Saving for retirement is only half the battle: Brett Millard

While saving, investing and building wealth are key to retiring well, there’s a second factor to consider – drawing down those savings as income when you actually leave paid work.

So writes Brett Millard in Castanet.

Saving is the “accumulation” phase, but drawing down that money, or “decumulation” also requires a lot of thought, he writes.

“Once retirees reach their golden years, a new challenge emerges: how to best withdraw those funds in a sustainable and tax-efficient way. This phase, known as ‘decumulation,’ is just as crucial to a retiree’s financial well-being as the accumulation phase. A well-thought-out decumulation strategy can make the difference between financial security and uncertainty in retirement,” he explains.

After a lifetime of saving in such vehicles as “RRSPs, TFSAs, pension plans and other investment accounts,” it’s important to get decumulation right, he adds.

“Without a proper decumulation plan, retirees risk depleting their savings too quickly, paying more in taxes than necessary and leaving less behind to their loved ones. To maximize the funds available in retirement, Canadian retirees need a thoughtful, carefully managed withdrawal plan that considers taxes, investment growth, longevity, and lifestyle needs,” Millard writes.

He offers up a number of guidelines to help people think through the decumulation process.

• Determine retirement income needs: You need to know how much you are going to be spending once you are retired, he explains, and then budget accordingly. “A thorough budget helps you understand how much income you’ll need each month, setting the foundation for your decumulation plan,” he notes.
• Calculate sustainable withdrawal rates: You want to try and determine how much money you can take out of savings as income per year at a rate that is sustainable, he explains – so that you don’t run out of savings when you are older. Some use the “four per cent” rule, if in doubt consider getting professional advice, he adds.
• Consider tax-efficient withdrawal strategies: “Withdrawing from different accounts in a strategic order can help minimize taxes and extend the life of a portfolio. Generally, but not always, it’s tax-efficient to withdraw from non-registered accounts first, then RRSPs or RRIFs, and finally TFSAs. By delaying RRSP withdrawals, you allow these funds to continue growing tax-deferred. Similarly, keeping withdrawals from TFSAs until last can help protect tax-free income. Again, everyone’s situation is different and a plan should be customized for you,” he writes. Will income-splitting be beneficial to you, tax-wise, he asks.
• Manage longevity and market risk: “Outliving retirement savings is a major concern for retirees and balancing growth with security is a critical part of any decumulation plan. One approach is to keep a mix of assets that allows for growth potential, such as stocks, alongside lower-risk investments like bonds or guaranteed income products,” he warns.
• Evaluate guaranteed income options: Millard says you may want to consider buying an annuity to provide guaranteed lifetime income. “Certain types of guaranteed income products, such as annuities, provide predictable income that isn’t subject to market volatility. While annuities often require an upfront investment, they can ensure a steady stream of income for life, which can reduce stress about market risk and longevity,” he writes. Again, consider getting professional advice to be sure an annuity is right for you.
• Review and adjust regularly: “Retirement circumstances, lifestyle changes, market conditions, and tax laws evolve over time. A regular review—ideally once a year—helps ensure your plan stays aligned with your goals and income needs,” he writes.

“By giving as much focus to decumulation as to accumulation, retirees can enjoy their retirement years with financial freedom and flexibility,” Millard concludes.

If you are a member of the Saskatchewan Pension Plan, you have several decumulation options when you retire. There’s SPP’s stable of annuity options, all of which provide you with a lifetime monthly payment so you can never run out of money. There’s also the Variable Benefit, which provides you with more flexibility in when and how much of your savings you draw down.

Check out SPP today!

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Article warns of five “myths” about retirement

Writing for Kelowna’s Castanet blog, Brett Millard examines what he describes as five top “myths” about retirement.

The first such myth, he writes, is the belief that “the cost of living will be lower in retirement.”

Canadians may think “their income needs will be much lower once they stop working. After all, they won’t have those commuting costs or need to make mortgage payments,” he writes. But, the article notes, travel costs are likely to increase for the newly retired, and “plenty of Canadians have debt in retirement.”

Those of us retiring with debt are facing rising interest rates, which will “have an impact on your disposable income,” the article continues. We may also have to help struggling adult children, the article points out.

Finally, longevity — living longer — can impact your bottom line, the article notes. The longer you live, the more you’ll need to pay towards “in-home care, a care home, or renovations to make your home more accessible.”

The next myth, Millard writes, is that “registered retirement savings plans (RRSPs) are a complete retirement plan.” The article points out that RRSP income is not usually sufficient for all one’s needs, noting that most Canadians will be counting on other sources, such as “the Canada Pension Plan (CPP), Old Age Security (OAS), company pension plans, Tax Free Savings Accounts,” and such sources as non-registered investments or income from rental properties.

“RRSPs are one part of an investment plan, but a real retirement plan also includes estate planning, life insurance and tax efficiencies,” Millard’s article advises.

The next myth is that “one million dollars is enough for retirement.”

Millard writes that for a variety of reasons — such as when you start your retirement, and what other sources of retirement income you have — setting a target of $1 million might not be right for you. “The amount that any investor will need when they retire will depend on a whole array of variables, with the target amount being unique to each person,” the article notes.

Lifestyle, the activity level of your retirement, possible inheritances — these all factor into determining how much you actually need to save for retirement, the article explains.

The final two myths are that “retirement plan portfolios should be conservative,” and that you should “never carry debt into retirement.”

On the first point, the older “conservative” investment idea was based on assuming a shortish retirement, the article says.

“Now, Canadians could realistically expect their retirement to last 25 years or longer. Retirement portfolios that need to support you for this many years aren’t going to experience significant growth if they’re made up exclusively of fixed income. A conservative retirement portfolio runs the risk of running out of money,” the article notes.

The “no debt” rule, the article contends, “is not realistic or practical” these days, as “close to half of Canadians carry some sort of debt.” Instead, the article suggests, work on paying down high-interest debt from credit cards, which the article describes as bad debt.

The overall message in this well-written piece is that there’s a lot of factors to consider when thinking of retirement, so rather than going by “myths,” you may want to consult a financial planner.

The government benefits most of us receive in retirement — CPP, OAS, and even the Guaranteed Income Supplement — are paid for life, and therefore cannot “run out.”

Yet many people who have RRSPs choose to continue investing them in retirement via a registered retirement income fund (RRIF), rather than choosing to convert any of their savings into income via a lifetime annuity.

If you’re a member of the Saskatchewan Pension Plan, you have the option, at retirement, to convert some or all of your account into an annuity. That way, you’ll never run out of retirement savings in the future. Check out SPP today!

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