Making the Tax Transition into the Retirement Years
It really is nice to think about retirement and looking forward to doing all the things that you have not had time for. It is also nice to think to think that you will no longer be paying a huge chunk of your wages to the tax department any longer.
What many people don’t realize is that they can still end up with a hefty tax obligation in their retirement years, and no longer have employment income to fall back on. There is often a common joke that floats around that says people work just to pay the government. This is based on the general consensus that as Canadians we are over taxed in many different tax departments.
So what is your tax situation going to be once you retire? This is something that you want to give some serious thought to several years before you retire. It is true that the tax laws are constantly changing and this can through a wrench into your retirement tax planning. By using a good qualitytax accountant however, these stumbling blocks can be reduced to a minimum. There are some tax planning strategies for the retirement years that will remain consistent.
So many people don’t realize that their pensions like the Old Age Security and Canada Pension Plans are taxable. They believe that they paid enough taxes throughout their working years that surely this retirement income is non taxable, unfortunately this is not so.
More people now are considering early retirement but wonder what kind of financial situation they are going to end up in. They have been taught that you need to have a source of income that is going to allow you about 70% of what you had during the working years. This sort of evolved around the marketing hype used by financial planning services and mutual funds ads.
What you need to consider is that during your working years that a good portion of what you were making was going to the various types of taxes, plus a lot of one time purchases are made during these years that are necessary for the current lifestyle. Your lifestyle certainly does change in your retirement years and there are lot of current working purchases that won’t be necessary during your golden years. For example, if you and your spouse are both retiring then you may not need two vehicles. You are not going to have the work related expenses.
Using a good tax accountant through your working years will certainly help to plan for your retirement years and you will be able to make the financial transition much more smoothly.