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Retire from work - but not from financial planning

We talk a lot about saving for retirement, and most of us know the importance of having an effective investment strategy.

You may be less aware that it’s equally important to have a customized plan for withdrawing retirement income from the investments you’ve nurtured over the years. Otherwise, your nest egg may end up being less than you expected and not last as long as you need.

Of the three “buckets” that make up the Canadian retirement income system – government benefits, private pension plans and personal savings – the personal savings bucket is the one over which you have direct control.

While government benefits and employee pension plans are the foundation, your personal savings are the building blocks that can help provide financial security in retirement. 

Your retirement may last 30 years or more, so assessing the potential longevity of your income is the first step in creating solutions that will help ensure you’ll have a steady income stream.  Your investments can provide various amounts of money on a variety of schedules, so you’ll need to make informed decisions to keep them producing the income you need. 

The sources of your retirement income and your methods of withdrawing your savings can also have a significant impact on your cash flow and tax burden. Each type of income source has its strengths – such as inflation protection, growth potential, flexibility or longevity protection. Matching income sources to expenses ensures you are planning your needs appropriately while efficiently using your retirement assets.

In retirement your personal savings will still need to grow, to outpace inflation and inevitable cost of living increases. So your plan needs to guard against market volatility. It’s important not to become over-reliant on fixed income investments such as Guaranteed Investment Certificates (GICs) that are safe but deliver low returns. You’ll need a balance between safety and growth.

An effective retirement savings withdrawal plan will also allow you to take advantage of tax benefits, such as the age credit, pension income credit and other tax credits, while possibly avoiding Old Age Security clawbacks.

Other things to consider:

  • The possibility of pension income splitting with your spouse to lower your household tax bill
  • Withdrawing only the minimum amount for your RRIF and other fully taxable investments
  • Choosing non-registered products that offer preferential tax treatment
  • Using TFSAs to help fund your retirement

It’s also important to revisit your plan regularly to account for potential life transitions such as your health care needs or caring for your parents. 

The bottom line is that retirement planning doesn’t end when you reach retirement; in fact, it becomes more important than ever to make well-informed decisions about spending your nest egg. Talk to your professional advisor to determine what’s best for you.

Date reviewed: October 20, 2015

This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.