Retirement planning and financial security

Dentist Retirement Income Planning

Structure sustainable income for your retirement years

Income Sources in Retirement

Typical dentist retirement income: $150K-$300K/year from multiple sources. Key components: corporate retained earnings ($2M-$5M generating $80K-$200K/year dividends), personal RRSP/RRIF ($500K-$1.5M providing $25K-$75K/year), practice sale proceeds invested ($1M-$3M generating $40K-$120K/year), plus CPP ($15K-$18K/year) and OAS ($7K-$8K/year). Proper retirement planning coordinates withdrawals to minimize taxes.

Strategic Income Distribution

Age 55-65: Bridge Decade Strategy

Draw from non-registered investments and TFSA first to preserve RRSP/RRIF. Consider small RRIF conversions at 60 to reduce future mandatory withdrawals. Take corporate dividends strategically to utilize lower tax brackets. Delay CPP to age 70 for 42% increase if you have sufficient other income sources.

Target: Keep taxable income under $100K to minimize OAS clawback risk in later years and preserve government benefits.

Age 65-71: Pre-RRIF Optimization

Convert RRSP to RRIF by age 71. Use pension income splitting for RRIF withdrawals to reduce family tax burden. Draw down RRSP strategically before mandatory RRIF withdrawals begin. Balance corporate dividends with RRIF income. Consider prescribed rate loans to income-split with lower-income spouse.

Income splitting can save $15K-$30K/year in taxes. Enable pension income credit ($2,000/year each spouse) at age 65+.

Age 71+: RRIF Management Phase

Mandatory RRIF withdrawals begin: 5.28% at 71, increasing annually to 20% at 95+. Coordinate RRIF, corporate dividends, and investment income to stay below OAS clawback threshold ($90K individual income). Consider prescribed annuities for guaranteed income. Maintain corporate investment account for flexibility.

OAS clawback: 15% on income over $93,454 (2026), fully clawed back at $152,062. Plan withdrawals carefully to preserve benefits.

Corporate Investment Account Strategy

Keep $1M-$3M in holding company for tax-efficient growth. Canadian dividends taxed at lowest rates. Capital gains 50% inclusion provides tax efficiency. Withdraw as capital dividends (tax-free) when available. Use refundable dividend tax on hand (RDTOH) strategically. Provides flexibility for large expenses without personal tax hit.

Corporate investment income taxed at 50-52%, but provides flexibility and creditor protection. Balance with personal investments for optimal results.

Sample Retirement Income Structure - Age 67

Corporate Dividends (Eligible)$80,000/year

RRIF Withdrawals (5% of $1.2M)$60,000/year

Non-Registered Investment Income$35,000/year

CPP (delayed to age 70)$18,000/year

OAS (full amount)$8,000/year

Total Annual Income$201,000/year

Approximate after-tax income: $165K/year through strategic income splitting and tax-efficient withdrawals

Tax-Free Retirement Income Strategy

Beyond traditional withdrawals, corporate-owned life insurance provides an alternative retirement income stream through tax-free policy loans. After 15-20 years of premium payments, cash value accumulates sufficient equity for borrowing. Loans are not considered taxable income, don't affect OAS clawback, and are repaid from the eventual death benefit - which then flows out tax-free through the Capital Dividend Account.

Example: a $2M policy with $400K cash value at age 65 can support $20K-$30K of annual borrowing for retirement expenses without triggering dividend tax.

Strategy works best when implemented 10-15+ years before retirement to build sufficient cash value. Coordinate with overall retirement income plan for optimal tax efficiency.