# How exactly are taxes paid during retirement



## Gnote (Jan 7, 2015)

I'm curious to know how I will pay tax during retirement.

Is tax paid only on what you withdraw from your nestegg each year? For example, let's say I am getting OAS, CCP, my company pension as 'income', and I have registered and non registered accounts. Let's assume I can live on $35,000. 

Would my CPP and OAS and pension be deposited in my bank account - in full - without any tax taken off, and would I end up paying tax at year end as if I was making $35,000? I'm trying to get an approximate handle on how much tax I'm going to have to pay each year, but it's difficult when you don't know how tax is paid throughout the year.

Thank you!


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## pwm (Jan 19, 2012)

Your company pension will have tax deducted. With CPP and OAS you can ask Service Canada to withhold whatever amount you wish. The total combined amount withheld is your tax credit in April. If you owe CRA more than $3,000 you will be required to make quarterly installments in the next year. Your investment income will have no tax withheld unless it's over the RIF minimum.

I've been retired 10 years. In my case, I pay CRA 5 times a year: 4 installments and at tax filing time in April. I have no tax withheld from OAS or CPP, as I would rather take the money throughout the year and pay them as required.


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## gaspr (Mar 24, 2014)

No expert here but I will take a shot at this. It really makes very little difference whether the tax is paid at the source or paid at year-end because the calculations are made based on your total annual income. Any registered withdrawals are fully taxed as income, except for TFSA withdrawals which are tax free. Income (interest, dividends, capital gains) from non registered will be taxable...withdrawals of capital from these accounts is not taxable (assuming no gains here). As an individual, and if you are age 65 or older, you can claim tax credits of up to $20360 or even more if you have significant medical expenses for example. After these credits are applied to $35000 of income, you will have tax owing of around $3800 or so, depending on what province you reside in. This should be a worst case scenario...


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## Davis (Nov 11, 2014)

I agree with both answers above. Also, if you're dealing with a financial advisor, you can have him of her withhold and remit extra amounts of tax so that you don't have to make instalment payments, too.


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## kcowan (Jul 1, 2010)

Been retired for 13 years. Income tax withheld on company pension. All others pay as you go. Get yourself a CRA account. Then you can find out what they think you owe. I log on around the beginning of March and then schedule payments for March 15th and June 15th. After an April 30th reconciliation, I log on again in early September and schedule the September 15th and December 15th instalment payments. So 5 payments in all. Easy peasy!

I do not rely on mail because I travel a lot. Plus it is less record keeping. To reduce the amount owing, I could have them take all of CPP. But what I described works for everyone.


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## kcowan (Jul 1, 2010)

Davis said:


> I agree with both answers above. Also, if you're dealing with a financial advisor, you can have him of her withhold and remit extra amounts of tax so that you don't have to make instalment payments, too.


If you are dealing with a financial advisor, he can withhold a lot of your money in addition to tax owing!:livid:


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## pwm (Jan 19, 2012)

kcowan said:


> I could have them take all of CPP.


Exactly my situation. It would take all my CPP to be close to being tax neutral in April. I'd rather have the cash every month. It gives me the illusion that I'm getting some govt benefit.


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## Gnote (Jan 7, 2015)

PWM, you mention my pension ( rather small, about $1,000/mo ) will be taxed. Are you suggesting then I might get $900 or so each month, and if so, how can they know how much is to be deducted when they don't know my tax bracket?


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## pwm (Jan 19, 2012)

Gnote: That's a good question. My company withheld 15% of my $24,000 pension last year. 15% is the tax rate for the first bracket so that's probably how they do it, but someone who knows better may enlighten us.

By the way, all of your pension is considered taxable income. We're talking about taxes that are withheld at source. Yes you will receive less each month, but it's entirely possible that those taxes could be refunded to you next April depending on your circumstances. They constitute a credit in your CRA account.


