Today, you and I can expect to live longer than previous generations. Global life expectancy continues to improve thanks to medical breakthroughs, better access to public health, and overall quality of life improvements.

While living longer means being able to spend more time with important family and friends, we’ll likely need to plan for a longer retirement as well. Don’t overlook retirement, as it’s a pivotal and long phase in our lives. It’s essential to carefully think about how longer life expectancy will impact our retirement years.

As we transition into retirement, we experience shifts in our income sources, lifestyle changes, and the need for evolved financial management strategies. Recognizing your specific needs and staying on top of the latest advice are crucial steps in ensuring a worry-free financial future in retirement.

In this guide, we'll help you better prepare for the complexities of managing money in retirement. Our primary focus is to provide you with various helpful strategies to manage your retirement funds effectively. While not every suggestion may align perfectly with your individual circumstances, exploring a broad range of options is a valuable part of crafting a retirement plan that truly fits your unique situation.

Personalize your retirement plan with experienced Insightful Wealth advisors.

Common Retirement Income Sources

Before diving into management strategies, you must understand your potential income sources in retirement. These can include:

• Employer Pension Plan: A retirement savings program established and maintained by your employer to provide a future source of income for employees during retirement years.
• Canadian Pension Plan (CPP) or Employer Pension Plan: This is an essential, government-based income source that’s taxable and substitutes a portion of your earnings upon retirement. The amount is determined by the contributions deducted from your paychecks during your working years.
• Old Age Security (OAS): OAS is a government-funded program offering financial support to seniors.
• Guaranteed Income Supplement (GIS): Government-funded additional financial support for individuals under a certain income amount during retirement.
• Retirement Accounts: These accounts, such as RRSPs or similar savings tools, are essential for funding retirement.
• Personal Retirement Savings: Any savings outside formal retirement accounts—think TFSAs, personal bank accounts, or non-registered investment accounts.
• Ongoing Job Income: Some continue working while retired in some capacity, providing additional income.

Once you figure out which income sources apply to you, you’ll be able to understand your financial situation in retirement more clearly. Knowing your retirement income can also help you in creating a realistic budget.

It’s critical that you assess your income sources carefully to set a solid groundwork for your financial security in retirement!

Strategies for Managing Money in Retirement

1. The 70% Rule Doesn’t Always Apply

You’ve probably heard about the 70% rule if you've consulted a financial advisor before. This “rule” suggests retirees need about 70% of their annual pre-retirement income. While this is a helpful starting point, it certainly doesn’t apply to everyone—it’s crucial to consider your unique circumstances and lifestyle desires.

Most people think retirement means lower expenses—no more mortgage payments, child-rearing costs, or retirement savings contributions. If this sounds like you, you could be right, and you may not need 70% of your pre-retirement income.

However, after advising individuals for over twenty years, the Insightful Wealth team doesn’t find this a helpful guideline. In fact, many of our clients require an equal net income in retirement to what they were making while working. Think about costs you don’t have now but might have in retirement—more traveling, supporting your child in purchasing their first home, or increased healthcare.

It's important to understand that having a pre-retirement gross household income of $250,000 doesn't mean you must maintain the same gross income level in retirement, the income is often not equally split between spouses so equal to net pre-retirement income – what you get to your bank account each month – is more what you should be seeking. A skilled wealth advisor can guide you and your partner through efficient income splitting and tax-saving strategies to accomplish this.  Ultimately, with the right approach, you can achieve the same net income in retirement as before, even without the high gross income.

2. Consider a Long Retirement

As we mentioned, longer life expectancy due to modern medicine and healthier lifestyles means many can expect a longer retirement period—good news! Planning for these extra years is smart, ensuring your funds last and cover unexpected expenses.

Many people make the mistake of thinking that early retirement will be much more costly, and it’ll get cheaper as you get older. When you’re freshly retired, you want to spend lots of money and time travelling the world and enjoying your new freedoms. Unfortunately, it’s not guaranteed that after this period, your retirement costs will go down.

It may be hard to imagine now, but when you’re later in your retirement, expenses for healthcare, accessibility modifications to your home, or even long-term care facilities can be extremely expensive.

