To design an effective retirement income strategy, it is necessary to look at all possible sources of income.
While you are working, you typically have only one source of income – your job. In retirement, you will have a mixture of different income sources that need to be integrated. You will probably be entitled to some type of government benefit like Old Age Security or the Canada Pension Plan. You might have a company pension plan, or you may have your own personal savings such as a Registered Retirement Savings Plan or a non-registered account. Or you may have other investment sources like a life annuity, a Life Income Fund or real estate.
While integrating your various sources of income, it’s possible to increase your income by reducing your taxes as much as possible. In most cases, income splitting allows you to shift the income and capital gains of the higher-income earner to the lower earner, thereby reducing taxes.
Most people will need more than one source of income to cover all of their expenses in retirement. Fortunately, there is more than one government program and many investment vehicles for building up retirement savings. It is important that you use these income sources in the most effective manner to generate the highest possible after-tax income in your retirement years.