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## My Own Advisor (Sep 24, 2012)

I've often wondered if the timing of RRSP/RRIF or LIRA/LIF withdrawals are important given our progressive system:

15% on the first $44,701 of taxable income, +
22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401), +
26% on the next $49,185 of taxable income (on the portion of taxable income over $89,401 up to $138,586), +
29% of taxable income over $138,586.
http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

So retirees, is there an advantage of taking, for example, withdrawals early in the year (vs. end of year) as part of your first 15%, or does it not matter at all since in the end, it's all taxable income?


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## Gnote (Jan 7, 2015)

Can I summarize this discussion by saying that ( assume no available free money - ie: no money sitting in my normal day-to-day bank account ) if I were to realize that at the end of the year, I had received and spent all my pension ( 12,000 ) and all my CPP, my OAS, and perhaps also withdrawn ( to spend ) 10,000 from RRSP's, to cover all my living expenses for the year, and that totaled ( as example ) $35,000 that I would have had an 'income' of $35,000 and therefore pay tax on the $35,000? Is that it essentially?

If I'm correct, then is seems we are paying tax not on what we receive ( cpp,oas,pension etc. etc. ) but rather on what we spend, or withdraw from those.


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## Userkare (Nov 17, 2014)

You would have a *gross *income of $35K. Your personal and age deduction would cut that in about half. Consider that ( in Ontario ) your tax rate will be 20% of taxable income.

If you withdrew from RRSP, tax would be withheld at the source...
10% if the payment is not more than $5,000;
20% if the payment is more than $5,000 but not more than $15,000; and
30% if the payment is more than $15,000.

I don't get your statement about paying tax on what you spend. ??? That would only be true if you spent every penny of your income. Any saved money could/should be put in TFSA to avoid future taxes on income from that.


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## Userkare (Nov 17, 2014)

My Own Advisor said:


> So retirees, is there an advantage of taking, for example, withdrawals early in the year (vs. end of year) as part of your first 15%, or does it not matter at all since in the end, it's all taxable income?



I don't see any advantage in *when* you make withdrawals, but rather in *how much* ( see table in my post above) you withdraw each time. If you can calculate your year's taxable income, and the tax bracket it will put you in, you can plan the amount of each withdrawal so that the amounts withheld will cover that.

Of course, the ideal situation is to stay within the lowest tax bracket ( 20% ONT. ) but still have money in non-registered accounts that you can tap for the large one-time expenses that happen.


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## gibor365 (Apr 1, 2011)

> I don't see any advantage in when you make withdrawals, but rather in how much


 This is what exactly I think.... when you fill out taxes all amounts will be recalculated anyway....
Ideal situation to stay within the lowest tax bracket and if needed withdraw $$$ from TFSA (that are not included in your income)


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## Userkare (Nov 17, 2014)

gibor said:


> This is what exactly I think.... when you fill out taxes all amounts will be recalculated anyway....
> Ideal situation to stay within the lowest tax bracket and if needed withdraw $$$ from TFSA (that are not included in your income)


Well, that's the plan anyways. :biggrin:

I've spreadsheet'ed out 20 years with different scenarios, and have come up with what I hope is the best solution. Unfortunately, life has a way of deviating from plan.:frown:


BTW, I paid a financial consultant to review my plan, and he blessed it. He said I was being conservative in my estimations, and that there's likely to be increases in CPP/OAS over the next 20 years, as well as probably larger personal exemption, and larger TFSA contributions that may reduce my 'taxable' income.


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## gibor365 (Apr 1, 2011)

> to be increases in CPP/OAS over the next 20 years


 I wouldn't plan on it  recently we have opposite situation, you can start to get OAS only at 67, earlier you opt for CPP. less and less you will get...


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## Davis (Nov 11, 2014)

Userkare: I'm just wondering how you found a financial advisor to review your plan, and how much you paid, if you don't mind sharing that information. Do you think that it was money well spent?

I find it scary to make such a big decision based on just my own spreadsheeting abilities, although my mother says that I'm very clever.


