Canadian seniors are more likely than other age groups to give themselves a high mark for overall financial knowledge, shows BMO Financial Group’s third annual financial literacy report.

The study showed that 55% of seniors give themselves an “A” or “B” when evaluating their overall knowledge of key financial products, programs and terms. This is 10% higher than the Canadian average.

Read: Do your clients really understand retirement?

But a recent report issued by the BMO Wealth Institute, Mind Your Taxes in Retirement, shows a significant number of baby boomers (those aged 45+) lack knowledge of key personal finance topics that can impact their income during retirement.

The report noted that only a small percentage of boomers know how best to maximize their tax savings, leaving them vulnerable to having benefits and credits such as Old Age Security (OAS) and the Age Amount tax credit clawed back.

Read: The new retirement math

For example:

  • 79% either answered incorrectly or didn’t know how dividend income and capital gains are treated from a tax perspective
  • 34% either answered incorrectly or didn’t know how interest income is treated from a tax perspective
  • 41% didn’t understand the tax implications of making a withdrawal from a Registered Retirement Income Fund (RRIF).

Read: Growing income during retirement

Tips for retirees and pre-retirees:

  • Take full advantage of tax credits and benefits, such as the pension credit and the Old Age Security benefit: Take advantage of income splitting opportunities. Consider converting RRSPs to RRIFs before age 71 and taking out more than the minimum required amount during the transition years between retirement and the age at which government benefits start to apply.
  • Seek (TFSA) shelter from the storm: Seniors who cannot bear to see their excess RRIF withdrawal wither from taxes in the future can continue sheltering their funds through a Tax-Free Savings Account (TFSA), which provides tax free growth and has no upper age limit for contributions.

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