Retirement Planning During Difficult Times: Reducing Demands on Portfolios

Having a financial plan can provide a clearer picture of how these changes may impact your current and future financial position. Our/My clients often find that it may provide comfort during difficult times. For some, it may prompt shorter-term adjustments, such as temporarily delaying retirement or re-evaluating spending habits.

While it’s never easy to see portfolio values under pressure, we expect the markets to eventually resume their upward climb. This is why it’s important to leave funds within a portfolio where possible to allow
values to recover. There may be strategies that can help reduce demands on a portfolio.

In brief, here are some thoughts, noting that individual situations vary depending on factors such as income sources, taxation rates, lifestyle considerations and more:

Evaluate your liquid inflows — Having an understanding of your liquid assets is important, including income you receive through government benefits and employer pensions, as this may be sufficient to meet your living expenses. For many, delaying government benefits like the Canada Pension Plan (CPP) makes good financial sense, especially for those who have longevity on their side. However, some may need these benefits to support lifestyle needs. Others may pick up part-time work to generate income, shorten a retirement time horizon and increase a retirement portfolio by allowing a longer period of compounding for existing funds or through additional contributions.

Review your spending — Due to inflation, money doesn’t go as far as it used to, especially for essential goods like food and gas. A budget may identify opportunities to reduce non-essential expenses and potentially reduce the need for income. While a general rule of thumb used in the investing industry has been a four percent withdrawal rate for retirement, at the onset of retirement this may be high. Spending can change dramatically over a retirement life cycle and depends on many factors, and maintaining a budget can help to provide a clearer picture of income and capital needed at any particular time.

Consider your asset allocation and the differing tax rates on types of income — When producing retirement income from a non-registered portfolio, it is important to recognize the differing income tax rates on interest, capital gains and dividends. Interest paid on fixed- income investments like guaranteed investment certificates (GICs) is taxed at a higher marginal rate than capital gains and Canadian eligible dividends.

A non-registered portfolio weighted toward income that generates primarily eligible dividends and capital gains will generally produce a higher after-tax income compared to a portfolio more heavily weighted in fixed-income products.

Consider the sources of withdrawal and the impact on taxes —Withdrawing from investment accounts has the potential to trigger taxes. In addition to required withdrawals from a Registered Retirement Income Fund, this may put you in a higher marginal tax bracket. As such, you may consider withdrawing from non-taxable sources, such as the Tax-Free Savings Account. If you are turning to taxable assets, it may be beneficial to take advantage of tax-loss selling, as 50 percent of a capital loss can be used to offset taxable capital gains.

Or, there may be benefit in selling assets with the highest cost basis first, then moving to assets where the cost basis is lower to reduce a potential tax hit. This isn’t always the best choice, especially when considering lifetime tax optimization; if you expect to be in a higher marginal tax rate in future years, this may impact your decision.

As always, I am here to provide support. If you require assistance with this, or other investing matters, please don’t hesitate to reach out.

The information contained herein has been provided for information purposes only. Graphs, charts and other numbers are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information has been provided by J. Hirasawa & Associates and is drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. This does not constitute a recommendation or solicitation to buy or sell securities of any kind. Market conditions may change which may impact the information contained in this document. Wellington-Altus Private Wealth Inc. (WAPW) and the authors do not guarantee the accuracy or completeness of the information contained herein, nor does WAPW, nor the authors, assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Before acting on any of the above, please contact me for individual financial advice based on your personal circumstances. WAPW is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. © 2023, Wellington-Altus Private Wealth Inc. ALL RIGHTS RESERVED. NO USE OR REPRODUCTION WITHOUT PERMISSION.

https://advisor.wellington-altus.ca/kachurwealthmanagement/

by Cole Kachur

Retirement Planning During Difficult Times: Reducing Demands on Portfolios

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