Mark this down on your to-do list a few years ahead of retirement: figure out where your retirement income will come from.
It sounds easy, right? You’ll likely have Canada Pension Plan retirement benefits and Old Age Security, plus your own savings in registered retirement savings plans and tax-free savings accounts. The fortunate ones will also have a company pension and non-registered investments.
These income sources are not just taps you turn on when you retire. Each has to be managed and co-ordinated so as to preserve capital, maximize income, minimize taxes and stay onside with the mandatory annual withdrawal rules for registered retirement income funds.
“Retiring is complicated,” Ross Shears, a Vancouver reader, told me in an e-mail recently. “Working was way easier by comparison, especially when one has a ‘stew’ of income streams to manage.”
Mr. Shears, 68, refers here to the reality that many investors have multiple accounts to look after. The latest numbers from the Canada Revenue Agency show that while the average number of TFSAs per holder is 1.6, there are 1.5 million people with three TFSAs and 880,460 with four or more accounts. Multiple RRSPs complicate things considerably because each must be converted to a RRIF or an annuity by the end of the year you turn 71. In the following year and thereafter, a set minimum withdrawal from each must be made.
Some retirees thrive on managing their finances – the word “spreadsheet” comes up a lot when these people talk about their regimen. Others feel their way along, using books, online resources and thoughts from friends and others. And, of course, some turn their retirement finances over to a planner or adviser. Fees must be paid, but you’re buying the services of someone to take on the complicated process referred to by Mr. Shears.
Figuring out your retirement income approach before you leave the work force is an opportunity to see how well prepared you are for the job of overseeing a stew of accounts and income sources. If you want help from books, I covered that in a recent post. Same for DIY financial planning tools. For help finding a financial planner, check out a recent column on the professional-grade software available to planners. Yes, you can hire a planner for a flat or hourly fee to look at your retirement finances and provide an assessment and recommendations.
