Considerations for Structuring a Retirement Income Plan

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Considerations for Structuring a Retirement Income Plan


Retirement and estate planning can be overwhelming for those brave enough to take it on. Wading through the seemingly endless amount of available information on this subject can be absolutely daunting. Without a fundamental framework in place to help guide you through the process, you can end up getting lost. Here are some of the strategies we consider for our clients, and we hope that readers of this post can benefit from it as well. 

Think of your sources of retirement income as separate buckets. We start with these three: Annuities, Registered Assets, and Non-Registered Assets. Each of these buckets should have a distinct purpose. For example: Annuities are a fixed income, often paid monthly, that can help pay our fixed expenses. Registered Assets, like RRSPs and RRIFs, are more easily accessible and can help supplement those annuities, and TFSA and non-registered assets, being more tax efficient, are optimal for passing on to the next generation. 




Bucket #1 – Annuities

We often discuss the annuity bucket first, which includes Canada Pension Plan, Old Age Security, Defined Benefit Pension Plans and any private annuities purchased from a life insurance company. 

An annuity is a fixed sum of money paid to someone at a pre-determined frequency (i.e. monthly), for the duration of his or her life. The ultimate purpose of an annuity is to shift the task of managing a lump sum of funds to a financial institution, which can better manage that risk. Income from an annuity bucket should be solved for first and should cover the fixed monthly expenses of a household in retirement. By eliminating the risk of running out of money, annuities allow recipients to enjoy a more worry-free their retirement.

Bucket #2 – Registered Assets

Registered assets are often addressed at next, and include investments like Registered Retirement Savings Plans (RRSPs & LIRAs), and Registered Retirement Income Funds (RRIFs & LIFs).

These investments have an important role in retirement income and estate planning. They provide retirees with easier access to funds. These funds have never been taxed, so retirees may want to consider gradually emptying this income bucket to avoid excessive taxation on death (from high minimum withdrawals and deemed dispositions).

Bucket #3 – TFSA and Non-Registered Assets

Tax Free Savings Accounts (TFSAs) and Non-registered assets are more tax efficient, and include investments like bonds, stocks, mutual funds and GICs.

Many retirees accumulate excess funds i.e. money not needed for their retirement income.  These excess funds often fall under the category of non-registered assets. It is important to protect this bucket of assets because they will form the foundation of a family legacy, and are often subject to a lengthy probate process.

These investments may be spent, gifted, donated, or inherited. With appropriate planning and the use of designated beneficiaries, these assets can be preserved and transfer outside the estate, avoiding the complex probate process.


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