What price can you put on ‘flexibility’ when it comes to your money? Being able to make contributions, take withdrawals, adjust amounts, and alter investments, are all valuable components to good retirement planning. How can you set up your investment accounts to maximize the flexibility available to you as you enter retirement?
- Use The Younger Partner’s Age for Minimums.
Whether it’s a Life Income Fund (LIF), Retirement Income Fund (RIF) or any other registered income account, there is an age-based component in calculating your annual payments. When deciding on the minimum amount you must receive each year, you have some choice. You can base the calculation on your age OR you can base the calculation on your spouse’s age if they’re younger. The younger the person, the lower that minimum amount will be which gives you greater control over your income each year!
- “Unlock” Your LIFs
A LIF is simply an account type for paying an income stream out of former pension money. Normally, there are rules that cap the amount of income you can take in a year (based on age and value of the account). If your pension falls under Manitoba legislation, you may be entitled to “unlock” some or all of your pension, enabling you to dictate exactly how much income you want in a given year. I’ve written before about the process and recent legislation for unlocking pensions.
- Avoid Locking Your Money Away
For many of my clients, locking money away has historically been the habit that enabled them to save for the future. They’ve built a pattern of buying and re-investing in Guaranteed Investment Certificates (GICs) or investment contracts with Guaranteed Withdrawal Benefits (GWBs). These products rely on the investor to leave the funds untouched, for preset periods of time, in order to avoid penalties. When you’re retiring, not being able to access certain pools of money can be very detrimental to your income strategy if not executed properly. Be sure to review your portfolio and take note of products that restrict you from taking an income!
- Watch Out for Taxes When Trading Investments
“Capital Gains” are a form of taxable income that is only triggered when certain assets are sold for more than they cost. If you own Non-Registered investments as part of your retirement portfolio, and you make trades or switches on holdings with unrealized capital gains, you can wind up triggering an unexpected tax bill! You may not have put a penny in your pocket when you switched from Investment A to Investment B, but you may have generated a tax slip that will come due in the upcoming tax season. If you’re unsure about whether your retirement portfolio has looming capital gains, consult with a professional before you execute your transactions.
Being flexible with your retirement assets is a major component to being successful in this stage of your life. The power of choice, when it comes to money, gives you the control over how you will live your life. If you take the time going into retirement to build in flexibility, you’ll never be the one to say “sorry, I’m on a fixed income!”
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