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## Userkare (Nov 17, 2014)

Davis said:


> Userkare: I'm just wondering how you found a financial advisor to review your plan, and how much you paid, if you don't mind sharing that information. Do you think that it was money well spent?
> 
> I find it scary to make such a big decision based on just my own spreadsheeting abilities, although my mother says that I'm very clever.


I did a web search for "financial advisers" looking for those who offered 'fee for service', rather than associated with any financial institution. I chose one called Astrolabe after I was impressed by my e-mail conversation with him.

http://astrolabefinancial.ca/services/

At the time, their price/hr was a bit lower. I was well prepared for the meeting and only needed the minimum 1 hr


Oh, and yes, I considered it money well spend. I was confident that my spreadsheet was mathematically correct, but wanted the re-assurance that I hadn't overlooked anything important to factor in.


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## Spudd (Oct 11, 2011)

Gnote said:


> Can I summarize this discussion by saying that ( assume no available free money - ie: no money sitting in my normal day-to-day bank account ) if I were to realize that at the end of the year, I had received and spent all my pension ( 12,000 ) and all my CPP, my OAS, and perhaps also withdrawn ( to spend ) 10,000 from RRSP's, to cover all my living expenses for the year, and that totaled ( as example ) $35,000 that I would have had an 'income' of $35,000 and therefore pay tax on the $35,000? Is that it essentially?
> 
> If I'm correct, then is seems we are paying tax not on what we receive ( cpp,oas,pension etc. etc. ) but rather on what we spend, or withdraw from those.


Anything that you have no choice in receiving (i.e. CPP, OAS, pension), you will pay tax on. So let's say your annual budget is 35k and you receive 40k from CPP, OAS, pension. You have to pay tax on the 40k even if you only spent 35. However in this scenario you would not withdraw from your RRSP until you were forced to at 71. Anything you withdraw from the RRSP/RRIF also counts as income and is taxed in the same way. 

So yes, in the scenario you laid out, you would pay tax on the 35k.


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## My Own Advisor (Sep 24, 2012)

Userkare said:


> I don't see any advantage in *when* you make withdrawals, but rather in *how much* ( see table in my post above) you withdraw each time. If you can calculate your year's taxable income, and the tax bracket it will put you in, you can plan the amount of each withdrawal so that the amounts withheld will cover that.
> 
> Of course, the ideal situation is to stay within the lowest tax bracket ( 20% ONT. ) but still have money in non-registered accounts that you can tap for the large one-time expenses that happen.


Thanks!

Gotcha, I thought so, re: *doesn't matter when* but how much is/was always key.

The reason for the ask...I'm helping my parents out, determining when to withdraw from their RRSPs. I'm thinking now, since they have debt and they have tax-deferred money they can use now that they are in retirement (age 65) to pay down that debt.

Federal 2015:
15% on the first $44,701 of taxable income, +
22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401), ..........

PLUS

Provincial 2015:
5.05% on the first $40,922 of taxable income, +
9.15% on the next $40,925....

So as you say, lowest bracket = 20% ONT.


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## Gnote (Jan 7, 2015)

Thank you all - thank you Spudd. I think then, given that my income from OAS, CPP and pension would NOT cover all my expenses, and that I will need to draw on my registered or non-registered accounts to make up the difference, in the end, I would end up being taxed on 35,000.

Thanks again everyone, this forum is SO informative!


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## Plugging Along (Jan 3, 2011)

Davis said:


> Userkare: I'm just wondering how you found a financial advisor to review your plan, and how much you paid, if you don't mind sharing that information. Do you think that it was money well spent?
> 
> I find it scary to make such a big decision based on just my own spreadsheeting abilities, although my mother says that I'm very clever.


Another source that you may want to consider is a good accountant. Our accountant does our WHOLE family, including my parents, and she has helped us with estate planning, she helps advise my parents on how much to withdraw from which source and helps with the income tax Remittance. She does not advise on investments. 

My parents have a combo of rent, investment income, interest income, rrsps, cpp, oas, and something else, I cannot remeber. Based on what my parents want to soend, our accountant helps them with the plan. She is really expensive, but cheaper than my advisor.


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