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Kevin Greenard: Breaking down the stages of retirement

The levels of retirement that we see correspond directly to the performance of the stock market. When returns exceed projections in a financial plan, many people speed up their plans for retirement.
Kevin Greenard

The levels of retirement that we see correspond directly to the performance of the stock market. When returns exceed projections in a financial plan, many people speed up their plans for retirement. During these times we see an influx of individuals finalizing their retirement plans and looking to retire sooner. However, it is worth slowing the process down to map out how the next 30 years will look.

It may be a daunting task to plan the next 30 years of your life in retirement. By planning we are really looking at how you see everything in retirement unfolding and then looking at the associated costs of the things you need and want. Breaking this 30-year period into three decades is perhaps more manageable.

Let’s refer to the first 10 years as the Early Retirement Years (ERY). The second 10-year period will be referred to as the Middle Retirement Years (MRY). The last 10 years of retirement will be referred to as the Final Retirement Years (FRY).

Early Retirement Years

Before you enter the Early Retirement Years, it is useful for you and your spouse (if applicable) to have a clear understanding of the costs of the things you need. These should be the amounts that are clearly outlined in your financial plan.

Ideally in your Pre-Retirement Years (PRY), before the ERY starts, you should also look at the things that you want in the future. Putting plans down on paper really helps map out options and the associated costs of each decision. One couple may want to purchase a sailboat of their dreams. Another couple may want to purchase a motorhome and explore North America. Possibly flying to a warmer climate every winter or travelling the world is the agenda.

Planning the first 10 years of your retirement before it begins will better ensure you focus your resources in the best areas and that you make the most of your time. Once options are discussed then it is easier to communicate this to your Portfolio Manager and determine the cash required for the things you want to do. Again, this is different from the things you need. Before, and during, retirement it is important to let your Portfolio Manager know what cash you require for both the things you need and the things you want.

As a rule of thumb, you will spend more money on an annual basis in the ERY than the MRY. The reason for this is that you may have capital purchases and more expensive plans during this period. This is the period in which most people have good health and the desire to do things.

This period has lots of changes, including beginning to receive Canada Pension Plan (CPP), Old Age Security (OAS), and other pension income. You may find that you want to volunteer or work part-time or spend time with new grandchildren. Certainly, you will likely have to adjust to spending more time with your spouse. Developing new interests, hobbies, and friendships are important, especially if you’re planning to spend your retirement close to home.

Middle Retirement Years

The MRY are generally the decade with more stable cash flows when compared to both the ERY and FRY. By this time, you have a clearer understanding of your cash in-flows and out-flows. During this period, you will be required to convert your Registered Retirement Saving Plan (RRSP) to a Registered Retirement Income Fund (RRIF).

We also advise during the MRY that you should ensure that all your legal documents are in place (powers of attorney, representation agreement, and updated will). This is important to be done when you have your health and have the capacity to make decisions. It is during the MRY where you may sell your personal residence or begin thinking about selling it. The decision about whether to sell your personal residence during the later part of this stage is often linked to your health.

Final Retirement Years

The FRY are generally the toughest to plan prior to when your retirement begins. Depending on your life expectancy, the FRY may be shorter or longer. Medical advancements mean people are living longer. It is very realistic for some people to be in retirement for as long, or longer, than they have worked.

Retirement plans should factor in your family health history, lifestyle, and retirement date. Actuarial studies have proven that the earlier you may retire, the longer your life expectancy. Your Portfolio Manager can calculate the required savings given a life expectancy date, along with other assumptions like inflation and rates of returns. The required savings numbers vary considerably when looking at different life expectancies. A useful first step is to run the numbers at five-year increments, such as age 80, 85, 90, 95, and 100.

Generally during this stage, the costs budgeted into the retirement plan are mostly associated with the things you need. Other factors to consider include where you want to live as you age. It is more in the late MRY where you will begin thinking in greater detail about this.

Some people may have a home that is easily accessible and suitable for growing old in. Others may look at other options including: modifying/renovating home, buying another home with lower maintenance, renting, or moving into an assisted living arrangement. Provided you have a home that is fully paid for, the equity that you have built up in your home should cover the costs associated with the Final Retirement Years. I’ve seen many creative ideas, such as building a suite in a home to have a caregiver, or family member, live in the home for assistance.

