Combining Sources of Income

By now you should have a good idea of the types of assets and income streams that form the building blocks of your retirement income and how much income you expect to receive from each source. Periodic income streams are typically fixed on a monthly basis. They may not stop until you pass away, terminate your employment (with reference to part-time work) or sell your rental property (with reference to rental income).

Beyond government and employer pension plans, the assets you’ve accumulated during your working years are a potential source of income in retirement. Generating income from investment assets may not be as predictable. But, you should also have a good idea of how much annual income you project to withdraw, from your retirement assets. These assets are forms of investment accounts or other assets that you’re managing on your own, or with the assistance of a financial professional. The income that you withdraw from these assets may vary over time due to government regulations, market conditions and your personal needs.

There are many ways to generate income from your assets. You can:

• Withdraw money from your registered accounts.
• Use the interest, dividends, capital gains or rental income generated by your investments (versus reinvesting them).
• Draw an income from other assets, such as a farm or small business.
• Sell all, or a portion, of an asset and use the proceeds. For example, you could sell your home, buy a cheaper one, and invest the difference, to generate investment income.
• Convert one type of asset to another one to change the type of income it generates, such as converting a RRSP into a life annuity.

Your best retirement income option depends on your (or your spouse/partner's) personal situation:

• Health
• Age
• Life expectancy
• Income-tax position
• Marital status
• Number of dependents
• Survivor responsibilities
• Estate planning objectives
• Investment experience/skill
• Time to administer a self-directed RRIF

Keep in mind your own need for immediate or future income. Do you need guaranteed monthly payments or can you afford to invest some or all of the money? Do you have any other income? 

Another factor to consider, but one over which you have no control, is the current rate of inflation. Consider developing a retirement income timeline, establishing when you want each source of income to start or stop. If you have RRSPs, familiarize yourself with the wind-up options. Establish when to convert the account, the type of income you prefer and how much you will withdraw.

Planning tip: Use ProsperiGuide’s Retirement Income Timeline worksheet to project how your income and expenses may change over your retirement years. Use it to identify those years you might be short of cash, so you can adjust your income plans to plug the holes.

CRA: Receiving income from an RRSP
CRA: The Tax-Free Savings Account
CLHIA: Questions About Life Annuities