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  • kevin ridgway

Maximizing your Retirement Income: Key Considerations for a Secure Financial Future

Updated: May 1

For many Canadians retirement used to be a date, and a lower bi-weekly or monthly sum of money hitting your bank account; similar to how you would normally be paid while working. Those types of pensions (defined benefit) have become increasingly uncommon, which means Canadians are more responsible than ever to create their own future.


Many Canadians will draw an income from multiple sources. A few of those income sources are listed below in a recent CIBC retirement poll:



Whether its government benefits, different pension plans, real estate or registered accounts you have saved in for decades. In my experience, the ability to create a forward looking visual of your retirement is one of the greatest tools for clarity and peace of mind.


How can we get organized?


Let's look at an example:


Below are the financial assets Timmy currently has saved for retirement at 58 years old, with the intention of retiring at 62.


Timmy is looking to spend $60k a year in retirement. Let's take a look at his current plan (base plan) to see if that's possible.



Savings Account: Emergency savings fund that is fully liquid as 'life happens'.

RRSP: Registered Retirement Savings Plan that has been invested for roughly 25 years.

TFSA: Tax-Free Savings Account which has been invested for the last 10 years, as excess savings began to accrue.

LIRA: Locked-in Retirement account which came from pensionable funds from a previous employer. This plan has also been invested for the last 20 years. These plans have different rules based on jurisdiction (federal or provincial). In this case, the jurisdiction of the plan is Ontario. The biggest difference between the RRSP and LIRA from a planning perspective is that the LIRA (converted to LIF in retirement) has a maximum you can draw out of the plan per year, that is based on your age; whereas the RRSP does not have a maximum, contrary to popular belief.

Real Estate: This person owns their home with a current value of roughly $900k. Important to note, there is no mortgage on the property or any other revolving debt. The property is debt free, which becomes a major planning advantage later in life.




Which accounts will contribute to his retirement income?

(Base Plan)


Y-Axis represents $ amount

X-Axis represents age


The cash flow projection chart on the current page highlights four key points:

  • Cash Inflow: It visualizes the expected cash inflow from various sources such as employment, government benefits, and financial assets. We can also see taxes that will be paid throughout retirement, based on the decumulation of certain assets.

  • Retirement Transition: There is a noticeable shift in income sources at age 62, which marks Timmy’s retirement, transitioning from employment income to government benefits and withdrawals from financial assets.

  • Sustainability: The chart suggests that the inflow is designed to sustain Timmy’s financial needs throughout retirement, up to age 93. However, we start to see that financial assets run out at 84 if Timmy continues to spend $60k per year. This could lead us to a few different scenarios: Spend less, downsize property, use home equity, retire later, or save more. This is when we start to build out other plans to explore each of these options.

  • Inflation Consideration: The chart is shown in nominal dollars, indicating that it accounts for inflation over time, providing a realistic view of future cash flow.



What does the next 35 years look like?


Real Assets = Primary residence

Registered = RRSP and LIRA

Non Registered = Emergency Savings Fund


The net worth projection in the report is a critical aspect of Timmy financial well-being. Here are some notable points:

  1. Long-Term View: The projection spans from Timmy’s current age (58) to age 93, providing a comprehensive outlook for almost four decades. This long-term perspective allows for strategic planning and adjustments over time.

  2. Growth Trajectory: The net worth projection shows a gradual increase over the years. Timmy’s assets (including financial investments, real estate, and other holdings) are expected to appreciate, contributing to overall net worth growth. However, we do run into a cash deficit (financial assets are drained) at the age of 84, which will need to be addressed.

  3. Inflation Consideration: The projection accounts for inflation, ensuring that the net worth figures are adjusted for rising costs. This realistic approach acknowledges the impact of inflation on purchasing power.

  4. Wealth Preservation: The upward trend suggests that Timmy’s financial strategy aims not only for income generation but also for wealth preservation. The goal is to maintain or enhance net worth throughout retirement.

  5. Estate Value: The projection extends beyond Timmy’s lifetime, indicating the expected estate value at age 93. This highlights the importance of estate planning and potential wealth transfer to beneficiaries.


Final Thoughts


Most people have stress and anxiety around retirement and with no plan in place it's easy to feel overwhelmed. The idea of having a plan is to give you peace of mind and to show you exactly how you can achieve your ideal retirement, in the most practical sense.


The most important question from a planning perspective is how much do you want to spend in retirement, and how sustainable is that?


I look at government benefits (CPP and OAS), financial assets (RRSP, TFSA, LIRA, Non-registered accounts, etc.), defined benefit pensions, and real estate to determine different scenarios for your consideration. We also do a deep dive on your investment portfolio to determine a realistic expected rate of return based on your current asset allocation (stocks, bonds, and cash).


This holistic approach also dives into tax, estate, investment, and insurance planning. These visuals are a good introduction to financial planning, but just scratch the surface of what you could expect from a real comprehensive financial plan.











 




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