Your tax burden in retirement is relieved in several ways:
- An age amount lets you earn an additional $7,225 before federal tax.
- The pension amount enables you to earn $2000 federally and $1000 provincially tax free. You can claim this credit if you have qualified pension income (other than CPP and OAS). Between 65 and 71 you can also move $2000 per year to an RRIF while keeping your RRSP intact, and claim the pension amount. Splitting pension income enables a spouse to qualify for the credit.
- Income splitting is very beneficial if one spouse has a larger income than the other.
- TFSAs help to reduce tax and avoid OAS clawback.
- Capital gains, Canadian dividends and some types of annuities are taxed very favourably.
- As your tax is reduced in these ways, less total income is required to support your desired lifestyle in retirement.