You’ve Saved for Retirement. Now How Do You Turn It Into Income?
For much of your working life, retirement planning tends to focus on one big objective: accumulating enough money.
You contribute to your RRSP and TFSA, perhaps participate in a workplace pension or retirement plan, invest outside registered accounts and gradually build the assets you hope will support you when you stop working.
Then retirement arrives and the question changes. Instead of asking, “How much should I save?” you need to start asking, “How should I use what I’ve saved?” That transition from accumulating wealth to creating retirement income is one of the most important stages of retirement planning.
Your retirement income may come from several places
Unlike your working years, when income typically arrives through a regular paycheque, retirement income can come from a combination of sources.
Depending on your circumstances, these might include:
RRSPs and RRIFs
TFSAs
Workplace pensions
CPP and OAS
Non-registered investments
Business or rental income
Other savings and assets
The challenge isn't simply determining how much these assets are worth. It's deciding how they should work together.
For example, should you begin drawing from an RRSP while delaying CPP? When does it make sense to use TFSA assets? How could different withdrawal decisions affect your taxable income? And how much should remain invested for later in retirement?
There isn't one withdrawal order that works for everyone. Your income needs, tax situation, investments, other assets and estate goals all need to be considered.
Retirement spending isn't necessarily consistent
It can be tempting to take your current annual expenses, multiply them by the number of years you expect to be retired and assume you have your target. Real life is rarely that predictable.
Many people spend more during the earlier years of retirement when they're travelling, pursuing hobbies, helping family and doing the things they finally have more time to enjoy. Spending may change later, while healthcare and support needs can become more significant as you age.
There may also be larger one-time expenses along the way: a new vehicle, home renovations, a major trip or helping a child or grandchild. A retirement income plan should leave room for life rather than assuming you'll spend exactly the same amount every year.
Taxes still matter after you retire
Retirement can also change the way you think about taxes. Different sources of retirement income are taxed differently, and decisions made in one year can have implications later. Eventually, registered retirement savings must also be converted into retirement income, making it important to think beyond this year's tax bill.
The goal isn't necessarily to pay the least amount of tax in any single year. It may be more useful to consider how your withdrawal strategy could help manage taxes over the course of your retirement.
That can mean looking several years ahead rather than making each withdrawal decision in isolation.
Your investments still have a job to do
Retiring doesn't necessarily mean your investment horizon ends. If you retire in your 60s, your assets may need to support you for 25 or 30 years — or longer. Keeping too much in cash can create its own risks as inflation gradually reduces purchasing power, while taking more investment risk than you're comfortable with can make market downturns particularly stressful when you're also making withdrawals.
Your investment strategy therefore needs to balance several priorities: generating income, providing access to money when you need it and supporting longer-term growth.
Don't forget what you want your money to make possible
The numbers matter, but retirement planning shouldn't lose sight of why you saved in the first place.
Perhaps you want to travel extensively during your first decade of retirement. Maybe helping your children or grandchildren is important to you. You may want to spend more time at the cottage, support charitable causes or simply know you can maintain your lifestyle without worrying about every purchase.
You may also want to preserve part of your wealth for the next generation. These priorities should help shape your retirement income strategy rather than being treated as an afterthought.
From retirement savings to retirement strategy
Reaching retirement with a healthy portfolio is a significant accomplishment, but accumulating the money is only part of the plan.
The next step is determining how your savings, investments, pensions and government benefits can work together to provide the income you need, manage taxes, adapt as your life changes and support the things that matter most to you.
At Life & Legacy Advisory Group, we can help you turn what you've accumulated into sustainable retirement income, with the flexibility to enjoy the life you've planned. Ready to talk about your retirement income strategy? Let's talk.
