Move from Retirement Accumulation to Retirement Decumulation
Transitioning into retirement involves a financial shift from savings to income planning. This phase calls for a meticulous review of your income sources, considering their stability, volatility, and tax implications.
Impact of Market Volatility During Retirement
Market fluctuations have a different impact during retirement than during the accumulation phase. The ebb and flow of the stock market has less of an impact if you are regularly investing during these times of volatility to save for a need in the future. Retirees face the challenge of consistent fund withdrawal. Selling assets during market downdrafts to generate income can have a significant effect on the long-term health of your portfolio.
The early retirement phase is an opportune time to pivot towards stable income-yielding investments, such as bonds or dividend-paying blue-chip stocks. As the reliance on portfolio-generated income rises, resilience during market downturns strengthens.
You Still Must Pay Taxes
Deciding to manage your pension funds personally might be driven by a few factors:
Evolving Rules and Financial Consultation
Managing tax brackets becomes pivotal, potentially augmenting after-tax income and purchasing power. For couples, exploring income-splitting avenues proves beneficial. Funds withdrawn from a RRIF account may be split with your spouse if you are age 65 and your spouse is age 60.
Strategically allocating interest-bearing income to registered accounts and prioritizing dividends and capital gains in non-registered accounts can also influence taxable income and net returns substantially.
Look Closely at RRSP and RRIF Assets
Retirement marks the government's claim on tax from accumulated RRSP income. Though the mandatory percentage of RRIF withdrawal has reduced in the early years to account for longevity, converting RRSP to RRIF at 71 still necessitates some withdrawal, with incremental percentages annually.
Tactfully managing tax brackets earlier in retirement might warrant considering RRSP withdrawal pre-71 to avert potential higher tax brackets in later years. This may be especially important during estate planning, where RRIF assets could incur substantial taxes post-second-spouse death.
Consider Your Spending Needs
With some careful planning you can balance your desire for enhanced purchasing power in the early retirement phase, when you are most active, with the prudence of not exhausting savings for later in life. Your financial blueprint can account for different spending needs and expenses at different times in your life. Regular reassessment of this plan ensures alignment with your evolving retirement income strategy.