How to cut taxes on a $2M portfolio in retirement
Paul and his wife have $2M in dividend stocks, ETFs, GICs, and $100k in pensions. FP Answers explains asset location to reduce tax.
A recently retired couple with roughly $2 million in dividend stocks, pipelines, utilities and equity ETFs, plus $900,000 in GICs and high-interest savings accounts, wants to reduce their annual tax bill. They also collect about $100,000 a year from defined benefit pensions and annuities. They do not hold registered retirement savings plan assets, which is common for retirees with large pension plans.
In a column for the Financial Post, FP Answers pointed to an asset location strategy. Asset location means holding investments in different account types based on how the income is taxed, so that certain types of income are sheltered. Without registered accounts, however, the traditional approach is less useful.
FP Answers said the couple's GIC holdings are likely the least tax-efficient part of the portfolio. That is partly by design, the column noted. The more certainty an investment provides in income or capital, the more likely its income will be fully taxable. Pension income is a good example. It is less tax-efficient than Canadian dividend income, but it offers the security and predictability that comes from decades of contributions and deferred tax savings.
The column did not recommend specific portfolio changes. It framed the trade-off as certainty versus tax efficiency. For retirees with large taxable portfolios and steady pension income, the structure of the portfolio itself limits how much tax can be avoided through asset location alone.
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