income, it can help to keep them to the minimum required annual withdrawal amount – a percentage of the remaining balance that is 4.00% when you’re age 65 and rises to 20% by age 95. You can reduce mandatory RRIF withdrawals by electing to base them on the younger spouse’s age. You may also choose to withdraw more than the required amount from a Registered Retirement Savings Plan (RRSP) or RRIF during lower-income years. That way, less has to come out in higher-income years.

4. Invest tax-efficiently in non-registered accounts

Investments are taxed at different rates, which means there’s an opportunity to reduce taxable income by favouring certain investments in non-registered (taxable) accounts. In general, capital gains and eligible dividends from Canadian companies are more tax-efficient than interest. Mutual funds that provide return-of-capital (ROC) distributions can be helpful as well, since ROC is not taxable income. Note, however, that it’s very important to select investments based on your overall objectives, risk tolerance and income strategy – not primarily to avoid the clawback.

5. Speak with your advisor about additional strategies

There are other ways to protect OAS, including using a spousal RRSP, lending to the lower-income spouse, delaying the RRSP-to-RRIF conversion as long as possible and continuing to contribute to an RRSP to age 71, and triggering large capital gains in non-registered accounts before starting to collect OAS. Again, every strategy must match your goals and needs, which is why it helps to talk them through with your advisor.

Source: CI Assante

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Key takeaways:

• • Plan members invested in a diversified portfolio, such as a target-date fund, who retire into a market downturn may often have time to recover losses.
  • Investment time horizons are extending as members delay withdrawals.

Plan members nearing retirement are often faced with the challenge of wanting to protect the capital that they’ve accumulated while retaining some exposure to growth assets to ensure their savings continue to grow. Often, members retiring into a downturn may instinctively want to disinvest from the market, inadvertently realizing capital losses.

To better understand the potential experience of a plan member invested in a target-date fund during a market downturn, we conducted an analysis using data from the 2007–2009 global financial crisis, one of the most severe downturns in recent decades, which dragged global economies and most asset classes down simultaneously.

A member’s experience of retiring into a downturn

We present an example of a member retiring as the market starts to decline, using the following parameters:

1. 1. A member is invested in a target-date fund with a representative glide path, which is an asset-weighted average of glide paths from the target-date fund suites in the target-date Canadian Investment Funds Standards Committee categories.
   2. By January 2007, at age 64, the member has accumulated $1 million in retirement savings and continues to contribute $500 monthly until retirement.
   3. On retiring in December 2008 at age 65, the member doesn’t draw from the retirement account for five years, making a first withdrawal in December 2013, at age 70. This aligns with common tax strategies used for Canadian retirees aiming to minimize up-front tax and involves delaying withdrawals from taxable retirement accounts such as Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) to the extent possible, as income from these accounts is subject to taxation. Members are required to convert an RRSP to an RRIF before the end of the year that they turn 71 years old. Mandatory minimum withdrawal rules take effect within one year of establishing an RRIF. Withdrawals from other capital accumulation plans, such as tax-free savings accounts, aren’t taxed, making them a more beneficial account to withdraw from than retirement accounts when a member is between the ages of 65 and 71 years.

Retiring into a downturn

$1 million invested in a diversified portfolio of asset classes January 2007–December 2013

Source: Bloomberg, Morningstar, Manulife Investment Management, March 2023. For illustrative purposes only. Not reflective of any fund. The representative glide path is an asset-weighted average of glide paths from the target-date fund suites in the target-date CIFSC categories. Benchmarks were employed as a proxy for the asset classes, with Canadian equity represented by the S&P/TSX Composite Index, foreign equity proxied by the MSCI World Index, Canadian fixed income proxied by the FTSE Canada Universe Index, and U.S. fixed income proxied by the Bloomberg U.S. Aggregate Bond Index. It is important to note that this analysis is based on several key assumptions, including end-of-month contributions, monthly rebalancing, and no rebalancing fees. It is not possible to invest directly in an index. Past performance does not guarantee future results.

 

With $1 million in accumulated retirement savings and regular contributions of $500 per month until retirement, the member’s portfolio reaches a maximum value of $1.03 million prior to retirement in May 2008 before the market downturn begins. The portfolio reaches a postretirement low in February 2009, by which time it has lost 16.0% in value from its previous high. Retirement savings are now valued at $865,857. A loss of this magnitude would be alarming for any investor. To put things into perspective, the S&P 500 Index (CAD) experienced a decline of 33.4%, while the S&P/TSX Composite Index decreased by 40.1% over the same period.

Plan members in this situation may be tempted to sell holdings, possibly opting for placing capital in cash rather than sustain more losses. This could be a significant mistake as selling financial assets into a downturn crystallizes losses, severely limiting a portfolio’s ability to fully participate in a recovery. However, we recognize that behavioural biases driven by broad market sentiment at this point in a downturn are often so strong that their effects become pervasive, causing many investors to sell at the worst time.

Hindsight in these instances is a useful reminder that every downturn in history has been followed by a recovery, oftentimes sooner than markets anticipate. We believe this also underpins the merits of being invested in a strategic, well-diversified, and actively managed portfolio that follows a deliberate and robust glide path design.

