Retirement — when pensions replace salaries, RRSPs become RRIFs, and you begin to worry your golden years will be spent figuring out how to spend your nest egg. Here are some tips to help.

 

How can you replace the steady cash flow of a salary?

 

Before retirement, you may be paid bi-weekly or monthly for your services, and you address the mound of bills on your kitchen table. After you retire, passive income and government benefits trickle in only monthly, quarterly or even annually. The reality: bills don’t care that your dividends come once a quarter. Fortunately, there are several ways to smooth your cash flow in retirement:

 

· Consider life annuities, which provide guaranteed income payments for the rest of your life and can be paid out monthly.

 

· Create a comprehensive financial plan that budgets your cash needs and determines a reasonable reserve for any intra-month or unexpected expenses.

 

· Ladder your dividends to provide smooth income.

 

· Schedule withdrawals from your RRIF, TFSA, non-registered accounts, etc. to replicate a regular paycheck.

 

Which account should you withdraw from first?

 

An effective withdrawal strategy is unique to you and considers your age, other sources of income, asset allocation and tax minimization. That said, there are rules of thumb that can help:

 

· Withdraw from the least flexible sources of income first (e.g. locked-in plans)

 

· Draw down on assets that trigger the least amount of taxation and maintain your registered accounts that can continue to grow on a tax-deferred basis

 

How are your investments spent once you’re gone?

 

When the day comes, there’s a question we all ask: how can I take care of my family and legacy with my remaining assets in a tax-efficient way? If you have a spouse, it’s easy. Most assets that aren’t already jointly owned can roll over to your partner on a tax-deferred basis. But when transferring assets to your children or other beneficiaries, it gets more complicated. At death, there is a “deemed disposition” of all your assets. In other words, the CRA treats our investments as if our last words were “cash out my RRSP and sell the house.” Any accounts held on a tax-deferred basis – RRSP, LIRA, RRIF, etc. – are fully taxable, while investments in non-registered accounts and assets like your home are treated as if they are sold at fair market value, triggering capital gains and losses.

 

As intimidating as wealth transfer can be, there are many strategies to minimize estate taxes. It starts with an estate plan, which can include using insurance to create tax-free benefits, gifting assets to family while you’re alive, or donating investments to registered charities.