Retirement and Income Planning

There comes a moment in every investor's life when the primary objective shifts. The decades spent building wealth give way to a new phase focused on preserving that wealth and drawing upon it to fund a meaningful retirement.

This transition represents one of the most significant financial passages any individual will navigate, and it demands a fundamentally different approach than the accumulation years that preceded it.

During the working years, volatility is an inconvenience but not a catastrophe. Retirement changes everything. The regular income stream that once provided security disappears. Living expenses must now be funded from accumulated assets. Market declines become more than psychological discomfort—they represent a direct threat to the sustainability of the retirement plan.

Defining What Retirement Means to You

Before any investment strategy can be designed, the goals it is meant to serve must be clearly understood. Retirement means different things to different people:

• Complete cessation of paid work and freedom to pursue leisure
• Transition to part-time consulting or board service
• Dedication to philanthropic work or creative pursuits

Each vision implies different financial requirements. I begin every retirement planning engagement by exploring these questions in depth. What does an ideal week look like? What activities are most important? What concerns keep you awake at night?

Understanding the Unique Risks Retirees Face

Sequence of Returns Risk

The order in which investment returns occur matters enormously for retirees withdrawing from portfolios. Two investors can experience identical average returns over twenty years but end up with vastly different outcomes depending on whether good years come early or late.

A retiree who begins withdrawing just as a severe bear market strikes faces a particularly dangerous combination. Even if markets subsequently recover strongly, the damage may be permanent because fewer assets remain to participate in the recovery.

Longevity Risk

A healthy sixty-five-year-old today has a reasonable chance of living into their nineties. Retirement assets must last not for fifteen or twenty years but potentially for thirty years or more. A withdrawal rate that seems sustainable over twenty years may prove inadequate if retirement extends further.

Inflation Risk

Even moderate inflation of three percent annually will cut the purchasing power of a fixed income in half over twenty-four years. This argues against portfolios composed entirely of fixed-income investments, despite their apparent safety.

"A well-designed retirement portfolio maintains growth-oriented components alongside stable income-producing assets, balancing current cash flow against the imperative of maintaining purchasing power."

Constructing a Retirement Income Strategy

The Bucket Approach

One widely used framework divides retirement assets into distinct buckets:

• First bucket: Cash and equivalents for several years of expenses—provides security and peace of mind
• Second bucket: Intermediate-term assets like bonds and dividend stocks—provides income and replenishes the first bucket
• Third bucket: Growth-oriented investments—provides long-term appreciation to fund later years

Income Floor and Upside Strategy

An alternative approach establishes a guaranteed income floor covering essential expenses through government benefits, pensions, or annuities. Once essential expenses are covered, remaining assets can be invested more aggressively. Market volatility in this growth portfolio does not threaten basic lifestyle.

The Role of Quality Dividend Investments

Companies that pay consistent and growing dividends provide retirees with an income stream that can increase over time, helping to offset inflation. The best dividend investments are companies with:

• Durable competitive advantages
• Strong balance sheets
• Long histories of maintaining and increasing dividends
• Conservative payout ratios

Tax Efficiency in Retirement

The sequence in which retirement assets are drawn down has significant tax implications. Canadian investors typically have assets spread across registered accounts (RRSPs, TFSAs) and non-registered taxable accounts. Each type has different tax characteristics, and the optimal withdrawal sequence depends on individual circumstances.

A tax-efficient strategy coordinates withdrawals across account types to minimize lifetime taxes. This might involve drawing from taxable accounts first or strategically converting RRSP assets during lower-income years.

Healthcare and Long-Term Care Considerations

Healthcare costs represent one of the most significant and unpredictable expenses retirees face. While Canada's public system covers many needs, it does not cover everything. Planning for healthcare costs requires:

• Maintaining larger emergency funds than younger investors
• Considering supplemental insurance options
• Planning for potential long-term care needs

The Psychological Dimensions of Retirement

Successful retirement is not merely a financial achievement. The transition from accumulating wealth to spending it can be surprisingly difficult. Many retirees find themselves unable to enjoy their wealth because they cannot shake the fear of running out.

I address these concerns by helping clients understand their actual financial situation with clarity. Detailed projections and regular reviews build confidence over time. Frank conversations about the purpose of wealth can help shift perspective from anxious hoarding to confident enjoyment.

Adapting the Plan Over Time

A retirement plan created at age sixty-five will require adjustment as circumstances evolve. Regular reviews assess whether the plan remains appropriate:

• Are withdrawal rates sustainable given actual returns?
• Have life expectancy assumptions changed?
• Are there new goals or concerns?