Retirement trends indicate lengthening investment time horizons

Plan members who delay withdrawals during market downturns can potentially benefit from subsequent recoveries, leading to improved portfolio performance and greater financial stability. According to data from Statistics Canada, there’s been a notable shift in retirement patterns among Canadians, with an increasing number of individuals choosing to work longer. Over the past two decades, the average age of retirement has shown a steady increase from 61 years in 2000 to 65 years in 2022. One reason for this trend may be the removal of the mandatory retirement age in Canada in 2009, which gives workers greater flexibility in deciding when to retire. Additionally, incentives provided through government programs such as Old Age Security and the Canada Pension Plan/Quebec Pension Plan have encouraged individuals to delay retirement and continue working by providing additional benefits for those who work longer. These incentives include increased pension benefits and the ability to continue contributing to retirement savings accounts.

This trend has created a longer investment horizon for retirees, allowing them to potentially weather market downturns by delaying withdrawals from their portfolios and remaining invested, even during downturns. Moreover, remaining invested may counteract the effects of needing to fund a longer retirement: On average, life expectancy at age 65 has increased from 18 years in 2000 to 20 years in 2020, meaning that people are living longer. It’s important to note that this is just an average, implying that almost 50% of members will outlive that age. This emphasizes the need for retirees to plan for a longer retirement and highlights the importance of long-term planning when managing retirement savings.

Weathering volatility: taking the long-term view

Market downturns are stressful, especially for members entering retirement. But it shouldn’t derail a member’s retirement savings plan. Historically, downturns have rebounded quicker than anticipated, giving members an opportunity to recover losses while avoiding the common mistake of selling assets in a market downturn.

As life expectancies increase, members may be facing an equal—or more—number of years in retirement than they did working and saving. This has major consequences for retirement savings as members aim to achieve a modest standard of living throughout retirement. Therefore, it’s important for members to plan well and be thoughtful in adding performance whenever possible. By choosing a target-date fund for retirement savings, members are less likely to allow short-term negative sentiment to influence their behaviour and are potentially more likely to achieve better long-term financial outcomes as a result.

Find out more about saving for retirement using target-date funds. Read our white paper “Weathering market volatility with target-date funds.”

Important disclosures

The commentary in this publication is for general information only and should not be considered legal, financial, or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.

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If your employer offers a pension plan with matching contributions and you’re not participating, you’re essentially saying no to free money.

With so many things to spend your money on, do you need to join your employee pension plan? Agreeing to have money withheld from your paycheque each month may not sound enticing.

But passing up an opportunity to join a pension plan is a financial mistake. This is especially true if your employer offers to match some of your contributions.

Group retirement consultant, Jim Yih of the Retire Happy blog weighs in on essentially saying no to free money. “Is your plan voluntary and you’re not taking advantage of free matching money from your employer? Then you’re missing out on a huge opportunity,” says Yih.

So, before you decide you can’t afford to contribute right now, ask yourself: “Can I afford not to?”

7 reasons you should be contributing to your employee pension plan

To help make your decision, here are 7 things to consider:

1. Start contributing to your pension plan right away  

If you’re a new employee, the time to join your employee pension plan is now. The earlier you start saving and benefiting from your employer’s contributions, the more you’ll have at retirement.

2. There’s no catch to participating in the plan  

Some employers have a matching program. This means your employer will add a percentage* of your contribution to your account. This will help your savings grow faster. It’s that simple.

(*Whatever your employer agrees to and is in the terms of your pension plan). 

3. You’ll save tax by participating 

Contributions to and growth within a registered plan are tax-deferred until you withdraw the money. This means you don’t pay tax until you take money out.

Plus, if you make your contributions through payroll deduction, you’ll also get immediate tax savings. How? Because you make pre-tax contributions. Just like in an RRSP, your contribution reduces your taxable income.

4. Convenience

With automatic payroll deductions, you can contribute money regularly, without lifting a finger. It’s also far easier for you to review and research an investment fund than choosing individual stocks and bonds on your own.

5. A little saving today means more money tomorrow 

Workplace pension plans require that you save regularly. It may surprise you to see how much a small contribution each month can add up over time.

6. Choose the risk

Most workplace pension plans allow you to choose where your contributions are invested. A variety of options gives you the flexibility of making choices that best fit your investment risk level.

7. It’s never too late to start contributing  

The earlier you start and the more you contribute, the bigger your savings. However, you can still benefit no matter when you join the employee pension plan.

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Fortunately, your expanding financial literacy doesn’t have to happen all at once. You can acquire new knowledge gradually as needs arise.

From accumulation to decumulation

When you have retirement savings in your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA) and non-registered account, how do you know which source to tap first for income? You’ll learn that there’s no formula to follow. It depends on each retiree’s particular tax situation, government benefits strategy and estate planning goals. We’ll work with you to develop a plan that suits your circumstances. This may be a balancing act in which you draw varying amounts from multiple sources.

Along the way, you’ll also learn about splitting pension income, making RRIF withdrawals strategically and ensuring you don’t outlive your savings.

