Facing retirement full in the face can be a really frightening prospect. Moving from actively earning your income, to passively receiving retirement income leaves many people weak at the knees. Will you have enough income? Should you take CPP early or late? When should you withdraw from RRSPs? Should you buy an annuity or move to a RRIF? What should you do with your company retirement pension or group RRSP when you retire? There are a lot of decisions to make, and it is important to make them informed decisions.
Will you have enough income?
The most important step here is to set yourself a realistic budget. This must include not only your regularly monthly bills, but also annual home maintenance and repairs, a vehicle replacement every few years and a little extra for unexpected emergencies. Your financial advisor’s responsibilities should include preparing a retirement income projection for you, as inflation needs to be factored in also.
Should you take your CPP early?
There is no firm answer to this question. It depends on your current income once you reach age sixty (the year you can apply), as well as such things as your family’s longevity. If you have a high taxable income, it may make sense to delay, but if most of your family tree expired before age seventy then taking it early may be indicated.
When should you withdraw your RRSPs?
Conventional wisdom has suggested that you should leave your tax sheltered funds in the RRSP until you have to start withdrawing them and paying tax (71 is the mandatory RRSP conversion age). This is not true for everyone. If you have accumulated large RRSP holdings, you may face a clawback in your OAS by waiting, so it may be wiser to free up some of those funds as soon as you retire or even before. Your financial advisor, together with your accountant, should be able to run the numbers for you to determine the optimal approach.
What should I do with my Employer Pension or Group RRSP Plan?
Well-structured company pension plans can be a terrific core source of retirement income. It is wise to find out from your employer whether the plan is properly funded however. If it is wildly underfunded, and you have the option, you may want to consider moving this to a self-directed plan that you can control with the assistance of your financial advisor. You should also find out whether the plan is indexed for inflation; otherwise you could find that ten years and more from now, your income will feel really stretched.
Summary
First, be sure to know what it will actually cost you to live by doing a realistic budget. Then, have a projection prepared for you; including where and when various sources of income should kick in. We recommend that you consult a professional—this is not a job to be undertaken alone.
some thoughts i like to run by you, you have been so helpful, thanks
We’re always happy to help, Joe. Talk to you soon.
Thought to check your blog and you have hit on so many of the same questions I’m starting to ask myself! Hard to believe we are at that stage in life even – although I have a few years to work left yet!
I’m happy to hear you found it helpful, Colleen. Retirement can be a scary time; the more knowledge we have, the more comfortable we’ll feel. Let me know if there’s anything I can do to help.