3. Remember Inflation!

Inflation refers to the rising cost of living over the years. Year after year, you may not feel the impacts of inflation; however, it can add up and negatively impact your retirement savings.

For instance, if your wealth management advisor outlines a strategy that leaves you with $1.5 million at 95, it might seem like too much. However, considering inflation, this amount may not stretch as far in the future as it would today. Plus, imagine if you live another 5 to 10 years beyond that!

Additionally, inflation can fluctuate significantly. For instance, the inflation rate stayed under 3% from 2013 to early 2021, and then between mid-2021 and mid-2022, Canadians saw inflation rise to as high as 8%!

Given the variable nature of inflation rates, making sure you integrate it into your financial planning is essential. For some people, delaying specific income streams, like annuities, may be wise until closer to 70 years old to counteract inflation's impact.

Talk to a professional advisor about your unique circumstances.

4. Withdraw From the “Right” Sources

Deciding how much to withdraw from each income source is a complex but crucial part of retirement planning. Factors like inflation, required minimum distributions (RMDs), and your expected lifespan all play into this decision.

Strategies like the 4% rule serve as guidelines. This “rule” references the strategy advisors suggest where retirees withdraw 4% of their retirement portfolio in the first year they retire, adjusting the amount for inflation each subsequent year. The goal is to ensure your savings last for at least 30 years.

Like other numerical suggestions, it’s essential to understand that this rule is just a guideline. It considers historical data to help retirees budget their retirement savings, so it’s a great starting point. But don’t stop there; talk to your wealth advisor to personalize your withdrawal rate based on your savings, other income sources, and desired lifestyle.

Another consideration is whether you should be prioritizing withdrawals from taxable accounts before tapping into tax-advantaged retirement accounts. In most situations, this can optimize your finances over the long term.

5. Continue Growing Your Money Through Retirement

Staying on top of your investments in retirement can help protect against inflation and ensure your money lasts. Planning a retirement portfolio that balances income generation with growth is key.

Products with guaranteed returns and annuities offer reliable income and peace of mind, especially during volatile market periods. Keep in mind an experienced wealth advising professional should also talk you through a variety of options, including.

Consult an Insightful Wealth advisor about the best investment options for retirement.

6. Work with Professionals

Navigating retirement finances can be complex. Working with a knowledgeable financial advisor can help you build and adapt your financial plan. Whether you are years away from retirement or already in it, professional guidance can be invaluable in preserving and growing your wealth.

Remember to learn about your wealth advisor before working with them. It’s essential to ask the right questions and ensure they’ll partner with you to create a bespoke financial plan based on your needs.

Start Planning for Early Retirement

Retirement planning is one of those things that's best tackled early, whether you're hitting your stride in a high-performing career or you're deep into running a business and looking after a family. The decisions you make now can really shape how comfortably you'll live later.

Keep in mind, there's no one-size-fits-all path to a cushy retirement. It's all about finding what works for you, getting the right advice when required, and crafting a plan that reflects your wants and needs. With intelligent planning and a bit of forward-thinking, you’ll be able to achieve a fulfilling retirement.

If you're finding it a bit overwhelming to juggle all your assets or unsure how to align your substantial investments with your future goals, our team at Insightful Wealth is here to guide you. We have years of experience working as one team to help each of our clients, focusing on taking a personal approach with everyone who walks through our door.

Think of us as an extension of your family, offering customized wealth management advice to set you up for a successful retirement. Set up a meeting with us today—let's make your retirement plan something to look forward to.

This article has been prepared by Raymond James Ltd. (“RJL”). It expresses the opinions of the writer, and not necessarily those of RJL. Statistics, factual data and other information are from sources believed to be reliable, but accuracy cannot be guaranteed. It is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. RJL, its officers, directors, employees and their families may from time to time invest in the securities discussed in this newsletter. It is intended for distribution only in those jurisdictions where RJL is registered as a dealer in securities. Distribution or dissemination of this newsletter in any other jurisdiction is strictly prohibited. This newsletter is not intended for nor should it be distributed to any person residing in the USA. Raymond James Limited is a Member Canadian Investor Protection Fund.

The information above is from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.