Planning your estate

Although estate planning typically begins in your working years, new factors often arise during retirement.

Controlling an inheritance. If you have reason to control how an heir receives their inheritance, you’ll want to know about trusts. Situations include being in a second marriage and wanting to leave an inheritance to children from your first marriage, having minor beneficiaries, and preferring that an heir receives funds over time instead of in a lump sum.

Covering tax. You’ll learn about ways to minimize the tax on your estate’s assets, such as gifting certain assets now to limit their appreciation or transferring assets to your spouse upon your passing. Also, you’ll develop a plan to cover the tax liability that is ultimately payable by your estate.

Using life insurance. One way to offset the tax on estate assets is through a permanent life insurance policy. Life insurance can also help equalize inheritances—for example, when one child takes over the family business and the other child receives insurance proceeds. With life insurance, the financial need is taken care of as soon as you pay the first premium and proceeds are received tax-free, but the cost of the premiums must be weighed against other funding solutions.

Repurposing your TFSA

In retirement, your TFSA could become a tax-free environment for any funds from your minimum required RRIF withdrawals that you don’t require as retirement income. Also, you can take advantage of the tax-free nature of TFSA withdrawals in several ways, such as minimizing any clawback of Old Age Security (OAS) benefits or preventing your income level from being pushed into the next tax bracket. You’ll also find out about different ways TFSA assets can be used in estate planning, either to help manage taxes on your estate’s assets or to leave as an inheritance.

Investment changes

When you’ve been investing for decades, there’s not a lot that’s left to learn. However, you may be introduced to several products and strategies designed for the retirement years. For example, you can choose new non-registered investment funds that provide tax-efficient monthly income. To safeguard against withdrawing funds when the market is down, some retirees draw their income from a cash reserve that they replenish periodically.

We’re here to help you

Wealth planning in this new chapter of your life involves many decisions you haven’t faced before. However, with our help, you’ll find that your financial life during retirement goes smoothly.

Stay informed. We’ll educate you on each new topic so you feel comfortable, not intimidated.

Explore options. When a wealth planning matter arises, we’ll outline the available options. For example, say that a retiree wants to give financial support to grandchildren of varying ages. The first choice is whether to give funds now, leave an inheritance or both. If it’s now, will the funds be for education costs, a down payment on a home or any future use? If it’s an inheritance, will grandchildren be named in the will or designated as beneficiaries of a life insurance policy or a registered plan?

Be well-advised. If a decision is simply based on personal preference, we’ll let you know. When a solution depends on your unique financial situation and goals, you can trust us to recommend the product or strategy that best meets your needs.

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Selling versus staying

Homeowners are commonly motivated to sell when their home represents a sizable proportion of their net worth and they wonder how unlocking that capital might enhance their retirement lifestyle. However, the decision to sell isn’t always financial. Your home might be close to work, but now you want to be closer to nature. You might want a condo to make life easier—no more shovelling snow, mowing the lawn or replacing a roof or furnace. Perhaps you plan to spend warm months at your vacation property and enjoy wintertime down south.

While you’re thinking of selling, you might also be weighing reasons to stay, and there could be several. Your home may be the place you feel most comfortable. You might want to avoid the stress of moving and finding a new doctor and dentist. You may wish to keep your home as the family’s gathering place for holidays and visits. Perhaps you want to keep a larger home if your aging parent moves in or an out-of-work child returns temporarily. Your estate plan may also include leaving the family home to your children.

Making your decision

While you consider the personal side of things—the psychological and practical factors—you can involve us to assess the financial situation. For example, we can look at the net gain of downsizing after accounting for the cost of your next home, and project the impact on your income or other retirement needs and goals. You’ll feel more confident and comfortable about your decision when you have all of the personal and financial factors in front of you.

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You’ve worked hard to build up your business. You’re proud of what you’ve accomplished. And one day, it will be time to step away from it. Here’s how you can start to get ready.

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This increase gets a further boost when seniors delay starting their OAS benefits. Monthly payments increase by 0.6% for each month you delay payments beyond the traditional age 65 start date. That’s a 7.2% increase for a one-year delay and a 36% increase for the maximum five-year delay at age 70.

Reasons to delay OAS payments

If you work beyond age 65, it often makes sense to delay OAS payments since you likely don’t need the pension income.

If you have retired by 65, the main reason to delay OAS payments is simply to gain additional financial security at older ages. You’ll receive a higher monthly benefit that’s indexed to inflation and guaranteed for life.

Why start at age 65?

Anyone who needs OAS benefits at age 65 to help support their retirement has an easy decision to begin when eligible.

Even if the income isn’t needed, there are several reasons to start at 65. It means drawing down less from retirement savings, which may leave more assets as an inheritance. Beginning payments at 65 ensures money isn’t left on the table if a retiree doesn’t live long enough to benefit from increased payments at older ages. In addition, retirees who expect their mandatory Registered Retirement Income Fund (RRIF) withdrawals to result in a clawback of OAS benefits at age 71 may want to start receiving OAS payments at 65.

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