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Which Tax Bracket Would You Choose?

When you "retire", would you rather be in the highest tax bracket or the lowest?  If you're like most people, you probably instinctively went with the lowest.  Now think about the question again.  What does it mean to be in the highest tax bracket or the lowest tax bracket?  If you're in the lowest tax bracket, you're making the least amount of income.  Conversely, if you're in the highest bracket, you're making the most.

Most people confuse this question with, "Would you rather pay more tax or less tax when you retire?"  As a financial advisor, I make it my objective to assist my clients in achieving the highest income and most efficient tax structure possible.  It is through the use of financial tools and tax strategies that we strive to deduct, divide, defer and discount to achieve a lower tax bill.


One method of reducing your tax bill is to claim expenses like tuition and charitable donations tax credits.  Business and childcare expenses can also be used to reduce your overall tax bill


If your spouse earns less than you, it can be a prudent tax planning step to divide your pension income credits with him or her.  If you're self-employed, there are opportunities to pay your spouse a wage.  By dividing your income between you and your spouse, you can effectively lower your family's overall tax bill.


The third method you can use to reduce your taxes in the current year is to defer them.  A great example of this is an RSP.  Since the monies you contribute to your RSP are meant for retirement, the government allows you to defer the taxes you paid on those contributions until such time that you take them out.  During this time frame, you should be able to leverage those deferred taxes to compound your nest egg until such time that you need it.


The use of insurance vehicles instead of your own assets or income to cover costs is often referred to as discounting.  For pennies on the dollar, you can provide tax free compensation with dramatically lower costs and greater tax efficiency.

As described in the article, Taxes made Simple; your overall gross income determines the highest tax bracket you start in.  The next step is to use the methods, such as those outlined herein, to reduce your income (tax bracket) and thus your overall tax bill.

Do you still want to be in the lowest tax bracket when you retire?