Making Your Retirement Portfolio Last
Most people spend several decades slowly saving up enough to retire on. Once you get there, the focus shifts to ensuring that you won’t run out of money too soon, and maybe even leaving something behind for your family.
The key to ensuring your funds won’t run out is to have a solid financial plan that includes strategies to help make your money last longer. So, what kind of strategies should you be considering?
1. Maximize government programs – Most of you will qualify for some type of benefits (reimbursements) but there are decisions that need to be made. Typically, most people are better off taking CPP early unless you’re still working. OAS clawback can often be avoided and even the GIS supplement can be within reach for some that aren’t receiving it now. The earlier you structure your retirement income plans, the better chance you have to maximize what you’re able to pull out of these programs.
2. Consider pension splitting – For couples that have a gap between their retirement income amounts, pension income splitting can help reduce taxes and increase government program payments. You are permitted to split up to 50 per cent of most types of “pension like” income including RRIFs, annuities and other qualifying payments. You cannot however split CPP and OAS payments.
3. Make tax efficient withdrawals – Everyone’s situation is different here which further highlights why a tailored financial plan is so important. For some, drawing down on non-registered savings will allow their more tax-efficient accounts like RRSPs and TFSAs to grow longer. For others, drawing the RRSPs down early will allow them to qualify for full OAS or even the GIS supplement. Retirees in a higher tax bracket may even use a “return of capital only” withdrawal plan for their non-registered savings.
4. Gift money sooner – Plenty of retirement and estate plans have money set aside for gifting to children and/or charities. While most assume they’ll gift this money upon death, there could be a lot of benefits to doing so earlier on. You want to make sure that giving these gifts now don’t put your own retirement in jeopardy and if not, that you’re doing them in the most tax-efficient way possible.
5. Don’t be afraid to use your home – Canadians will typically spend the majority of their working lives paying off their mortgage and once they’re finally debt free, are often very hesitant to use the equity in it for retirement purposes. Accessing this equity might be best done through a home equity line of credit or selling the home to downsize or rent. Your home is an asset, just like money saved in your RRSP and it is important to look at it as such.
This year, most Canadians will spend more time planning their winter vacation than they will planning how to maximize their retirement savings. It is never too early or too late to build your own custom retirement plan but I can promise that doing so today will be better than waiting till tomorrow.