Personal Finance Quotes

I'm a strong believer that people should commerce income from their government benefits as soon as they can. I'm listing OAS as the first layer of income. We have a potential exception: If you expect to have a level of taxable income after age 65 that would meaningfully reduce or even eliminate your OAS entitlement, then defer commencement of this benefit. If you delay receiving your OAS pension, your monthly pension payment will be increased by 0.6% for every month you defer it. The maximum deferral is to age 70, at which time you would be entitled to a payment equal to 136% of the benefit for a recipient age 65.  [2019] - Daryl Diamond

Should I take my Canada Pension benefit early or wait until I'm 65? The first rule in layering your income: Use the least tax-efficient and least-flexible sources of income first. The CPP follows right behind OAS in that regard. If you're retired, my recommendation is usually to start it as soon as you can. You should take the CPP payment rather than use your own personal assets to generate income. The cumulative sum of payments for a retiree starting his or her CPP at age 60 equals the total received by someone starting at age 65 at age 73.9. It works the same way here with early versus deferred pension payments. Including the time-value adjustment of those earlier payments would move the crossover closer to age 77. [2019] - Daryl Diamond

I often see situations where people in retirement have non-registered mutual funds and the taxable distributions are being reinvested. Don't do that! During the income phase, any interest, dividends or capital gains that are distributed from non-registered GICs, GIAs, bonds, mutual funds etc. should be paid out to you as income rather than compounded or reinvested. Compounding your GIC is simply compounding your tax problem. Have the interest paid out to you at the time you're taking income. [2019] - Daryl Diamond

To create a regular stream of income, you'll need to convert your RRSP into one of three options: a life annuity (the payments are guaranteed to be paid for life and don't change with fluctuations in markets or interest rates), an annuity certain to age 90 (it pays a constant amount of monthly income until you turn 90) or a RRIF (the most common and practical option for delivering income from RRSP accumulations). When acquiring an annuity with RRSP proceeds, your holdings or investments are sold and the capital is used to purchase the annuity. When creating a RRIF account, existing RRSP investments can remain the same if that's what you wish. Your existing RRSP investments just move "in kind" (as is) into your RRIF account. [2019] - Daryl Diamond

There are a number of ways that the equity you build in your principal residence can serve either to create an income stream or to provide access to an amount of capital. In either option, the receipts are free from taxation. You're not taxed when you take out a loan, and that's really what you're doing, whether in the form of a reverse mortgage or a line of credit against the equity of your home. While you may not be required to repay what has been borrowed as long as you live in the home, that payment will be due if you sell your home. In my opinion, this step should be taken only after other income-generating avenues have been explored, and then only as an action that's necessary to provide additional cash flow. I would certainly suggest that you wait until you're in your early seventies before considering this. [2019] - Daryl Diamond

Various Sources of Retirement Income in the Order in which They Are Best Engaged: Government Sources of Income (OAS -> CPP) -> Corporate Sources of Income (Employment Income -> Pensions -> Severance Packages) -> Personal Sources of Income (Taxable Distributions from Non-Registered Assets -> RRSPs -> RRIFs -> TFSA -> Home Equity) [2019] - Daryl Diamond

Dividend income could be a disadvantage if you're trying to keep your net income figure low. For example, $10,000 of eligible dividend income would have a gross-up of 38% of $3,800 and result in $13,800 being used in calculating total and net income. That increased income could serve to erode things like the age amount and OAS benefits or even to move the recipient into a higher tax bracket.  [2019] - Daryl Diamond

Some forms of income are not subject to taxation. Gifts or inheritances, life insurance proceeds, personal injury awards and lottery winnings are common examples. Some social benefits such as Workers' Compensation, the Guaranteed Income Supplement, and Spouse's Allowance are not taxable but must be considered in Net Income for the purpose of calculating refundable and non-refundable tax credits. [2019] - Daryl Diamond

In 2018, for an individual who is aged 65 or over, the absolute "sweet spot" in terms of annual Net Income is $36,976. Once Net Income exceeds this level, the Age Amount, which is used to factor the Age Credit, begins to be reduced. So by keeping below that level of Net Income, you're going to have the full benefit of this valuable tax credit. In addition, all of the retirement income for the year will be taxed at the lowest possible marginal rate. [2019] - Daryl Diamond

