By “plan,” I mean for you to explore what you want in retirement. What is it you really want to do? With retirement comes an almost blank slate, where you can design the life you want. You can either let your retirement years happen or you can be proactive and create a life of no regrets. You don’t have to have the perfect plan, because things will always change, but you do need a starting point. Every year, update your plan to keep the assumptions honest and to make changes as you see fit.
Start your plan by taking note of your current lifestyle and related expenses. Next, project these costs for the future to discover the truth about your money—what will your money do for you? Then, based on your projections, ask yourself: What are your possibilities? Once you know what’s possible, you can set some financial goals for the lifestyle you want. Now you have to set up a plan, to which financial advice can apply.
What to know about DC pension plan withdrawals
Now, let me give you a few general thoughts, which may or may not fit the plan you come up with.
The taxation and withdrawal rules on a defined contribution (DC) pension are the same whether you keep it where it is or move it to your own plan. Base your decision to move the DC plan on the investments available, costs and the advice provided by the financial institution holding your account.
Your retirement income needs to dictate when to start withdrawing from the DC account and your registered retirement savings plan (RRSP). No one knows how long they will live for, but most people accept the notion that they will slow down in their later years.
What can you withdraw from registered retirement savings accounts?
So, Beni, what do you think of this idea? Why not spend all of your RRSP money by age 80, and then as much as you can from your DC plan? The DC money will convert into a life income fund (LIF), and then you transfer 50% of that to your RRSP or your registered retirement income fund (RRIF).
If you spend all your RRSP/RRIF money by age 80, you will still have your Canada Pension Plan (CPP), Old Age Security (OAS) and pension income for a total income of about $80,000 a year in today’s dollars, plus the income from your LIF. And, you also have your home equity as a backup. Would an income of $80,000 at age 80 be enough for you?
Check to see if your pensions are indexed to inflation, and if there is a bridge benefit that drops off at age 65.