









Are You Ready to Retire?
Getty Images
The realities you face when you stop working can be very different from your retirement dream. There are plenty of pitfalls you could encounter. If you haven’t properly prepared for leaving the working world and living without a paycheck, you’ll have to face the ugly truths about retirement.
With today’s realities of minuscule interest rates, decreasing availability of employer-provided defined benefit (DB) pension plans and the potential of longer life expectancy, extending retirement resources over one’s lifetime is more than a theoretical problem.
It’s great news that we may live a long time, the challenge is preparing clients for a retirement that could go from age 60 to 100. The big fear is running out of money. In my experience, retirees need to address ten key issues:
Issue #2: Taxes Can Take a Big Bite Out of Retirement Income
Another big problem retirees face is a larger-than-expected tax bill on their retirement income. Many think their tax rate will go down when they’re retired. That’s a misconception.
If you’ve saved most of your money in a company pension plan and/or a tax-deferred retirement account such as a RRSP you will have to pay taxes on your withdrawals at your regular income-tax rate. For example, if you need $100,000 a year to cover expenses, you’ll have to withdraw even more than that to cover taxes.
Many retirees are unsure how and when to withdraw their money tax efficiently out of their various investment accounts. They know CRA is waiting in the shadows ready to tax them. They may have company pensions, CPP, OAS, RSP’s, LIRA’s, TFSA’s and non-registered accounts (individual and joint). How much they can spend once they retire takes thoughtful planning.
Living off one’s resources is the trickiest part to get right. This phase is known as decumulation. Decumulation is a word referring to the decumulation of assets in order to maintain your quality of life in retirement. Asset decumulation is a major component of retirement income planning and it rarely gets the attention it deserves. Everyone talks about
saving and investing but no one ever talks about the most tax efficient way to spend during retirement.
What is the best way to decumulate their assets?
This is a simple question on the surface, but the answer isn’t always obvious. First, we would need to define the retiree’s goals.
For instance, are we optimizing for the,
Solution: Create a Tax-Efficient Retirement Income
First you need to determine your desired level of income during retirement. Next you need to hire a professional to create a decumulation strategy which highlights how much should be taken out of which account and when, to pay the least amount of tax over your lifetime. This is commonly referred to as the distribution phase.
You need to prepare for the unexpected. Your decumulation investing strategy requires a flexible retirement portfolio needed to provide a buffer for when the economy takes a hit. You require a buffer with cash and a more conservative investment portfolio worth 3 years of expenses. The starting point of a bad sequence of returns begins with having to continue decumulating your investment portfolio in a down market (bear market) to fund your retirement expenses. The way to prevent this from happening, is to have the flexibility to pause decumulation of your long term investment portfolio and use short term assets to fund your retirement cash flow. The simplest way to achieve this is to maintain a buffer of 3 years worth of retirement expenses. This buffer creates the flexibility of choosing not to touch your long term investment portfolio in a down market year, giving it the time, it needs to recover.
It’s important to focus on your future retirement income goals and spending needs before retiring and start thinking through ways to maximize the income producing potential of your hard-earned investments alongside your expected pension benefits.
You might be asking yourself, “Where do I find the right Financial Consultant near me who charges a flat fee and will treat me fairly?” “Where can I find an advisor who can create an Integrated Aligned Overarching Strategy?” or “Where can I find an advisor who will only invest my money in proven passive investments? We suggest that you interview several. You’ll quickly learn that there are very few who are fiduciaries, believe in passive investing and have a process to create an Integrated Aligned Overarching Strategy. When you do find the right advisor, you’ll be able to relax in the knowledge that you are in the right hands and that your financial future is secure. Feel free to reach out to me with your questions. I’m committed to investor education.
Dean Kendall is a Financial Organizer in Calgary, handling all of the financial affairs for a select group of clients who value unbiased quality advice for one simple flat fee.
His book - Stop Paying Hidden Investment Fees! Click here for more information https://www.ideallifeexperience.com/Stop-Paying-Hidden-Investment-Fees
Newest book - Becoming The Champion of Your Dreams: How to Set and Achieve Your Most Important Goals Click here for more information. https://www.ideallifeexperience.com/Becoming-the-Champion-of-Your-Dreams
In addition, Dean is a 3X Canadian National # 1 Amateur, a 5X Canadian National #1 Professional BMX rider, downhill mountain biker and an avid snowboarder. He is an expert at winning. Let him show you how to win the money game. You can reach Dean at dean@ideal-life-experience.ca or Phone 403-543 -7226
©Copyright 2008 – 2022 by Dean Kendall. All rights reserved. 403-543-7226
dean@ideal-life-experience.ca