Retirement Spending Plan

Spending is one of the most important factors in a successful retirement plan, yet most plans only make a rough assumption for retirement spending. They might assume 60%, 70% or 80% of current spending.

This assumption isn’t supported by any facts, and as a result, retirement spending could be much higher or lower in reality. Many retirement plans may be missing expenses for vehicle upgrades, home repairs, or other commonly missed categories. Or plans could be unnecessarily difficult, they may never test the “maximum” spending a retirement plan could support. Why restrict your retirement lifestyle?

Tax Planning

Tax is typically the largest expense in retirement. More than travel. More than housing. More than food or entertainment. A little bit of tax planning can go a long way. It can help free up more money for spending. Yet many retirement plans don’t actively try to minimize taxes in retirement and could be missing some easy tax planning opportunities.

Draw Down Planning

There are so many accounts! RRSPs, RRIFs, LIRAs, LIFs, TFSAs, non-registered accounts etc. Financial assets can be spread over a half dozen different accounts. This can be doubled for couples. Which one do you draw from first? Or should you “blend” withdrawals to help manage income tax? Or should you start and stop withdrawals strategically to help minimize the clawback on government benefits? If a retirement plan assumes the same withdrawals each year, then it may be missing this strategic draw down planning.

Income Splitting

Couples have the unique opportunity to split income in retirement and decrease their overall tax bill. There are different income splitting opportunities before age 65 and after age 65. With the right planning this can dramatically lower income taxes in retirement and even help avoid OAS clawbacks. But most retirement plans don’t take full advantage of income splitting opportunities or they start too late.

Government Benefit Planning

Nearly 1 out of 3 retirees will receive some form of government benefits during retirement. Benefits like the Guaranteed Income Supplement (GIS) or Allowance. That’s over 2 million retirees in Canada! On average they’ll each receive over $100,000 in government benefits throughout retirement and yet most retirement plans don’t include government benefits at all! This amount could be much higher by strategically avoiding “clawbacks” on these benefits which can reach as high as 75% to 100%!

Running Out Of Money

What is the chance of running out of money in retirement? Is it fifty-fifty, or one-in-ten, or one in a hundred? Which plan would you prefer? Many retirement plans only look at an average investment return but in reality investment returns are unpredictable and will vary dramatically from year to year. A good retirement plan will highlight the risk of running out of money during periods of poor investment returns. Many retirement plans don’t provide this probability, and even worse, they don’t tell you what to do if investment returns are bad.

CPP & OAS Estimate

CPP and OAS can provide a third or more of typical retirement income. How much will you receive in retirement? Many financial plans just assume the average, but what if you’re not average? You could be receiving much more, or perhaps much less than the average. Many retirement plans are missing a detailed estimate for CPP & OAS. What’s more, they ignore the opportunity to delay CPP and OAS and increase benefits by +36% to +42% in retirement.

Estate Planning

You’ve worked hard for your money, how do pass on your assets to your loved one’s tax efficiently? What is the best way to structure your retirement finances to leave less to the CRA and more to your family, friends, and charity? A little bit of estate planning can go a long way.

Survivor Scenarios

Couples face a unique risk in their retirement plan. An unexpected death comes with many financial changes. Unfortunately, there are many changes to government benefits like CPP & OAS when a partner passes away. OAS has no survivor benefit, CPP has a survivor benefit but it’s capped, defined benefit pensions will typically be reduced for the survivor, and couples lose the benefit of income splitting. These changes can have a significant effect on retirement income, decreasing it by thousands or tens of thousands per year. How does your retirement plan fare in a survivor scenario?

Confidence and Flexibility

Things don’t always go to plan. Is your retirement plan flexible enough to absorb changes? Are you confident about your retirement plans? Do you know where that flexibility is? Having confidence in your retirement plan means having the flexibility to adapt to changes. Many retirement plans only assume the best-case scenario but a great retirement plan will highlight what options are available if things don’t go to plan.

Bonus: Leaving It Too Late

One of the most common things missing from most retirement plans is the plan itself.

Often, retirement planning is left too late or not done at all. This limits options for tax planning, government benefit planning, delaying CPP or OAS. It also means more stress and anxiety about retirement.

Don’t leave retirement planning too late. You might be able to retire earlier, spend more in retirement, or have a more successful retirement plan if you start planning early.