How to pay yourself in retirement

 

One of the first things to consider when planning for retirement is where your income will come from after your pay cheques stop. It’s time to start thinking about how you’re going to pay yourself and creating a “custom pay cheque” is a good way to begin. First, you should take inventory of your potential income sources, then it’s about finding the best way to manage these sources to maximize your cash flow.

 

Identify your sources of income

 

During your working years, you’ll likely receive income from one or both of these sources:

• a pay cheque from your employer
• interest or capital gains from your non-registered investments (such as mutual funds or rental income)

Once you’ve transitioned into retirement, your income will probably get a bit more complicated because you may need to coordinate money coming from a variety of sources, such as Old Age Security ( OAS ), Canada Pension Plan ( CPP ), Employer Pension Plans, Registered Retirement Plans and other personal savings and investments.

 

Managing these sources of income

 

Organizing your income sources in retirement typically starts by considering the most inflexible income sources first. Since you have less control over your CPP, OAS or pension plan payments, there are fewer tax-planning options for those types of income.

 

One of the key decisions to make is when to start taking payments from your pension plans. Typically you’ll receive less income from CPP and pension plans with your employer when you start taking payments earlier. But depending on the details of your situation, that might still be the right choice. Alternatively, if you’re less worried about cash flow at the start of your retirement, you may think about delaying these payments to provide a larger income down the road