Business meeting during Coronavirus pandemic.

(Runtime: 4:59. Read the audio transcript.)


Understanding your retiring clients’ various income streams and building retirement plans that minimize taxes is the key to saving them money and building their confidence in your services.

John Yanchus, a tax and estate planning consultant with Canada Life, said that while every retiree’s financial situation is unique, advisors should strive to increase tax efficiency for their clients.

“You want to look at the different sources of cash flows and income streams, and you want to be able to craft those streams in such a way that they interact well with each other,” he explained. “Ultimately, you want to find deductions and tax credits that can reduce taxable income.”

Furthermore, nothing builds client confidence like finding tax savings that other advisors have overlooked.

“The one that comes to mind is the pension income tax credit,” Yanchus said. “I’ve seen situations where advisors have built a book of business in the retirement planning space, just by ensuring clients are fully aware that this credit is being used.”

Similarly, income-splitting is a valuable tool for reducing taxable income.

“I would think about pension splitting, which is done on the personal tax return. I would think about sharing CPP, which is done through Service Canada directly by the client. And I would think of using spousal RRSPs and spousal RRIFs,” he said. “You could even think about other strategies of lending money to a spouse or [adult] child using prescribed rate loans.”

You can also help clients reduce their tax burden when they need to withdraw cash, Yanchus said.

“When life happens, people just go to the first source they think of. But they don’t think about the tax implications of that choice until the tax return is being prepared,” he said. “It can be very powerful for an advisor to help the client avoid unnecessary expenses.”

Yanchus suggested taking a strategic approach: before recommending a source for the withdrawal, add up all of a client’s income streams to estimate which bracket they will fall into at the end of the year. If the client’s expected income is close to the top of the bracket’s range, the withdrawal could be made from their TFSA or from sources that benefit from preferential tax treatment (e.g., dividends or capital gains).

“The flip side,” he said, “is that if my reference point for taxable income is midway through a tax bracket, I would pull more money from taxable sources — [for example, a] RRIF — in an attempt to create more taxable income at that same tax rate but not to move up into the next bracket.”

Understanding all of a client’s income streams can be difficult if your client has more than one advisor.

Yanchus said studies have shown that Canadians may have open retirement plans with up to five different financial advisors by the time they reach their golden age.

“To put a plan in place is really hard to do when you’re dealing with multiple institutions, multiple people and multiple products,” he said.

Consolidation of retirement plans, then, is not just a good financial and tax strategy for the client — it also builds advisor practices.

“I would think that anybody in the market wants to be the advisor of choice if they’re not already,” Yanchus said. “And if you are that person for one client, are you that person for all your clients? And, taking that one step further, if you’re not providing the atmosphere to accomplish that, how long before your clients hear about someone down the street that is?”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.