For many retirees, the biggest financial challenge is generating income when the paycheques stop. The second is how to draw down retirement assets today while maintaining sufficient assets for tomorrow. There are various strategies that you can employ to withdraw retirement income from your savings and investments in a manner that minimizes the risks posed by inflation and taxes. It’s best to work with a financial planner or, if you’re doing the majority of this planning on your own, to ensure that you have considered your personal situation and goals.
Regardless of which approach you take, there are a few general considerations to take into account when formulating a withdrawal strategy. They are discussed in the sections that follow.
Review the order to withdraw funds from investments in retirement, Your objective is to minimize tax, now and in the future. Compare and contrast the tax implications of the following types of income:
(CPP/QPP, OAS, employer DB pensions & annuities)
(including real estate & businesses)
|Locked-in Pension Accounts (LIFs/LRIFs)||RRSPs/RRIFs||TFSAs|
Understand your marginal and effective tax rates in retirement, especially after age 65. At higher income levels, pension and age credits unique to seniors begin to be clawed back, then OAS benefits. Proactive tax planning is advised to maximize income from these government sources.
For more information on tax planning in retirement, see the Tax in Retirement section of this website.