Although I have continued my encore career as a personal finance journalist since I retired from my corporate job 13 years ago, my husband retired three years ago. As a result, how to draw down income most tax effectively from our registered and non-registered accounts and how to make sure we don’t run out of money has been a hot topic of our discussions.

Eventually, as you phase out of the workforce or retire, you’ll need to convert your retirement savings into retirement income. It must be done by December 31 of the year in which you reach age 71. The funds are also fully taxable if withdrawn in cash. Moving your investments into a registered retirement Income Fund (RRIF) will mean you can continue to tax-shelter all but annual minimum withdrawals. In the Toronto Star, Paul Russel outlined 10 things you need to know about RRIFs.

In a HuffPost article How Much to Withdraw from Retirement Savings Retirement Coach Larry Rosenthal considers the “4 percent rule” – originated in the early 1990s by financial adviser Bill Bengen which says that if you withdraw 4.5% of your retirement savings each year, adjusted for inflation, your money should last 30 years. “When the 4% rule emerged, investment portfolios were earning about 8% annually. Today, they’re generally in the 3 to 4% range,” Rosenthal says. “Now when you want to figure out how much to withdraw annually from your retirement funds, you need to look at three factors: your time horizon, asset allocation mix and – what’s most often overlooked – the potential ups and downs of investment returns during retirement.”

For further insight into whether or not the 4% rule is safe, listen to the podcast (or read the transcript) of the interview I did late last year with Certified Financial Planner Ed Rempel. On his blog Unconventional Wisdom, Ed reviewed his interesting research which reveals that if you want to withdraw 4% a year from your retirement portfolio without running out of money in 30 years of retirement, you need to hold significantly more equities than bonds in your portfolio. He looked back at 146 years of data on stocks, bonds, cash, and inflation to see what would have happened in the past if people retired that year, with each type of portfolio – e.g 100% bonds, 100% stocks plus various other permutations and combinations. 

Retire Happy’s Jim Yih explains in Drawing Income in Retirement that there are five typical sources of retirement income: government benefits, company pension plans, RRSPs, non-RRSP savings and your personal residence. On one extreme, Yih notes that some people live frugally, save for retirement and continue their frugal ways after retirement and end up dying with healthy bank accounts. In contrast, others spend everything they earn and do not save for retirement. Therefore, they may have to make some sacrifices down the road.

Journalist Joel Schlesinger also addressed How best to draw income from your retirement savings for the Globe and Mail. He focused on the tax implications of drawing down money from various types of accounts. Each account may be subject to different levels of taxation, and, consequently, where you hold investments such as stocks, bonds and guaranteed investment certificates (GICs) becomes all the more important. For example, withdrawals from registered accounts – including RRSPs, RRIFs (registered retirement income funds), LIRAs and LIFs (life income funds) – are fully taxable income. Like work pensions, income from RRIFs and LIFs can be split with a spouse to reduce taxation (once plan holders reach 65).

Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.