Create a Decumulation Plan

As you make the transition from working to retirement, your financial focus changes from putting money into investments to drawing down, or withdrawing from, your retirement savings. At this time, your objective will become to create a retirement income that is:

  • Secure
  • Adequate
  • Flexible
  • Low-cost
  • Likely to last as long as you do
  • Tax-efficient

Gone are the days when one source of income alone achieved all of the above. Those entering retirement today may have many sources of retirement income (such as investments, pensions and insurance). The challenge for today’s retirees is to:

  • Sort their different types of investments and other sources of income into groups that satisfy one or more of these objectives.
  • Identify gaps (objectives not currently, sufficiently or appropriately met).
  • Research and investigate products designed to satisfy unmet objectives (such as, income likely to last as long as you do).
  • Select appropriate investments to complement other sources of income such as government pensions and achieve a retirement income that satisfies all six objectives.

To further explore this topic go to Prioritize Income Objectives and complete the online exercise.

Create a Decumulation Plan for Your Retirement Years

It is important to plan ahead for sustainable withdrawals to ensure that your money lasts. If people could be certain of how long they would live, planning for retirement income would be a whole lot easier.

1. Identify all sources of retirement income and assets.

  • Income: CPP/QPP, OAS, defined benefit pension, annuity
  • Assets: Withdrawals from registered accounts (such as DC pensions, RRSPs, TFSAs)
    • Consider any government regulations or restrictions
  • Non-registered investment income and capital withdrawals

Have up to two years of expenses set aside in cash, less any expenses being covered by ongoing income payments (such as CPP/QPP benefits ).

2. Arrange streams of income to match expenses.

  • Include, in your plan, when income streams start and end.
  • To investigate further, see the Retirement Income Timeline section of this website.

3. Always calculate income needs using after-tax dollars.

4. Ask yourself, “Where will the money come from, to cover income shortfalls?”.

  • Use a calculator to model different scenarios, varying how much you can remove periodically before you run out of money. 

5. Assess what adjustment you would make if your planned decumulation plan retirement date doesn’t work (for example, due to insufficient income).

6. Establish a plan B in case you are forced into retirement before you are ready.