What is a Withdrawal Plan?

It is essential to properly plan the withdrawal of your various sources of income over time. Not only to have enough money throughout your retirement, but also because the order in which you withdraw your pensions or your savings has a significant impact on your income in the long term and on the taxes you will have to pay. Therefore, you need a good withdrawal plan. This plan could make you save a lot of money and ensure that you have enough for the rest of your life! Here is how to do it.

Determine how much money you will need

Determine how much money you will need and when, approximately, during your retirement. You need to assess the costs of the projects you want to take on and the standard of living you want to have.

It is therefore time, if you have not already done so, to make your budget for retirement . Yes, we are back to talking about budgets again! It is a reality check. If you planned to spend $35 000 per year but end up spending $40 000, your withdrawal plan will not work in the long run. It is better to take more time and evaluate it carefully so that your budget is as realistic as possible.

Assess your sources of income

Identify all your sources of available income, such as your income from the Old Age Security pension from the Government of Canada, the Québec Pension Plan, workplace pension plans, your savings, etc.

Assess when you could withdraw them, based on your needs. Carry out different scenarios to see if one is more advantageous than the other. You can use our CompuPension tool. You can also see the estimate, at different times, of your retirement pension under the Québec Pension Plan (QPP) on your Statement of Participation in My Account.

Try to reduce your income taxes

You can use tax measures, such as income splitting with your spouse and tax credits, and plan the withdrawals of your savings based on tax brackets to reduce the income on which you pay income taxes. A tax bracket is a list showing the amounts of income tax to be paid based on taxable income.

Plan the use of your savings

You must decide on the amount you will withdraw from each account and in what order. For example, you may choose to postpone the start of your pension under the QPP until age 65 in order to receive a higher pension for the rest of your life. You can then plan to withdraw from your registered retirement savings plan (RRSP) during the first few years of your retirement, when your taxable income will be lower. Do not hesitate to seek advice!

Review your investor profile

As you approach retirement, review your investor profile . You determined how much you will spend and at what time you plan to do so. You must therefore adapt your investor profile accordingly. You could be more cautious with the savings you will spend in the next few years and less cautious with those you will spend in 10 years, for example. It is often preferable to have a portion of your long-term investments in the stock market to protect yourself from inflation. If your returns are poor and you often withdraw money from your savings, your capital will decrease, and it may take longer to recover the lost amounts.

Adjust your placement portfolio

Make sure you have enough money available for the first few years of your retirement. How? You could invest money into fixed-income investments, such as a guaranteed investment certificate or bonds. Your investments may each end one year after the other. That way, your investments will grow in value and your money will be available when you need it. However, you should keep in mind that retirement can sometimes last almost as long as your working life. This could be around 30 years! It is therefore important to think long term and protect your purchasing power by choosing investments that yield more than the increase in the cost of living.

Review your plan each year

Your plan must be reviewed each year and whenever you go through a major life event such as a separation, the death of a loved one or a serious illness. This will allow you to take into account changes in tax rules, financial market performance, and your needs.

If you are in a relationship, even though this may be a sensitive and delicate subject, it is important to consider the consequences of your death on your spouse, and vice versa. This is another aspect of planning in itself!

Do you find it complicated? It is normal. Consult a financial planner. It will definitely be a worthwhile investment! You can also view examples of withdrawal plans  (French only) on ÉducÉpargne's website.