Where to get started

1. Break retirement planning into the bite-sized pieces with your ERY, MRY and FRY. While in your Pre-Retirement Years (PRY) set out what you envision yourself doing and achieving in each of those retirement periods and work towards retirement savings that will allow for that. Planning for thirty years in retirement in 10-year increments will help you prepare for all three stages and budget the associated financial costs of each.

2. Plan early. For many people it makes sense to start working on a retirement plan well in advance. One of the most important things to consider is what your lifestyle will look like in retirement and the necessary cash flow requirements to make it happen.

3. Factor inflation into your plan. Changes in inflation rates should be monitored and can significantly affect your purchasing power and standard of living in retirement. To illustrate, here’s an example of the impact different inflation rates have on $1,000 over 20 years:

Annual Inflation Rate

Value Today

Value in 5 Years in today’s $

Value in

10 Years in today’s $

Value in

15 Years in today’s $

Value in

20 Years in today’s $































4. Be conservative. When helping our clients plan for retirement, we purposely use a low return assumption. If you know you can comfortably retire based on a low return assumption you will have peace of mind that you won’t be in a situation where your actual returns are less than expected and you are facing a shortfall.

5. Determine what your annual income will be. Annual income may come from savings, investments, property income, government retirement benefits and employer pensions. Plan how those funds will be depleted over your retirement years. A cash flow/retirement income analysis can give you a clear indication of what your cash flow will look like, and you can adjust your lifestyle or income strategy if necessary.

6. Work out your pension income. If you will be receiving income from a company pension, determine when you will begin collecting your benefits and the amount you are entitled to receive. Confirm how much you can expect to receive through the CPP and OAS. You can then make a more informed decision on when to begin collecting your government pension, as it may be beneficial for you to defer receiving CPP or OAS to increase your future payments.

7. Split with your spouse. If one spouse has a lower marginal tax rate, splitting eligible pension income could potentially lower the overall household tax bill and reduce “clawbacks” of both OAS benefits and the “Age Amount” tax credit for the higher-income spouse.

Also, if you will earn more income than your spouse and have available RRSP contribution room while your spouse is 71 years of age or younger, you may be able to make a spousal contribution to their RRSP. This would generate a tax deduction for the contributor and the RRSP withdrawals will be taxed at a lower marginal tax rate for the spouse when the funds are pulled out in the future.

8. Be strategic with your RRSP. As our clients approach retirement we have a discussion with them regarding the three strategic options for converting their RRSP to a RRIF.

The first is the regulatory option: your RRSP must be converted to a RRIF (or annuity, or withdrawn in a lump-sum which we never recommend) in the year you turn 71.

The second is the cash flow option whereby you will require cash flow from your RRIF account before you reach age 71, so need to convert it sooner.

The third is our preferred method, which is to do what makes the most sense tax-wise over your lifetime. What we mean by this is for some people it may make sense to defer taking funds out of their RRSP/RRIF (cash flow permitting) for as long as possible. These individuals will leave the funds in their RRSP until age 71.

For other people, it may make sense to begin withdrawing funds sooner than age 71, rather than later, to spread out the tax burden over as long a period of time as possible. The third option has the end goal of paying less tax over your lifetime and leaving a larger estate.

9. Don’t forget about Tax-Free Savings Accounts (TFSA). The TFSA grows completely tax free – all dividends and capital gains are not taxed, and you can pull the money out tax-free at any time. Additionally, federal income-tested benefits (such as the OAS repayment threshold) are not affected by TFSA withdrawals.

10. You can never be too prepared. The French Author Antoine de Saint-Exupéry said “a goal without a plan is just a wish.” Take action and speak to your Portfolio Manager about turning your retirement dreams and wishes into a formalized financial plan. Planning effectively means you can enjoy your retirement with greater peace of mind, doing all the things that will be most important to you.

Kevin Greenard CPA CA FMA CFP CIM is a Portfolio Manager and Director, Wealth Management, with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at Call 250-389-2138, email or visit