You’ve Saved for Retirement, Now How Do You Turn It Into a Paycheque?

For 30 or 40 years, the system was relatively straightforward.

You worked. A paycheque arrived. You paid the mortgage and the bills, contributed to your RRSP and TFSA, invested what you could and watched your savings grow.

Then you retire.

Now there may be $1 million or $2 million spread across registered accounts, TFSAs, non-registered investments and cash. CPP and OAS are coming at some point. Maybe there is a workplace pension. Your spouse has their own accounts too.

So, the question is: How do we turn all of this into the $6,000, $7,000 or $8,000 a month we want to live on?

That is a very different financial planning problem.

A $1 Million Portfolio Does Not Tell You What You Can Comfortably Spend

We recently worked with a client who came in with a long list of questions.

• What happens if I retire at 60 instead of 65?
• Should I take CPP early?
• What kind of income will that give me?
• What happens if I live to 90 or 95?
• How much tax will eventually be left in my estate?

Those questions cannot be answered by looking at an investment statement. They have to be modelled together.

That meant having a detailed conversation about her anticipated expenses, using more conservative investment return assumptions and accounting for larger, one-time costs like buying a new car or renovating her home. We also considered how her living arrangements might change later in life, whether that meant downsizing to a condo, moving into a care home or potentially sharing a home with her adult children.

In her case, retiring at 60 could still work if certain assumptions held true. Waiting until 65 did not necessarily change whether retirement was possible. It mainly changed how much money might be left later.

That is the kind of distinction retirement planning should help you see.

Your Retirement Paycheque May Come From Several Places

Once employment income stops, the money you live on may come from CPP, OAS, a pension, RRIF withdrawals, TFSAs, non-registered investments and cash.

The strategy is deciding which sources to use, when, and in what combination.

That could mean using some non-registered savings first, drawing from an RIF before you are required to, delaying CPP or OAS, preserving TFSA assets for later, or using several sources at the same time.

There is no universal order.

The right sequence depends on your age, spending needs, tax position, other income, estate goals and your spouse’s financial picture.

For example, if you don't have a spouse who could benefit from a tax-deferred RRIF rollover after your death, it may make sense to draw down that account earlier. This could help manage the tax implications for your estate while preserving more tax-efficient investments to pass on to your beneficiaries.

Retirement Spending Is Not Always Lower Than You Think

Another assumption we hear often is: We’ll spend less once we retire.

Maybe, but not necessarily.

For many people, the first 10 to 15 years of retirement are some of the most active. You may be travelling more, helping your children or grandchildren, renovating, golfing;  finally doing the things you did not have time for while you were working.

So we do not automatically assume your expenses drop the day your paycheque stops.

If you are considering moving or downsizing, the numbers matter too. Will you need $6,000 a month? $5,000? $4,000?

The answer changes the plan.

The Lowest Tax Bill Today Is Not Always the Best Long-Term Strategy

It is easy to focus on paying as little tax as possible this year.

After all, you've been paying taxes for over 40 years, and now that you're living on retirement income, you don't want to give away more than you need to.

But a decision at 62 can affect what your registered accounts look like at 72, your future RRIF withdrawals, your taxable income later in retirement and what eventually remains in your estate.

Sometimes, paying tax today, particularly when deductions or credits are available to help offset it, can actually preserve more of the wealth you hope to leave to your family.

That is why we look beyond a single tax year.

We want to understand what your cash flow, taxes and net worth may look like at 65, 75, 85 and beyond.

Tax and income planning should go hand in hand in any retirement planning conversation.

Both Spouses Should Understand How the Plan Works

Often, one person in a couple has handled most of the investments and financial decisions.

In retirement, both people should understand where the household income comes from, which accounts are being used, what changes when CPP or a pension begins and who to call if the person who usually manages everything can no longer do it.

A retirement plan should not live only in one partner’s head.

Your Savings Need to Become a Strategy

Retirement income planning is the point where all those years of saving need to turn into something usable.

Your investments, cash flow, taxes, CPP, OAS, pensions and family inheritance plan should work together.

Most importantly, you should be able to answer: What can we comfortably spend, and where will that money come from?

If you are approaching retirement and have accumulated significant savings but are not yet sure how those assets become a reliable income, reach out to Smith Rogers Financial.  We model different retirement scenarios and build a strategy around your cash flow, investments, taxes and estate planning for our clients.

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