Retirement Assets: Financial Planning Strategies for Retired Physicians
Cristina has always lived well within her means and has a considerable RSP balance, a fully funded TFSA, a small investment account, and significant assets in her corporation. Along with her partner, who has similar assets, they intend to continue their quiet lives in retirement, perhaps sprinkling some of their good fortune on their six grandchildren.
A review of her finances shows that further contributions by Cristina or her spouse to their RSPs may not be ideal, as they could comfortably live on their present combined RSP assets alone for at least 25 years. Investments within RSP accounts make sense as they generate a tax deduction and grow tax-free, but it is essential to understand that withdrawals are taxed as income at your marginal rate. Larger withdrawals, particularly if you have sources of income other than from your RSPs, can result in a higher tax bill.
Instead of waiting until the mandatory age of 72 to convert her RSP to a RIF (Retirement Income Fund), Cristina and her partner did so at age 65 and now live solely on that income. She is still working but plans to leave that income in her corporation and no longer pay herself a salary or dividends from her corporation unless required for a major expense not covered by the income from the RIFs. The addition of CPP (Canada Pension Plan) in her 70s will need to be considered, but she suspects that she and her partner will not qualify for OAS (Old Age Security) payments. If they eventually deplete their RIFs, they would follow a sequence of asset use by first drawing funds from her investment account and then corporate dividends. Based on current estimates, even if she lives well into her nineties, it is unlikely she will ever spend her TFSA, which she can then gift tax-free to whomever she wishes.
Key Concepts:
RSPs are a great investment option, but you can go too far.
Figure out what you require, add a cushion, and then relax.
Money should not be an end in itself, but just a tool to provide options.
Real-Life Insights for Retired Physicians
Cristina's journey highlights several financial planning strategies for retired physicians, offering a blueprint for others nearing retirement. Here are some key takeaways:
Strategic Use of RSPs: RSPs provide tax deductions and grow tax-free, but withdrawals are taxed at your marginal rate. Plan your withdrawals to avoid a high tax bill.
Early Conversion to RIFs: Converting RSPs to RIFs at age 65, rather than waiting until 72, can provide a steady income stream and help manage taxes more effectively.
Corporate Income Management: Leaving corporate income within the corporation and avoiding unnecessary withdrawals can preserve funds for future needs.
Consideration of CPP and OAS: Understanding the timing and eligibility for CPP and OAS is crucial for long-term planning.
Prioritizing Asset Use: Using RIFs first, followed by investment accounts and corporate dividends, can help optimize tax efficiency and preserve wealth.
Leveraging TFSAs for Legacy Planning: TFSAs offer a tax-free vehicle for savings, making them an excellent tool for legacy planning.
By following these financial planning strategies for retired physicians, you can achieve financial freedom, preserve wealth for future generations, and ensure a secure retirement.
Join Us for More Insights
On this page, you will find real-life case studies from retired physicians covering topics such as retirement planning, estate management, investments, and insurance. These case studies provide valuable insights and practical examples to help you make informed decisions. Financial planning strategies for retired physicians are essential to ensure a smooth transition and a secure financial future. With careful consideration and proactive measures, financial planning strategies for retired physicians can help you avoid common pitfalls and achieve your retirement goals.