Pension credit (federally) is applied to your first $2,000 of eligible income. Payments must be on a scheduled, periodic basis. For example, a monthly, quarterly or annual payment from a RRIF would be eligible for the pension credit, but lump-sum withdrawals from an RRSP would not. Non-registered investment income (with the exception of the taxable portion of non-registered annuities) or rental income are also ineligible. The pension credit is applicable to federal tax. When provincial tax credits are also factored in, this is worth approximately $320 to $580 in terms of taxes that you don't have to pay, depending on your province of residence. [2019] - Daryl Diamond

Individuals aged 65 or older by the end of the tax year will qualify for the Age Credit. It's factored on the Age Amount and can effectively increase your personal exemption. In 2018, the Age Amount is $7,333. So if you were entitled to the entire Age Amount, coupled with your personal exemption of $11,809, your federal "tax-free zone" would be $19,142. Increase that number by an additional $2,000 for the Pension Credit, and you're just over $21,000 before income becomes taxable in 2018. However, once your Net Income exceeds $36,976, the Age Amount (and Credit) starts to be reduced and is totally eliminated at the point where net Income reaches $85,864. [2019] - Daryl Diamond

I see lots of articles in financial papers about what people pay in management fees on their investments. But that is often a minor issue compared to what they needlessly pay in taxes. Let me repeat: tax-efficient delivery of the net cash flow you need is a true form of asset preservation. [2019] - Daryl Diamond

It's preferable to use tax-favoured or non-taxable forms of income once you're over the first federal bracket, assuming that you have non-registered assets. This will put less strain on your income-producing assets and help to conserve and preserve them. From an efficiency perspective, it's usually preferable to have non-registered investment returns in the form of capital gains rather than dividends. The dividend tax credit gross-up inflates your net income figure. What you ultimately want to do is create the amount of after-tax cash flow that you require while keeping your net income figure relatively low. [2019] - Daryl Diamond

Premiums are paid into an Long-Term Care (LTC) insurance plan for a limited period of time, even though coverage lasts for life. This premium period is determined by your age at the time the coverage is purchased. There are also policy options such as inflation protection and refund of premium riders. All benefits are received on a tax-free basis and are paid directly to the insured or their designated power of attorney (OPA). There are no physical examinations to go through; you must only complete a basic questionnaire. Issue ages are from 40 to 80. [2019] - Daryl Diamond

You don't need a retirement income that is fully adjusted for inflation for 35 years. And in many cases, it's not beneficial to defer all of your registered accounts for as long as possible. And what about becoming more conservative with your investments as you get older? Perhaps this would be wise, but remember that you'll still continue to need some element of growth in your accounts. [2019] - Daryl Diamond

For the purpose of determining your OAS benefits, you may be able to add the years you lived in another country - assuming you contributed to its social security system - to the years you've resided in Canada. This is a result of social security agreements Canada has with a number of other countries. [2019] - Eric Tyson

When you evaluate the cost of a product or service, think in terms of total, long-term costs. People who sell particular products and services may initially appear to have your best interests at heart when they steer you towards something that isn't costly. However, you may be in for a rude awakening when you discover the ongoing service, maintenance, and other fees you face in the years ahead. Sometimes, paying a reasonable amount more upfront for a high-quality product or service ends up saving you money in the long run. [2019] - Eric Tyson

In grocery stores, you can often find name brands and store brands for the same product sitting in close proximity to one another. On reading the label, you can see that the products may, in fact, be identical, and the only difference between the two products is that the name-brand costs more (because of the branding and associated advertising and marketing). [2019] - Eric Tyson

If you have to take certain drugs on an ongoing basis and pay for them out of pocket, ordering through a mail-order company can bring down your costs and help make refilling your prescriptions more convenient. Also, inquire about generic version of drugs. [2019] - Eric Tyson

In the long run, you save money with a higher deductible, even when factoring in the potential for greater out-of-pocket costs to you when you do have a claim. Insurance should protect you from economic disaster. Don't get carried away with a really high deductible, which can cause financial hardship if you have a claim and lack savings. [2019] - Eric Tyson