When you're working, the source of cash to meet daily spending needs is straightforward: it comes from your regular paycheque or, if you're self-employed, from business profits.

When you move to retirement, the situation can become more complex. Income may come from multiple sources, all of which may start at different ages.

When you retire, you'll need a plan to meet your income needs. With a bit of preparation, which may include tax considerations, solving the cash-flow puzzle can be easier than you might expect.


Step 1: Identify your sources and the timing of retirement income

First, map out the sources of cash flow you can count on in retirement. This could include employer pensions, the Canada or Quebec Pension Plan, other public pensions such Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), and your savings in Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), as well as unregistered accounts.

You can control when CPP, QPP and OAS income begin. CPP and QPP can start as early as age 60 or as late as age 70. For OAS, eligibility begins at age 65 but can be deferred to age 70. If you delay taking CPP, QPP or OAS, you'll get a higher monthly payment in exchange for waiting. An employer pension may also provide a range of possible start dates.

The federal government maintains a retirement income calculatorOpens a new window in your browser that can help estimate your CPP, QPP, OAS and GIS benefits in retirement. Employer pensions and private savings would provide income beyond government amounts.


Step 2: Check how your retirement income will be taxed

Most retirement income sources are fully taxed, just like your employment paycheque.

Your Tax-Free Savings Account can provide a tax-free source of funds. Amounts withdrawn from a TFSA aren't counted in your taxable income.

Your tax bill might be reduced by tax credits you may claim in retirement, such as the age amountOpens a new window in your browser starting at age 65, and the pension income amountOpens a new window in your browser. Eligible pension income can also be split between couplesOpens a new window in your browser to reduce the overall tax payable in your household; if you're married or have a common-law partner, you can allocate up to half of your pension income to your spouse on their tax return, so it's reported on 2 separate returns instead of 1, which can potentially lower the taxes paid.

Keep in mind that some government benefits (such as OAS and GIS) are "clawed back" via a special taxOpens a new window in your browser if your taxable income is above a specific amount. For example, your 2022 OAS income will be reduced if your annual worldwide net income is greater than $81,761, based in part on income reported on your 2021 tax return.


Step 3: Create your plan for retirement income

Once you've identified the sources and timing options for your retirement income, it's time to arrange when you will start payouts and withdrawals to best meet your goals.

In some ways, you may have more control over your income in retirement than you had during your working years. For example, between ages 60 and 65, you might take funds from fully taxed sources (such as your RRSP) while waiting to take OAS income. Then, when you start receiving OAS between ages 65 and 70, you can shift to withdrawing from your TFSA.

Why consider this? The RRSP withdrawals are reported on your annual income tax return and are included when calculating your eligibility for income-based public pension benefits, such as OAS and GIS. But your non-taxable TFSA withdrawals won't lead to claw-backs of OAS and GIS. Withdrawing RRSP funds first, followed by withdrawals from your TFSA, may help preserve OAS and GIS benefits in retirement.

Creating your retirement income plan may help in fitting the income pieces together to achieve your personal goals. The plan that's right for you will depend on individual circumstances, needs and preferences. You can work with an advisor to help look at your options, crafting a strategy that may minimize taxes, maximize your available funds, and take advantage of your options for timing retirement income.