Transcript: Tax efficiency tips for retirees

John Yanchus (JY): I would think that anybody in the market wants to be the advisor of choice. There’s been some polls and some studies done in the past where they say in your accumulation phase most clients would have three to five different advisors. To put a plan in place is really hard to do when you’re dealing with multiple institutions, multiple people and multiple products. The goal of most advisors should be to become the advisor of choice in order to plan for their client.

About the art of maximizing the tax bracket for retirees.

JY: When thinking about maximizing the tax bracket, I look at taxable income from all permanent sources. So, if you look at CPP, OAS, pensions, annuity — all those forms of pension income that have to be taken, you can use that as a reference point to determine which tax bracket you’re in. And the tax bracket will have a range. If that reference point is very close to the top of the actual range of the tax bracket, and I need more income for living and lifestyle, then I want to take more money from non-taxable sources — your tax-free savings account — or non-registered investments that would be either tax-free or taxed at a very low rate in order to not jump up into the next tax bracket. The flip side is that if my reference point for taxable income is midway through a tax bracket, I would pull more money from taxable sources — my RRSP or RRIF — in an attempt to create more taxable income at that same tax rate but not to move up into the next bracket. If I don’t need that full amount of cash flow for living and lifestyle, that gives me the opportunity to move some of that money into my tax-free savings account, or to top up non-registered sources, to create more flexibility in my plan later on.

The role that client confidence plays.

JY: It is very important to first build the confidence of your client, making sure they understand that you are looking after their needs and their specific situation, making sure that you are taking all of their financial and tax information into account while creating the plan. In general, you want to look at the different sources of cash flows and income streams. You want to be able to craft those streams in such a way that they interact well with each other. And you’d want to be able to control your overall taxable income.

The strategic side of tax planning.

JY: One way to build confidence is by ensuring that certain tax credits are used — especially if their current advisors are not taking advantage of certain deductions. And the one that comes to mind, that’s a big one in this space, is the pension income tax credit. That can be very powerful. The other piece that is very valuable is making sure the client has a full understanding of the various income streams and the taxable nature of those streams. The advisor can train the client in terms of which source to take when, when different life situations arise. People just go to the first source they think of. But they don’t think about the tax implications of that choice until the tax return is being prepared.

And, finally, what forward-thinking advisors should bear in mind.

JY: Their goal should be to become the advisor of choice in order to plan for their client. A successful practice has the ability to build confidence in its clients to create that plan, and provide them with the best benefit.

Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life. Our thanks again to John Yanchus, tax and estate consultant with Canada Life’s sales enablement team.

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