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Many farmers reach retirement with a combination of farmland, a farm corporation, RRSPs, and government benefits. The challenge becomes deciding which assets should be used first for retirement income and which should be left alone.
For many farmers, saving money isn’t the hard part, but withdrawing tax efficiently in retirement is. Throughout your working years, RRSPs are all about accumulation. You contribute, receive a tax deduction, and hopefully allow those savings to grow over time.
But eventually, the focus shifts from building wealth to creating income.
At age 71, RRSPs must typically be converted into a RRIF, and minimum withdrawals begin. Those withdrawals are taxable and can affect things like your overall tax bracket and government benefits.
What surprises many farm families is that retirement income doesn’t just happen automatically. If all your income sources start paying out at the same time, you may end up paying more tax than necessary.
That’s why decumulation planning is so important.
A problem farmers often don’t see coming is the goal isn’t simply to have money—it’s to create a retirement income strategy that works efficiently and lasts.
If you’ve spent years building your retirement savings, it may be time to start thinking about how you’ll eventually draw income from them. I’ve seen it many times where two farmers can retire with the exact same amount of money and pay very different amounts of tax.
When retirement begins, most people focus on how much income they need. But an equally important question is where that income should come from. For farm families, income may be available from RRIF withdrawals, corporate dividends, non-registered investments, land rental income, CPP, OAS, or even part-time farming activities.
- Drawing too much from one source too quickly can push you into a higher tax bracket.
- Drawing too little can create larger RRIF balances later in life, which may result in larger mandatory withdrawals and potentially a bigger tax burden down the road.
That’s why many retirement plans focus on smoothing income over multiple years rather than allowing large spikes later.
The objective isn’t necessarily to pay the least tax this year. The objective is often to pay the least amount of tax over your entire retirement while maintaining the lifestyle you’ve worked so hard to build.
Just like crop planning, retirement income planning works best when you’re looking several years ahead, not just one season.
If retirement is approaching and you have RRSPs, RRIFs, or corporate assets, now is the time to begin looking at a long-term withdrawal strategy.