The stress of retirement withdrawals

After having worked his entire career to accumulate savings, it would be silly, at the dawn of retirement, not to plan their use with such rigor. But how do you go about taking full advantage of your money and sleeping peacefully? By adopting a disbursement strategy.

It is no longer uncommon to contribute, over the course of a lifetime, to the pension plans of two, three or even four employers. And to put his savings in an RRSP, in addition to a TFSA. And contribute to labour-sponsored funds. And to have shares. So one day, when retirement approaches, you have to pick it all up and determine the order in which to disburse each type of asset… taking into account taxes and benefits from Ottawa and Quebec. Phew!

At 60, Sylvie is there. She will stop working in June and wants to properly plan her financial future. “I feel helpless. For my friends, it’s easy, because they only had one employer. But me, when I look at my papers, I have to concentrate,” she tells me.

His paperwork is voluminous. Sylvie has contributed to four pension plans, including that of Quebec public sector employees (RREGOP). She has a LIRA (locked-in retirement account), an RRSP and a TFSA, in addition to being a Fondaction shareholder. “The anxiety of making crazy expenses that will influence the rest of my life, the anxiety of not enjoying the money that I have collected… it makes me totally anxious! She considers buying a house, wonders if she can afford an RV.

This portrait is far from exceptional. This is also what makes disbursement strategies increasingly complex. People are changing jobs more, the number of investment vehicles has increased (think of the TFSA, born in 2009) and the possibilities are more varied (since 2013, you can defer receiving your Old Age Security pension after his 65th birthday). Not to mention that life expectancy has greatly increased.

Mistakes and Myths

So what do we do ?

We turn to a professional capable of making the necessary calculations. Because there is no universal strategy for paying as little tax as possible while ensuring that you have enough money throughout your life. Above all, we want to avoid irreversible bad choices that are expensive.

“The worst mistake is taking your Quebec pension at age 60,” says Nathalie Bachand, financial planner at Bachand Lafleur Preston, consulting group and president of ÉducÉpargne (formerly Question Retraite). It’s normal to want to enjoy life while you’re healthy. But postponing the pension until age 70 is not synonymous with a reduced budget for travel! Very often, it is more advantageous to finance your lifestyle from 60 to 70 years old by drawing on your savings.

The preconceived idea that you have to “take out all non-taxable investments first” is not really wise, continues Nathalie Bachand. Since you do not pay tax on the first $16,143 of income, it is better to spread your taxable income over time. So you have to plan your RRIF withdrawals well to avoid seeing your federal pension melt away like snow in the sun.

In her office, Nathalie Bachand has heard many other myths that die hard. The most popular: “I’m going to die at 82” and “when I’m 70, I’m going to eat soft and it won’t cost me much”.

However, the cost of living does not decrease so much over the years, and one out of two people who begin their retirement will reach 90 years of age. One in four women will make it to 96!

Of course, planning your financial future involves developing a budget. Travel, new car, roof of the house to be redone… Occasional large expenses should not be forgotten.

Then, we gather all our relevant papers in a big envelope and we go to sit down with a professional. “You have to be humble, open up about your goals, your shortcomings, your dreams. Sometimes people are shy […] There should be no misplaced pride. We are experts and there is nothing we haven’t already seen,” advises Nancy Paquet, Senior Vice-President, Savings and Investment Strategy, Individuals, at the National Bank.

Who to ask for advice?

If you already entrust the management of your wealth to experts, the disbursement plan is normally part of the services offered.

It gets complicated when our assets are scattered.

“Often, it’s not diversification, but scattering. So it’s hard to give advice, ”laments Nancy Paquet. National Bank customers will still be entitled to a free in-branch planning service. But we do not hide it, we will try to convince them to repatriate all their investments there to facilitate the drafting of a solid plan.

You can also consult a firm specializing in financial planning that bills its services by the hour. Allow at least $1500 for a cash out strategy.

There are also online resources to improve your knowledge. Moreover, ÉducÉspargne will hold a free webinar on disbursement on February 25th. It is promised that the experts will make enormous efforts of popularization to be understood by all.