“Life,” philosopher Albert Camus contended, “is the sum of all your choices.”

Good or bad. Easy or hard. Right or wrong. Every choice you make will impact your life to some degree. Choices with little impact are often made without much thought. The problem is that we often take this casual approach to decision-making when making bigger, more impactful choices.

As a Retirement Income Specialist, I see poorly made choices all the time. Unfortunately, these choices tend to be life-altering and irreversible.

The Retirement Risk Zone

The 10 years leading up to retirement and the ten years immediately following retirement are filled with critical choices that can create turning points in your life. This is the ‘Retirement Risk Zone’.

During this period, the number and frequency of tough and important choices to be made are many and the implications of poor choices intensify, as both time and flexibility have turned from friend to foe. Over this nearly two-decade period, you must adapt your thinking to a new reality:

Strategies that served you well during your savings years can start to do more harm than good.  Effective saving strategies are not the same as effective withdrawal strategies.

Big Retirement Risk Zone Choices

Last 10 years of accumulation (Saving)

  • How much longer should I choose to work?
  • How much more should I choose to save?
  • Where should I choose to direct the final top-ups of my savings?
  • How much more should I choose to put in my RRSP?
  • Should I choose to follow a “work optional” approach?
  • What role will my home equity play? Do I choose to downsize and if so when?

First 10 years of drawdown (Spending)

  • When should I start to collect my Canada Pension Plan / my Old Age Security?
  • How soon should I convert my RRSP to a RRIF?
  • Can I afford to support my chosen  lifestyle or do I risk outliving my money?
  • Do I have the right money management strategy? Should it be changed?
  • Can I still help family with financial support?  How much?
  • In what order should I make withdrawals from my savings?  At what rate?

The Implications of mistakes in the Retirement Risk Zone

  1. Miss thousands of extra dollars of annual income from benefits like CPP and OAS
    The best choices depends on more that just mathematical calculations.
  2. Pay much higher taxes
    The wrong withdrawal strategy today can lead to much higher taxes later. Avoiding some taxes in the shorter can lead to paying much more in taxes over the long term.
  3. Lose your nest egg
    In your savings years you could absorb the risk of market downturns through dollar cost averaging. When you start decumulating though dollar cost averaging can cause your savings to disappear far faster than anticipated. If your money management strategy doesn’t take this into account, you could lose your savings can disappear far faster than you ever anticipated.
  4. Be left in or leave your spouse in a tough spot if health issues arise
    Like it or not married couples enjoy tax benefits not available to individuals. What can look like a solid retirement plan for two can turn to a big win for the tax man if one partner passes significantly sooner than expected.

The bottom line?

Successful passage from the first half of life to the second half of life depends on how well you manage your choices through the retirement risk zone. A financial planner who specializes in decumulation stratgies should be able to help.

Your life and your finances are complex, don't accept simple answers like "you can sustain an after tax income $X per year".  You are not average, neither is your life, embrace variablity - more on variablity in my next post.


Doug Dahmer

21 June 2019