BMO Financial Group

BMO Financial Group

October 27, 2011 06:00 ET

BMO Retirement Institute Report: Minding Your Taxes Can Unlock Retirement Savings for Boomers

- When it comes to how capital gains and dividends are taxed, almost 80 per cent of Boomers either have it wrong or don't know

- More than 40 per cent don't recognize the correct tax effect of making a withdrawal from an RRIF

- Poor tax decisions during retirement could result in a claw back of government benefits such as Old Age Security

- TFSA an ideal mechanism for retirees seeking a tax shelter

TORONTO, ONTARIO--(Marketwire - Oct. 27, 2011) - The BMO Retirement Institute released a report today which finds that Canada's Baby Boomers need to be more savvy when it comes to how they are taxed. Many could be in jeopardy of having their government benefits and credits clawed back unless they take a long-term approach early in their retirement years to structure their retirement income strategically and minimize the taxes they pay.

The report, Mind Your Taxes in Retirement, shows that only a small percentage of Canadian Boomers know how best to maximize their tax savings, leaving them vulnerable to having benefits and credits such as Old Age Security (OAS) and the Age Credit clawed back. For example:

  • Seventy-nine per cent of Canadians aged 45+ either answered incorrectly or did not know how dividend income and capital gains are treated from a tax perspective.
  • More than one-third (34 per cent) either answered incorrectly or did not know how interest income is treated from a tax perspective.
  • Forty-one percent did not recognize the correct tax effect of making a withdrawal from a Registered Retirement Income Fund (RRIF).

"It's critical that retirees be tax smart and adopt a long-term approach that will allow them to pull their income from the most advantageous sources," said Tina Di Vito, Head of the BMO Retirement Institute. "Doing so will also ensure that those with a higher retirement income don't exceed the thresholds that allow them to continue to receive government benefits and credits, which could have a significant impact on their total annual income."

According to Mind Your Taxes in Retirement, 47 per cent of the survey respondents who are retired rely on OAS as one of their principal sources of income. OAS, which is provided by the government to Canadians 65 and older, is an income-tested benefit that could be taken away if a recipient exceeds a certain income level. Awareness of one's income level and tax bracket is therefore crucial to planning to preserve one's eligibility to the benefit. Yet, only 21 per cent of the retirees knew the exact tax bracket they would be in once retired.

The BMO Retirement Institute offers the following advice for retirees and pre-retirees looking to minimize their taxes and maximize their retirement revenue:

Manage your retirement income wisely to take full advantage of tax credits and benefits, such as the pension credit and spousal pension income splitting – For some, this may mean converting RRSPs to RRIFs before age 71 and taking out more than the minimum required amount during the transition years between retirement and the age at which government benefits start to apply.

Seek (TFSA) shelter from the storm – Seniors who cannot bear to see their RRIF funds wither through tax payments can continue sheltering their funds through a Tax-Free Savings Account (TFSA), which regenerates itself through a re-contribution mechanism and has no upper age limit.

Get a good understanding of how taxes will impact your retirement income – Be aware of how the different types of retirement income sources will be taxed; consult a financial professional if necessary.

To view a copy of the full report, please visit:

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $477 billion as at July 31, 2011, and more than 47,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

About the BMO Retirement Institute

The BMO Retirement Institute was established in 2008 to conduct research on retirement issues and provide thought-provoking insight and financial strategies for individuals planning for, or currently in, their retirement years. Tina Di Vito, head of the BMO Retirement Institute, is a Chartered Accountant, Certified Financial Planner and Trust and Estate Practitioner.

Contact Information