Make 6 buckets for retirement
We have all heard the term “retirement bucket list.” For retirement, it is also advisable to accumulate and consider separate buckets or as we like to say, “pools of capital” to diversify your future. There are six common ways to divide your savings. (Remember, rules may vary depending on your province).
1 Employment pension, government pension or both
If you are lucky enough to have both, you are definitely in the minority these days. Income is received and taxable while you live. No taxes payable at death.
2 Registered investments. This would be RRSPs (RRIFs over age 71)
Limited by minimums and maximum deposits and withdrawals allowed by the CRA. Must mature by age 71, at which time income is taxable for withdrawals unless participating in rollovers. Estate value if fully taxable at death unless there is a spousal rollover, (approximately 50 per cent depending on your provincial marginal tax rate).
3 Tax-free savings
Always a good option to supplement RRSPs. No taxation at death. This should be considered even if RRSPs are not part of your savings plan.
4 Non-registered investments
Interest-earning investments are fully taxed as interest is received. Eligible dividends, which are taxed at approximately 66 per cent of their value in the year in which they are earned. Capital gains on investments, which are taxed up to 50 per cent of their value (may be deferred until the investments are disposed). Non-registered investments may be subject to probate and other estate fees upon death.
5 Investment property +/- primary residence
Investment properties may be subject to capital gains tax when sold or as a deemed disposition upon death unless spousal/other rollovers. Primary residence is non-taxable upon sale or death.
6 Tax-exempt insurance
Limited tax-exempt life insurance policies (for example, Participating Whole Life). Great tool for asset accumulation and wealth preservation. Adds diversification to your investment portfolio and provides tax-exempt growth over your lifetime. Tax-free death benefit. Bypasses probate if beneficiary is named.